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Farmers with Benefits

The perpetual subsidy machine.

Apr 29, 2013, Vol. 18, No. 31 • By ELI LEHRER
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But the dairy and sugar programs are only one small corner of the universe of absurdity that characterizes the nation’s farm payments system. Take, for example, the second-largest agricultural subsidy program overall, something called “Direct Payments.” Originally passed in 1996 in what now can be counted as one of the last true small-government achievements of the reformist Republicans who led the class of 1994 in the House, the program was intended to wean most farmers off of subsidies. At the time it passed, Congress promised that the payments would decline each year and vanish entirely by 2002. Because of its status as a transitional program, however, it had fewer requirements than any program before or since: Subsidies flowed based on historical growing patterns, and farmers didn’t have to plant anything to receive federal money, and it continues to the present day. Although its downright absurdity has led to a broad consensus to eliminate it—even most farm groups say they are happy to see it end—that doesn’t stop farmers from trying to get their hands in the public till in other ways.

Right now, the biggest subsidy, scheduled to cost about $90 billion over the next 10 years, flows to a federal crop insurance program. The program requires private insurers to service policies and take on some risk, but federal agencies set the prices, pay a large share of the premiums on farmers’ behalf, and “backstop” the private insurers when losses exceed certain thresholds. Unlike most other insurance, crop insurance protects not only against accidental losses, which would be unexceptional, but also against fluctuations in commodity prices. This, despite the fact that there is a robust private solution to the risk posed to farmers by such fluctuations, namely the trading of futures contracts for agricultural commodities.

Indeed, most of the payments made under the program come from these protections against price fluctuations. Farm groups and bipartisan majorities of every committee that has voted on farm policy in the last two years have supported a cynically designed replacement for direct payments called “shallow loss,” which won’t charge any premiums and isn’t included in the insurance sections of the bill. Unlike the current crop insurance programs—which typically leave farmers themselves or entirely private insurers responsible for roughly 40 percent of a loss—it will cover as much as 90 percent of all losses. Since the proposed formulas will pay farmers for “losses” based on declines from current, historically high prices, this amounts to a virtual profit guarantee for those who grow food and fiber.

Even worse, these programs promise to do real damage to the environment. Since the Reagan administration, just about everybody receiving subsidies has had to follow a few simple rules. In particular, those who plant highly erodible land with federal subsidies need to develop plans to avoid soil erosion, and such subsidies can’t be used to drain wetlands that serve as wildlife habitat, storm buffers, and natural water filtration. (Farmers can still do these things with their own money, but taxpayers won’t pay for it or provide them with disaster relief.) As a result of the end of direct payments and subsequent expansion of crop insurance subsidies, however, there’s a real chance that these accountability mechanisms might be lessened or even eliminated. 

The result could be real environmental damage: major loss of wetlands and outright destruction of good farmland as a direct result of government policies—damage that would never happen under a free market system. Because of the subsidies and profit guarantees, farmers will have every reason to plant marginal land that would be far better left in something close to its natural state. Indeed, to date, much of the best and most thoughtful opposition to agricultural subsidies has come from decidedly green groups like the National Wildlife Federation, the Environmental Working Group, and Friends of the Earth. These groups are hardly hotbeds of free market ideology, but they have just as much dislike for agricultural subsidies as any group on the right.

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