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First, the good news. When it comes to farm subsidies, the Agriculture Improvement Act of 2018 — released last week by Senate Agriculture Committee Chairman Pat Roberts (R-KS) and Ranking Member Debbie Stabenow (D-MI) — is likely to be measurably less costly than the provisions in the House Agriculture Committee’s bill. Unlike the House version, this Senate bill makes no attempt to expand the amount of subsidies large farms can receive from the major direct subsidy programs, known as price loss coverage and agricultural risk coverage.
These two programs, originally estimated to involve annual outlays of about $3.6 billion, are actually costing taxpayers an average of over $6 billion a year, a 75% cost overrun. CBO estimates indicate that the House bill provision to expand the number of individuals per farm eligible for an additional per person payment of $125,000 per year would cost taxpayers $2.5 billion over the next ten years, primarily benefiting large agribusinesses.
Further, Senator Chuck Grassley (R-IA), a long standing and influential member of the Senate Agriculture Committee, stated he intends to propose an amendment during Wednesday’s committee mark-up to reduce the number of individuals eligible for subsidy payments. Under Senator Grassley’s proposed plan, only those individuals who actually do farm work would count as eligible for subsidies. Currently, eligibility is quite loose — individuals who are notionally engaged in farm management decisions via an annual conference call or analogous and equally unverifiable interactions about a farm’s management qualify for subsidies. Kudos to Senator Grassley for championing an idea that would save significant taxpayer funds by curbing the hundreds of thousands of federal subsidy dollars that very large, financially successful farm businesses receive every year.
Now for the bad news. When it comes to farm subsidies, the Senate bill is in fact a “stay the course” legislative initiative. About $14 billion in subsidy payments will continue to flow mainly to large agribusiness farms through the price loss coverage and agricultural risk coverage programs. Close to 70% of all of those subsidies will be given to the largest 10% of farm operations. About 70% of all of the subsidies will go to farm businesses producing corn, soybeans and wheat. When payments to cotton, peanuts, and rice growers are included, that group of six crops accounts for 94% of all major subsidy program payments. Peanut growers, for example, will continue to get an annual farm subsidy check averaging around $340 an acre and cotton producers in areas like North Texas and Georgia will likely continue to rake in more than $100 an acre in government payments every year.
If farm subsidy payments were targeted to families in genuine need, there might be some reason to believe they should be continued. But the simple fact is that the majority of farm subsidy payments flow to financially sound and successful agribusinesses not in need of a helping hand. The current average debt to asset ratio is reported by USDA to be 12.6% — slightly lower than in 2017, notwithstanding claims by many farm interest groups and farm state legislators that “agriculture is in trouble.” And in the agricultural sector as a whole, the sector’s net cash income is at or even above its long run average, although lower than in 2012 and 2013 when the sector enjoyed thirty-year record prices and incomes.
Several members of the Senate have proposed amendments that would make modest changes to the direct subsidy and crop insurance programs, such as lower caps on total price loss coverage and agricultural risk coverage payments to farms, small reductions in crop insurance premium rates, and tighter restrictions on access to any farm subsidies for households with very high incomes that would prevent high end millionaires and billionaires from eating farm subsidy lunches at the taxpayers’ expense. Hopefully, in the mark-up process and eventually the senate floor, senators will be able to debate and consider these cost-saving ideas.
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