New farm bill subsidy could cost more than existing program, study warns


AEI economists Vince Smith, Bruce Babcock and Barry Goodwin are warning that CBO is assuming current high commodity prices and that if prices take a sudden downturn, the taxpayer will be on the book.

CBO says the Stabenow-Roberts program would cost $2.6 billion per year. But the new study says that if crop prices return to average prices in the last decade, the costs could balloon to as much as $7.5 billion per year, depending on how farmers opt to use the system. Farmers can choose a per-farm baseline or a per-county baseline.

“Essentially, shallow-loss programs (including and perhaps especially the SR proposal) create a new entitlement situation for farmers that could cost taxpayers much more than the Direct Payments Program they would supplant,” the report states.

“Shallow-loss programs based on farm yields substantially increase the incentives for risky behavior because they further reduce the amount of hazard farmers face. Thus, from any rational policy perspective, farm-based shallow- loss programs are a bad idea,” it adds. “Although county-based shallow-loss programs do not have all the moral hazard problems associated with farm-based programs, they are likely to be extremely costly if commodity prices decline and will distort production decisions if they are based on planted acres.”