How agriculture subsidies are hurting farmers, taxpayers

If America is really serious about “draining the swamp” in Washington, then removing harmful policies and rent-seeking behaviors upon which corporate welfare and cronyism are built should be a high priority for Congress. Such policies include the numerous, costly subsidy programs that go toward agriculture. Here’s why.

First, despite what many will claim, subsidies for agriculture fall into the same kind of unfair, unequal policies that help “rig the system” when government tries to pick winners. According to agricultural economist Vince Smith, “The largest 15 percent of farm operations and the richest farmers and landowners, with incomes and wealth that are many times the national average, receive over 85 percent of all farm subsidies.” Professor Brian Wright of the University of California, Berkley notes that only 4 percent of U.S. farms produce two-thirds of all agricultural sales. 

{mosads}The notion, then, that these subsidies help small family farms and protect a vital, but vulnerable industry is an outdated myth. Risk is inherent for any business: Should big agriculture really be treated differently? Moreover, policies that favor specific industries like farming—or crops like peanuts, or corn—contribute to a two-tiered society in which the well-connected and wealthy benefit at the expense of everyone else. This is bad for all Americans, as it holds back innovation and penalizes competitors who don’t have political influence.

Second, these policies drive up the cost of some foods for Americans and harm opportunity for American workers.

Take the U.S. sugar program, for example. It props up prices with special loans and controls supply with marketing allotments and strict import quotas. The U.S. Department of Agriculture is also required to buy up excess sugar and sell it to biofuel refineries at taxpayer-discounted prices. As a result, American consumers’ sugar prices are double that of the rest of the world. Additionally, high prices kill jobs in domestic sugar-using industries while the benefits go to a limited number of sugar producers.

Price and supply manipulations aren’t unique to sugar. In August, the USDA bought up millions of dollars’ worth of cheese under authorization from Section 32 of the 1935 farm bill. It also bought $13 million worth of wild blueberries, $27.5 million of cranberry concentrate, and $11.7 million of eggs. Government purchases are intended to prop up prices and remove “excess” supply, but they do so to the detriment of U.S. consumers and taxpayers.

Finally, subsidies and other types of political agricultural planning harm the country by incentivizing farmers to plant crops that are subsidized, mandated, or both, rather than crops that make sense for their land. Subsidies also lessen incentives for farmers to manage risk through traditional, beneficial practices like rotating crops. Subsidies, including subsidized crop insurance, further incentivize planting on sensitive land like marshlands. Often, this requires more fertilizer and pesticides, which harm water quality. The rush to farm corn for ethanol has been particularly harmful in the Gulf of Mexico. Subsidies also crowd out private risk insurance. 

Many will say rolling back subsidies and other top-down farm production policies will cause irrevocable harm to U.S. agriculture and food supply. This is incorrect. Free markets are best suited to a robust, diverse and innovative agriculture sector. When New Zealand faced a major budget crisis in the mid-1980s, lawmakers rolled back nearly all agriculture subsidies in response. New Zealand’s freer, market-based agricultural sector is now one of the most vibrant and productive in the world. Moreover, without distortionary policies, environmental quality also improved.

Recent U.S. attempts to address the problem have not succeeded. In the 2014 farm bill, Congress eliminated direct payments that subsidized farmers who grew certain crops like corn, wheat and rice. However, those payments were replaced with new subsidies for crop insurance that would supposedly save taxpayers billions of dollars. Far from being a safety net for unforeseen, deep losses, though, these new programs protect farmers from almost all revenue losses while at the same time subsidizing insurance firms. Unsurprisingly, new subsidy costs have swelled by 50 percent, and they are now projected to cost billions.

Like all reform efforts in Washington, tackling the problems with agriculture policy won’t be easy. But, as New Zealand’s experience shows, reforms will not devastate agriculture. If Congress wants to help agriculture, the best thing it can do is free farmers from government interference. Farmers, consumers, and taxpayers will all be better off for it.

Alison Acosta Winters is managing director of research and policy at the Charles Koch Institute.

The views expressed by authors are their own and not the views of The Hill.


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