February 5, 2018

Fix the Farm Bill

Michael Farren

Research Fellow, Study of American Capitalism

Last month U.S. Department of Agriculture Secretary Sonny Perdue released the USDA's "Farm Bill and Legislative Principles," intended as a roadmap for Congress as it considers the next Farm Bill. Secretary Perdue's motto is "Do Right and Feed Everyone," but given the bill's sorry state, perhaps it should be "Do Right and Avoid Subsidies."

The history of the Farm Bill is rife with behind-the-scenes cronyism serving special interest groups. This means, counterintuitively, that it benefits the largest farms rather than protecting small, vulnerable farmers from weather, crop disease or pests. Twenty-five percent of USDA agricultural subsidies from 1994 through 2014 went to the largest 1 percent of farms.

Mercatus Center research by Purdue University agricultural economics professor Jayson Lusk describes how the USDA's mission has grown far beyond its original intent when signed into law by President Lincoln. The initial purpose was simply to distribute agricultural information and to procure and distribute foreign seeds. This radically changed during the Great Depression after the original Farm Bill – the Agricultural Adjustment Act of 1933 – led to a steady expansion of the USDA's role.

USDA-administered programs have grown to such an extent that the 2014 Farm Bill was expected to cost over $95 billion annually – 2 percent of all federal spending. Seventy-five billion goes to food stamps and nutrition programs, and $20 billion to farm programs. That means that we pay enough in farm subsidies to build a brand-new aircraft carrier strike group every single year. In fact, if we redirected agricultural subsidies to Navy shipbuilding, we could pay the entire cost of increasing the fleet to 308 ships over the next 30 years.

But spending is only the tip of the iceberg – Farm Bill inequity is equally troubling.

Lusk finds that larger farms are more likely to receive government payments, get larger payments and collect payments from multiple programs. In fact, 90 percent of subsidies go to the largest 20 percent of farms.

That should seem odd. Farm programs are supposed to be an agricultural safety net, and larger farms should be less vulnerable to unforeseen misfortune – they can diversify their products, access credit more easily and enjoy the efficiencies of economies of scale.

Economist Vincent Smith of Montana State University has also found that large farms benefit more from agricultural programs. He suggests farm subsidies could be reduced by $9–10 billion per year – by half – without harming agricultural production. Cutting taxpayer handouts to wealthy farm households should encourage those farmers to be more efficient and productive, rather than depending on government assistance.

The 2014 Farm Bill did include some reforms and spending cuts, but it also expanded crop insurance subsidies. Smith's most recent research suggests that there is no economic justification for the crop insurance program. The sleight-of-hand to switch from one kind of subsidy to another is further evidence of how agricultural policy is steered by special interest groups.

This illustrates the biggest problem of all with the Farm Bill – corruption.

Research by University of Georgia economist Levi Russell, released last week, looks at the relationship between agricultural and environmental political action committee campaign donations and politicians' votes on the 2014 Farm Bill. He concludes that donations influenced the votes of politicians who may have been on the fence.

Russell's findings confirm previous research by my colleague Matthew Mitchell. Legislators who voted for the 2014 Farm Bill received up to three times the amount of campaign donations from agribusiness PACs than legislators who voted against it. During the three months that Congress debated the legislation, agribusiness PAC donations spiked by 40 percent.

It's a textbook example of "government failure." Rather than solving agricultural problems, the Farm Bill artificially, arbitrarily and harmfully distorts a beneficial exchange of goods and services. Instead, we get political gamesmanship controlled by special interests who pay for access to politicians using the excess profits they've earned from their government-granted privilege.

There's at least some hope for the 2018 Farm Bill. President Trump has called for a 20 percent reduction in farm program spending, potentially creating almost $50 billion in savings over the next 10 years. Agribusiness special interest groups are sure to fight this, just as they fought President Obama's proposed 16 percent cut.

But we should remember that $5 billion in cuts is barely 1 percent of the agriculture industry's $400 billion in annual revenue. Nor is it likely to increase food prices, most of which are attributable to the cost of processing, transportation, and marketing. The cost of wheat in a loaf of bread only accounts for about 6 percent of the supermarket price.

Previous USDA Secretary J. Sterling Morton – the founder of Arbor Day – refused to acquiesce to demands for subsidies from sugar beet farmers, saying this: "Those who raise corn should not be taxed to encourage those who desire to raise beets. The power to tax was never vested in the Government for the purpose of building up one class at the expense of the other classes."

Hopefully, Congress and Secretary Perdue take that advice.