Farm Policy Is Overripe for Reform

Congress should be able to agree on ending unfair farm subsidies.

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Wouldn't it be nice if we could look back one year from now and say that 2014 was the year in which Democrats and Republicans discovered substantial areas of ideological common ground? We'd laud them for putting aside their partisan prejudices, for simultaneously advancing economic freedom and social justice and for turning their collective backs on special interests in order to serve the common good.

With the parties so far apart on so many issues, you might think that no such common ground exists. But it does. It lies in the sugar beet fields of Florida and in the dairy farms of Wisconsin. This untrod common ground is U.S. farm policy and it is overripe for reform.

Current U.S. farm policy is a complex grab bag of insurance subsidies and artificial price and revenue supports for farmers. In a new piece released by the Mercatus Center at George Mason University this week, I show that these policies raise the grocery and tax bills of middle- and low-income Americans in order to transfer wealth to some of the nation's highest earners. Since agriculture is a commodity industry characterized by free entry, there is no coherent story of "market failure" to justify these interventions. That's one reason why 85 percent of surveyed economists oppose them. Another reason is that farm supports create what economists call "deadweight losses," which means that the costs imposed on taxpayers and consumers exceed the benefits conferred on farmers.

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Farm supports make even less sense when one considers the fact that the average farm household earns 53 percent more than the average U.S. household, and has out-earned the average household for more than a decade and a half. Farm incomes are also buoyed by extremely low business failure rates: The average U.S. business failure rate is fourteen times the U.S. farm business failure rate.

Despite the stability and prosperity of these businesses, some of them can collect astronomical subsidies. One 2011 government study found that more than 50 farms each received more than half a million dollars in subsidies for crop insurance premiums.

So what to do? A natural place to start would be to eliminate all price supports and subsidies. This would give free-market Republicans a chance to live up to their party's promise to "pursue free market policies that are the surest way to boost employment and create job growth and economic prosperity for all." At the same time, it would give Democrats an opportunity to end a great social injustice: the government-directed transfer of resources from the relatively poor to the relatively wealthy.

[See a collection of political cartoons on the economy.]

Unfortunately, that is not where Washington seems to be headed. Instead of focusing on the common ideological ground of farm reform, Senate and House agricultural committee members have spent weeks focusing almost all of their attention on the part of the farm bill where there is very little agreement: food stamps. These food subsidies for low-income earners are awkwardly tied to farm supports, making a vote against farm subsidies a vote against food subsidies. As I explain in my report, this "legislative logroll" is one reason why these inequitable and inefficient farm policies persist.

When negotiators emerge from their bicameral conference, they are likely to tout an end to "direct-payments" in which the government writes checks to farmers irrespective of the crops they produce. Unfortunately, they are likely to replace these subsidies with a less-conspicuous but potentially more costly program known as "shallow loss," which would pay farmers if their revenue fell below a certain threshold. By one estimate, if corn prices were to fall below $4 a bushel, corn would qualify for this new program and a farmer could double his current subsidy.

All told, farm subsidies and price supports hurt consumers and taxpayers and distort the economy, with only special interests coming out ahead. Here is hoping that 2014 will be different, and that both parties will use this opportunity to adopt policies that serve the general welfare rather than special interest welfare.

Matthew Mitchell is a senior research fellow at the Mercatus Center at George Mason University.

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