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New Report: 2013 Farm Bill Subsidy Costs May Exceed Status Quo

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October 04, 2013
Programs: Agriculture

This week, the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri released a new report stating that newly proposed farm subsidy programs in the 2013 House- and Senate-passed farm bills are likely to cost taxpayers more than previously thought. In particular, the report found that new agribusiness income entitlement programs and expanded crop insurance subsidies in the stalled farm bill will cost billions more than the Congressional Budget Office (CBO) calculated months ago. In fact, new subsidies will cost more than the discredited direct payment program. According to FAPRI, other intended consequences of these market interventions include trade distortions and expanded production on land not historically planted to crops (leading to future taxpayer liabilities such as the cost of cleaning up water pollution from agricultural runoff).

If anything, the report paints a darker picture of how the proposed $1 trillion farm bill, if signed into law, would fail to reform the status quo or spend taxpayer dollars wisely even though agriculture is expected to reap record farm profits this year.

FAPRI report highlights:

  1. Increased spending on the highly subsidized crop insurance program:  FAPRI estimates that expanded federal crop insurance subsidies would increase taxpayer spending (compared to the current funding baseline) by $15.2 billion and $10 billion, respectively. These estimates are significantly higher than CBO’s estimates of $9 billion and $5 billion, respectively. The higher estimates are mainly due to FAPRI’s estimate that the House’s version of the new Supplemental Coverage Option (SCO) shallow loss entitlement program will cost nearly $10 billion, more than double CBO’s estimate of just $4 billion. SCO would provide taxpayer-subsidized payouts not after a devastating drought or flood but rather if annual agribusiness income fell as little as ten percent.
  2. New subsidies will outspend direct payments:  For some crops, new commodity subsidy payments (including new shallow loss subsidies and government-set price supports) will exceed those paid by the decades-old direct payment program. For instance, peanut subsidies would increase 66 percent to 180 percent in the Senate and House bills, respectively. Subsidies for corn, soybeans, and barley would also be more lucrative, while wheat payments would only increase under the House bill. This is despite the fact that nearly everyone – including most farmers – agrees that direct payments are indefensible and should be eliminated. In other words, instead of putting nearly $50 billion toward deficit reduction, Congress is instead proposing to squander much-needed deficit reduction on new subsidies for agribusinesses already earning significantly more than the average U.S. household.
  3. Trade distortions:  Newly proposed crop subsidy programs will likely be more trade distorting than current law. According to FAPRI, “All else equal, [enacting these new programs] would make it more likely that [the U.S.] might exceed its commitments to limit [trade distorting subsidies]” at the World Trade Organization.
  4. Effects on planting decisions:  As a whole, new farm programs in the House- and Senate-passed farm bills would increase U.S. farmland planted to subsidized crops; this is yet another example of how government policies influence agribusinesses’ planting decisions, despite comments by Senate Agriculture Committee Chairwoman Stabenow, House Agriculture Committee Chairman Lucas, and other lawmakers.

Filed under: Avoid Unnecessary Liabilities, Cut Subsidies

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