Seeding Subsidies: Farm Payments Remain at Sky High Levels

Our Take, COVID-19Seeding Subsidies: Farm Payments Remain at Sky High LevelsIncreased reliance on government payments is a recipe for disaster

Agriculture,  | Quick Take
Mar 30, 2021  | 5 min read | Print Article

The COVID-19 pandemic has undoubtedly upended many facets of the U.S. economy. The agriculture sector is no different. However, despite panic-induced calls last year for taxpayers to underwrite tens of billions in pandemic-related lossesthe ag economy fared relatively well – better than expected – and is in position to do well this year tooThis does not mean that all farmers and ranchers have weathered the pandemic the same or received the same level of support from Washington (if any) and hence that nothing should be done differently regarding future pandemic relief. But future farm lobby requests of Congress and the Administration can certainly be put in perspective.  

As usual, the farm lobby is asking for more despite coming off an above-average year of farm income, buoyed by record levels of government payments to agriculture. In its farm income update released last month, the U.S. Department of Agriculture’s (USDA) Economic Research Service (ERS) predicted net farm income would decline from $123.4 billion last year to $111.4 billion this year (in real dollars, adjusted for inflation)According to ERS, even [d]espite this decline, 2021 net farm income would be 21 percent above its 2000-19 average of $92.1 billion.”  

Net farm income, which includes gross revenue minus expenses, reached its highest level last year since 2013. That is due in part to a record $47.1 billion in direct government payments to the agriculture sector (in real dollars), the majority of which came from payments to farmers and ranchers in the name of the COVID-19 pandemic. Government payments as a percent of net farm income reached nearly 40 percent in 2020, the highest since 2001. In other words, nearly one out of every two dollars farmers took home last year was because of taxpayer subsidiesWhile some support was warranted, the sheer size and speed at which the money went out of the U.S. Department of Agriculture (USDA) meant that prioritization, transparency, accountability, cost-effectiveness, and responsive policies that aim to prepare agriculture for the next emergency/disaster unfortunately took a back seat.   

With the COVID-19 health and economic crisis, and thus the justification for unprecedented federal intervention across the economy, waning, federal farm subsidies are projected to drop. This explains much of the predicted $9.7 billion reduction in net farm income for 2021 compared to 2020. However, 2021 government payments are still projected to total $25.3 billion which, excluding 2020, would be the greatest amount since 2005. Even without government payments, net farm income in 2021 is projected to be $86.1 billion, still 10 percent higher than the 20-year average. 

Even as commodity prices are increasing due to improved trade and market conditionsproponents of increased government payments for farmers and ranchers are pointing to the $12 billion drop in net farm income (in inflation-adjusted dollars) as a reason for Congress to unleash more farm subsidies.   

The farm lobby has a pattern of pushing for federal aid much greater than actually neededAt the beginning of the pandemic, various industry groups predicted economic damages totaling at least $51.2 billion for 2020 while actual 2020 commodity receipts ended up only four percent lower than projected before the pandemic. While actual losses did not meet initial expectations, Congress did not claw back appropriated funding and the administration actually piled more taxpayer spending on agriculture through use of the Commodity Credit Corporation (CCC)In fact, an additional nearly $7 billion in farm income subsidies were included in the American Rescue Plan passed on March 10, 2021.  

Increased reliance on government payments within agriculture is a recipe for disaster. It discourages private risk management and economic resilience at the expense of taxpayers. Congress and the Biden Administration must cease expanding the ever-super-sized subsidy sandwich for farmers and truly begin removing obstacles to farmers’ long-term success. Resilience rather than dependence is a much better recipe for navigating the inevitable natural disasters and economic volatilities of tomorrow.

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