Barring some unforeseen outbreak of economic literacy on Capitol Hill, the farm bill is about to become law. As I’ve indicated in my recent essay onfarm policy, this is a shame for the American consumer and for the American taxpayer.
But it is, as they say, a teachable moment.
Here are nine figures to help make sense of U.S. agricultural policy:
1. Spending on Subsidies Ratcheted up in the 2000s.
Let’s begin with farm subsidy outlays. These are the most conspicuous privileges afforded farmers. As Veronique de Rugy’s figure below shows, these were around $13 billion per year in the late ‘90s, then surged up to $28 billion in 2000, then settled into annual levels that were about twice their pre-surge level (readers of Robert Higgs will recognize this as a “ratchet” pattern in government growth).
2. Farm Bill Spending is Often Underestimated
The last bar in the chart above shows projected subsidies of about $29 billion in 2014. Another of Vero’s charts, however, suggests that this figure may be optimistic. The chart below shows projected and actual farm bill spending for the last couple farm bills (note: these figures include the entire bill not just subsidies, which is why the numbers are so much larger than those in the previous chart).
3. Agribusiness Benefits from More than Subsidies
Though subsidies are the most conspicuous privilege afforded to farmers they are by no means the only or even the most important. In addition to cash outlays, farmers also benefit from an assortment of trade barriers (some of which have gotten the U.S. into trouble with the WTO), various marketing programs, and artificial price supports. My chart from last week shows how active farm assistance programs have grown over the years (along with farmer income):
4. Consumers Lose from Price Supports
Sometimes you will hear an agribusiness lobbyist claim that his or her particular commodity receives no taxpayer subsidy. This may very well be true because a great deal of the privileges afforded to the industry take the form of price supports that are paid by consumers rather than by taxpayers.
The chart below by Vero shows how price support programs inflate the price of sugar:
As I write in my Mercatus on Policy piece:
This might seem trivial, but sugar isn’t the only item that is more expensive because of agricultural price supports. The House version of the farm bill imposes artificial price floors on wheat, corn, grain sorghum, barley, oats, long and medium grain rice, soybeans, oilseeds, peanuts, dry peas, lentils, chickpeas, sugar, and dairy products.
5. Farm Supports Transfer Resources from the Relatively Poor to the Relatively Rich
Farm privileges are often defended on the grounds that farming is an unprofitable pursuit. But this isn’t so. The figure below, taken from Professor Vincent Smith’s paper on the 2013 bill, shows that in both mean and median terms, farm household income has exceeded U.S. household income for more than a decade. Today, the average farm household makes 53 percent more than the average U.S. household.
This means that farm policy transfers resources from relatively low income consumers and taxpayers to relatively high income farmers. No wonder, then, that economists from Greg Mankiw on the right to Paul Krugman on the left oppose it.
6. Farming is not Particularly Risky
It is also common to hear people defend farm policy on the grounds that farming is a uniquely risky business. But as Professor Smith explains, the business failure rate of the typical American business is 14 times greater than the failure rate of the typical farm. Moreover, as demonstrated by the figure below, the agriculture sector’s debt-to-asset ratio is lower than that of other sectors and has been falling for two decades:
7. The Biggest Farms Capture Most of the Subsidies
Though the average farm has done quite well, it is not the average farm that receives privileges. As demonstrated by Smith’s chart below, since 1995, 83 percent of subsidy payments have flowed to the largest 15 percent of farms:
8. The Farm Lobby is a Formidable Force
As I put it in my piece, “Given that these subsidies and price supports distort free market signals and transfer wealth from the relatively poor to the relatively wealthy, one would think they would face bipartisan opposition.” Why, then, do they persist?
This chart by Vero, showing annual lobbying expenditures by the sugar industry, is one explanation:
9. Lobbyists Concentrate Their Largesse on Those Who Write the Farm Bill
Finally, this chart from my piece shows that political donations tend to be concentrated on those who actually write the bill: