Farmers Deserve Free Markets, Not Handouts
Just when it seems federal spending couldn't get more preposterous, Congress gives us the “cheese bailout.” In order to support dairy farmers, the feds are buying an estimated 11 million pounds of surplus cheese. The cost to taxpayers? About $20 million.
Buying cheese that nobody wants is just a small slice of federal risk-related subsidies for agricultural producers. Designed to serve as a “safety net” for farmers, these subsidies cost taxpayers about $15 billion a year. This federal intervention is both unnecessary and unaffordable.
Why not let the free market work here as in every other industry, from computers to cars? We can do this in a way that maintains the safety and reliability of our food supply, protects farmers from droughts and other natural disasters, and shields taxpayers from routine bailouts for special agricultural interests.
Let’s dispel some misconceptions about modern farming. The struggling family farmer from Steinbeck's “The Grapes of Wrath” is not today’s reality. In most cases, taxpayers are subsidizing well-to-do farm households, with a median net worth about $800,000 — 10 times greater than the median net worth for all U.S. household. Farm subsidies are Robin Hood in reverse: Tax the middle class to prop up the rich.
Moreover, large producers dominate the agricultural sector. The latest Census of Agriculture shows that about 4 percent of farms (those with sales of $1 million or greater) account for two-thirds of all agricultural sales. More than half of all farms (54 percent) accounted for less than 1 percent of all agricultural sales. Not surprisingly, the subsidies to address agricultural risk generally go to large agricultural producers.
There’s no reason why agricultural producers can’t be expected to manage their risk — such as bad crop seasons — just like other businesses. Agricultural prices can be volatile, but so too are other commodities’ prices. The federal government doesn’t bail out oil producers, who have seen prices fall more than 60 percent in two years. Nor was the construction industry bailed out when the housing collapse threw thousands of contractors out of business.
After natural disasters, such as hurricanes, there’s no reason why farms can’t be treated like other businesses and receive the same types of assistance. In any case, our farmers and our financial markets are much better able to adjust to and insure against bad weather or other contingencies. Still, Washington gives agricultural producers assistance no matter if crops are good (which means lower prices) or bad.
The $15-billion “safety net” consists of commodity programs (e.g. price and income supports) and the federally subsidized crop insurance program. And these programs create bad side effects. For example, agricultural producers “farm the subsidies,” basing their planting decisions on how to maximize the subsidies they receive, rather than how to meet the needs of consumers.
The subsidies can also distort prices. For instance, the federal sugar program restricts the sugar supply, driving up prices and imposing a hidden tax on consumers, estimated at over $3 billion a year. And subsidies can crowd out less expensive risk-management solutions, such as private insurance products.
A new Heritage Foundation report recommends moving away from harmful subsidies by phasing them out, giving farmers time to adjust. During the transition, subsidies would only protect farmers from deep crop losses connected to natural disasters and the like. While most farm safety-net programs should be eliminated, disaster assistance programs and a properly focused federal crop insurance program should remain, at least for now.
But’s folly to try to justify existing policy as a “safety net.” Under the current program, farmers can receive payments just because they received slightly less revenue than they expected. They can have bumper crops and still get indemnities from the federal crop insurance program. Heritage recommends ending these unjustified subsidies, so that farmers are longer insulated from market forces.
American farmers are productive and business savvy. Free trade and less regulation would help them far more than handouts.
Taxpayers shouldn’t be in the business of ensuring that farmers are successful. For the good of consumers, farmers, and taxpayers, government should get out of the farming business.
Stephen Moore is a Distinguished Visiting Fellow at The Heritage Foundation, where he directs the think tank’s Project for Economic Growth.