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Agricultural News

Ag Economist Takes Exception to Mainstream Farm Bill Analyses

Mon, 03 Jun 2013 11:02:53 CDT

Ag Economist Takes Exception to Mainstream Farm Bill Analyses

In an online editorial, agricultural economist Vince Smith explains why he believes several of the provisions of the Senate agriculture committee's bill could raise government expenditures, not lower them:

The Senate agriculture committee passed its version of the 2013 farm bill on May 14. Though sold as a deficit-reduction measure that maintains key supports for farmers, the bill's numbers deserve a closer look as it heads to the Senate floor next week.

The new bill does get one thing right: eliminating the Direct Payments program - a $5 billion annual giveaway to farmers just for being farmers. In the current era of tight budgets, such payouts are neither needed nor possible.

But then come the budget gimmicks. Instead of counting the bill's savings against the previous farm bill's budget, Senate Agriculture committee members have included the sequestration spending cuts in their savings estimates. This makes it appear as though the committee's bill annually saves $600 million more than it actually does.

But more importantly, despite eliminating the Direct Payments waste, the new bill might actually make things worse. Instead of simply eliminating this outdated expense, Senate lawmakers replaced it with a new one that could very likely be more costly: the Shallow Loss Agricultural Risk Coverage program (ARC). As reported in the AEI paper, "Field of Schemes: The Taxpayer and Economic Welfare Costs of Shallow Loss Farming Programs," authored by Bruce Babcock, Barry Goodwin, and myself, this program essentially guarantees that farmers receive approximately 89% of their expected incomes - a program about which no other business in America could dream. In effect, the program would issue payments to farmers when crop prices (and thus revenues) fall.

Using the assumption that crop prices will remain at or close to recent record highs, the Congressional Budget Office estimates that the new program would cost $2.372 billion per year. Combine that with the $5 billion Direct Payments cuts, a few other items, and the sequestration savings, and the bill appears to save $2.4 billion annually overall. But if crop prices move back toward their long-run averages, ARC's costs would balloon to $7 billion or more annually. Under this scenario, the total cost of the Senate Bill would be more than $3 billion more than the previous farm bill, if sequestration is not counted.

The data demonstrate that the Senate Bill, with its crop insurance and ARC provisions, is essentially a bait and switch proposal. It exposes the taxpayer to substantial risk while, in combination with other federal subsidy programs, virtually guaranteeing that most farmers will always receive at least 89% of their expected farm incomes.



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