Now that summer break is finally over, our fearless public servants are back in DC working on the most important things facing the 21st century American economy like… umm… farm subsidies.
Via Politico, we learn that, beyond the well-publicized and hyper-partisan battle over food stamps (traditionally tied to farm subsidies to maintain the longstanding “urban-rural alliance”), various farm state congressmen are angrily fighting over the dwindling number of subsidies that the 2013 Farm Bill grants to agricultural commodities. The Politico article provides a useful glimpse into the seedy (pun intended!) world of US farm lobbying. Yet, by obsessing over the political backbiting, the piece completely ignores the Farm Bill’s many substantive problems.
First, it glosses over is just how many billions of dollars US taxpayers are going to be forced to spend on obviously-well-funded farm groups. In fact, as I noted in my 2012 Cato Institute paper, “Countervailing Calamity: How to Stop the Global Subsidies Race“, we spend a veritable fortune on these subsidies:
Perhaps no industry has attracted more taxpayer dollars (and global ire) than U.S. agribusiness. According to the Environmental Working Group’s compilation of United States Department of Agriculture data, the U.S. government has provided approximately $277.3 billion in subsidies to U.S. farms since 1995, including more than $15 billion in each of the last two years. Specific commodity subsidies under the current system include those for feed grains ($2.1 billion in 2011); wheat ($1.4 billion); rice ($364 million); upland cotton ($825 million); soybeans ($521 million); peanuts ($77 million); tobacco ($25 million); and dairy products ($30 million).
The 2013 Farm Bill will reduce – but not eliminate (hence all that lobbying) – some commodity payments and replace them with more federally-subsidized crop insurance. Farm Bill advocates in Congress claim that this is serious, cost-saving reform, but a fantastic new deep-dive by Bloomberg demonstrates just how misguided these claims are. The entire, multi-part special report is well worth your time, but here are a few choice quotes from the summary article:
The U.S. Department of Agriculture last year spent about $14 billion insuring farmers against the loss of crop or income, almost seven times more than in fiscal 2000, according to the Congressional Research Service.
The arrangement is a good deal for everyone but taxpayers. The government pays 18 approved insurance companies to run the program, pays farmers to buy coverage and pays the bills if losses exceed predetermined limits….
[T]he president and the Republicans’ chief budget expert are no match for the farm and insurance lobbies, which spent at least $52 million influencing lawmakers in the 2012 election cycle. Rather than thin the most expensive strand in the nation’s farm safety net, Congress is poised to funnel billions of dollars more to individuals who already are more prosperous than the typical American….
Unlike direct farm aid payments, which are capped at $40,000 per farm, there is no limit on crop insurance subsidies. The names of those receiving payouts from the program are kept secret. There’s little chance the program will be restructured, since a permanent insurance mechanism spares politicians from approving ad-hoc farm bailouts that CRS says have cost taxpayers more than $50 billion since 2000.
The heavily-discounted insurance incentivizes farmers to cultivate marginal acres that may or may not be fertile. And the program’s been vulnerable to fraud, notably in North Carolina where a network of insurance agents, claims adjusters and farmers bilked the government of close to $100 million over more than a decade.
There’s plenty more in the Bloomberg report that will make your little taxpaying toes curl, so I highly recommend you read through the whole thing (if you can stomach it).
Second, Politico ignores the fact that the various commodity programs retained by the 2013 Farm Bill attract major criticism from our trading partners, several of whom have filed (or have threatened to file) anti-subsidy cases against the United States and/or American farm exports. Perhaps the most notorious of such disputes is Brazil’s successful WTO challenge to US cotton subsidies, as noted in my Cato paper:
In 2004 and again in 2005, the Brazilian government challenged U.S. cotton subsidies at the WTO as violations of the SCM Agreement and the Agriculture Agreement. The WTO’s 2005 decision authorized Brazil to retaliate against U.S. goods and services, but Brazil opted instead to allow the United States time to reform its cotton program in line with international trade rules. The U.S. government never did reform the subsidy programs, so Brazil returned to the WTO in 2009 and won permission to impose almost $300 million in retaliatory trade sanctions against U.S. exports. The WTO also opened the door for other retaliatory measures against American patent and other intellectual property rights—a novel approach to addressing noncompliance. Although the U.S. government has not complied with the WTO ruling, Brazil never retaliated because, instead of reforming the program, the United States agreed to provide approximately $140 million in new subsidies to Brazilian cotton farmers. Despite this sordid arrangement, Congress has flatly refused to reform the United States’ WTO-illegal cotton subsidy programs, even in the context of a new Farm Bill. Indeed, Brazil has warned the WTO that it is prepared to retaliate against U.S. exports or by not enforcing U.S. intellectual property rights if the proposed 2012 Farm Bill takes effect.
Other US farm commodities that have faced anti-subsidy litigation and duties include sugar (by Canada), corn and other crops (also by Canada) and distillers grains (by China), and it seems that we’re constantly hearing about threats of new cases against major US crops like soybeans. And despite the supposed “reforms” in the 2013 Farm Bill, several US business groups recently voiced their concerns that the legislation still violates WTO subsidy rules and “could expose U.S. exports to retaliatory tariffs.” For this reason, they urged US lawmakers to go back to the drawing board. [Full disclosure: my firm authored a report mentioned in that article, although I had no part in drafting it.]
So there you have it: the 2013 Farm Bill is not only ridiculously expensive, but also raises a host of concerns regarding global subsidy rules and the United States’ international trade obligations. Hopefully detailed articles on the current legislative battles over the pending legislation won’t omit little details like this in the future.
But I’m not holding my breath.
[N.B. I’d be remiss not to mention here that in July the GOP-led house of representatives approved a farm subsidy bill that not only contained all of this costly, problematic pork in it, but also made many of the most pernicious and trade-distorting commodity programs (*cough*sugar*cough*) permanent. (They used to sunset every five years, thus forcing a renewal vote and, of course, a little unwanted sunlight on them.) Yet these supposed stalwarts of conservatism have supposedly excommunicated various grassroots groups for having the temerity to oppose the pork-laden bill on principle. Behold, the horrific state of American agricultural politics.]
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