Slash farming 'welfare'

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The current Farm Bill costs taxpayers about $20 billion a year in farm-oriented conservation and straightforward subsidy programs, of which $2.5 billion goes to private crop insurance companies. About 80 percent of the rest flows to the largest 15 percent of U.S. farms, whose owners are typically more than ten times wealthier than the average U.S. household.

If prices for major crops like corn and wheat moderate towards their long run trends, the Senate and House proposals for a new farm bill will substantially increase the federal subsidies that flow mainly to very wealthy farmers. The new programs, which all potentially violate U.S. trade commitments, would cover “shallow losses” and one of those would also substantially increase federal payments to insurance companies.

So what should happen in a new farm bill? The current “welfare for doing nothing” Direct Payments program and a related shallow loss program known as ACRE should be terminated, reducing the budget deficit about $5 billion a year. Crop insurance subsidies should be rolled back to pre-2001 levels (when farmers paid about 50 percent of the full cost of their crop insurance) and capped at $40,000 per farm, saving about $3 billion a year.

One area where spending clearly needs to be increased, by about $1.5 billion a year, is on publicly performed agricultural research, which has very substantial payoffs for U.S. consumers and farmers, and agricultural productivity throughout the world.

Implementing these reforms, with no cuts to nutrition programs, would reduce  farm bill spending by about $5 billion a year ($50 billion over ten years), 25 percent more than the nutrition program cuts currently included in the House Farm Bill proposal. Such changes would also be fairer, and increase the competitiveness of U.S. farmers in global markets.

Vincent H. Smith is a professor of economics at the Department of Agricultural Economics, Montana State University.


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About the Author

 

Vincent H.
Smith
  • Vincent H. Smith is Professor of Economics in the Department of Agricultural Economics and Economics at Montana State University and co-director of MSU’s Agricultural Marketing Policy Center. He received his Ph.D. from North Carolina State University in 1987 and his bachelor’s and master’s degrees from the University of Manchester in 1970 and 1971. Dr. Smith’s current research program examines agricultural trade and domestic policy issues, with a particular focus on agricultural insurance, agricultural science policy, domestic and world commodity markets, risk management, and agricultural trade policy. He has authored nine books and monographs and published over 100 articles on agricultural and other policy and economic issues. His work has been recognized nationally through multiple national awards for outstanding research programs. In 2008, he became a Distinguished Scholar of the Western Agricultural Economics Association. Currently he is a Visiting AEI Scholar and co-director of AEI’s agricultural policy initiative. Dr. Smith is married and he and his wife, Laura, have two children, Karen and Meredith.
  • Email: uaevs@montana.edu
  • Assistant Info

    Name: Neil McCray
    Phone: 2028625826
    Email: neil.mccray@aei.org

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