Farm Subsidies Must Die

How agriculture subsidies waste money, distort the economy, and steal from the poor to give to the rich.

On January 2, President Barack Obama signed a bill designed to avert the fiscal cliff. At the same time, to slightly less fanfare, he averted the “milk cliff.” By extending the 2008 farm bill another nine months, he prevented the automatic revival of a 1949 law requiring the federal government to buy dairy products under certain circumstances, effectively setting a floor for the price of milk. While the actual fate of milk prices was far from clear, the milk cliff provided cover to continue the practices of subsidizing wealthy farmers, to the detriment of just about everyone else.

In 2012, the Department of Agriculture (USDA) spent $22 billion on subsidy programs for farmers. Introduced in the 1930s to help struggling small family farms, the subsidies now routinely draw condemnation from both left and right as wasteful corporate welfare. While the number of farms is down 70 percent since the 1930s—only 2 percent of Americans are directly engaged in farming—farmers aren’t necessarily struggling anymore. In 2010, the average farm household earned $84,400, up 9.4 percent from 2009 and about 25 percent more than the average household income nationwide.

What’s more, a handful of farmers reap most of the benefits from the subsidies: Wheat, corn, soybeans, rice, and cotton have always taken the lion’s share of the feds’ largesse. The Environmental Working Group (EWG) reports that “since 1995, just 10 percent of subsidized farms—the largest and wealthiest operations—have raked in 74 percent of all subsidy payments. 62 percent of farms in the United States did not collect subsidy payments.”

The good news is that our fiscal problems have made these subsidies politically unsustainable. As a result, the farm bill currently under consideration by Congress is set to terminate them. But attempts to wean farmers from the federal teat have proved disastrous in the past. 

Take the $4.1 billion the federal government spent on direct payments in 2011. Created in 1996 as a way to get farmers off their addiction to price guarantee programs, these supposedly temporary direct payments are still around. In 2013, a new farm bill, even with the elimination of direct payments, would be a similarly hollow victory. Lawmakers would compensate farmers by expanding another unjustifiable farm subsidy program: crop insurance.

Like most businesses, farms buy insurance policies to protect from potential losses, such as poor yields or declining prices. Unlike most businesses, they can count on the government to pay about two thirds of the premiums, at a cost of $7 billion annually. The proposed “shallow-loss program” would send money to farmers in the event of small drops of revenue that are not typically covered by crop insurance.

Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) claims that the extension would save taxpayers money, swapping $3 billion in new payments in exchange for eliminating $4 billion in direct payments. But the crop insurance scheme is likely to cost twice as much as estimated, according to a 2012 American Enterprise Institute study by the economists Vincent H. Smith, Barry K. Goodwin, and Bruce A Babcock. History tells us that it won’t be long before the program resembles the direct payments it was supposed to replace. That’s because, if implemented, these subsidies will kick in at relative low level of losses. Given that prices will surely come down from their current record levels, most farmers will wind up receiving a payment every year.

Direct payments and crop insurance are not the only farm programs in need of termination. Price support programs such as marketing loans are a serious waste of taxpayer money, as are the conservation subsidies that pay farmers not to farm on their land. So are export subsidies, which aid farmers in foreign sales, and countercyclical payments, which compensate for drops in crops’ market prices.

In addition to the direct cost to taxpayers, these subsidies cause enormous economic distortions. Consider the domestic sugar industry. The USDA protects its producers against foreign competitors by imposing U.S. import quotas, and against low prices with a no-recourse loan program that serves as an effective price floor. As a result, the University of Michigan economist Mark Perry reports, Americans have had to pay an average of twice the world price of sugar since 1982. 

That’s just one of many government interventions that have hurt the poorest Americans by increasing the price of food. The food stamp program—an $80 billion initiative designed to help poor Americans offset the high price of buying food—is embedded in the very farm bill that keeps those prices so high.

Farm subsidies also hurt young farmers through their impact on land values. Almost half of the country’s farmland is operated by someone other than its owner. Those renters—especially young farmers who generally have higher borrowing costs to start with—face increases in both the price of renting and the cost of buying. On the other hand, farmers near retirement age, who own land through inheritance or length of tenure, reap the benefits of higher land values induced by the subsidies. In 2010 some 90,000 direct payments went to wealthy investors and absentee land owners in more than 350 American cities, according to an EWG report.

“It’s no accident that the average age of farmers is nearing 60 years old,” a friend who runs a farm wrote in a recent email to me. “We’ve drastically increased barriers to entry through subsidy programs, at huge social and economic costs. If I’m a 30-year-old farmer, as my sons-in-law are, I should mightily resent the fact that the landowner whose land I need receives government subsidies while I’m forced to compete against those subsidies to secure enough land to have a viable farm business.”

Farm subsidies benefit the rich and hurt the poor. They are massively expensive and hugely wasteful. They must end.  

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  • LTC(ret) John||

    All I need to know about farm subsidies I learned from driving through Greene County, WI on my way to New Glarus - let us just say Willie Nelson and Farm Aid won't be doing any relief concerts for the farmers living there.

  • Duke||

    Farm subsidies constitute 0.55% of the federal budget. Meanwhile, Medicare and Medicaid constitute a whopping 21% of the federal budget.

    You all should therefore be roughly 40 times madder at healthcare waste than farm subsidy waster. So, I expect at least 240 bitching comments on the next healthcare article.

  • $park¥||

    You mean because stealing is bad isn't a good enough reason?

  • Professional Target||

    Somehow stealing becomes OK when you pass it through the filters of government and voting. I gave up trying to understand it when I realized it involved magic.

  • wareagle||

    govt-sanctioned stealing is okay, sort of like govt-sanctioned hits on certain Americans of suspect character.

    The title of this piece would be just as applicable with any industry that's on the dole being substituted for farming. I doubt that even Paul Harvey would have tried to justify the gimme culture within ag.

  • Randian||

    In fairness, this is not a great argument unless you are an anarchist.

  • prolefeed||

    It's either a great argument or it isn't. You're apparently saying that if you believe in government theft, aka minarchism, then pointing out that that theft is objectively stealing constitutes a bad argument.

  • Libertarius||

    Objectively, you're a quack if you believe a techno-industrial utopia of property rights will somehow grow out of an anarchic vacuum. Somalia isn't a strawman; tribal warfare is the only logical result of the bizarre rationalistic concoctions of Rothbard. If you think one government is bad, wait til you put the forcible restraint of individuals on the private market.

  • ||

    Surely there is no one among you who wants to see Jones come back?

  • Copernicus||

    "Surely there is no one among you who wants to see Jones come back?"

    ....and don't call me Shirley.

  • sarcasmic||

    In fairness, judging an argument by the person who makes it is a textbook example of the ad hominem fallacy.

  • Zeb||

    That's why I don't believe that it is possible to be both a non-utilitarian and non-anarchist libertarian.

  • robc||

    Believe what you want, but I still exist.

    I just accept the contradiction.

    Because Rand was wrong. Aristotle was too, but he gets a pass, Rand had access to Kurt Gödel's work.

  • ||

    robc:

    I just accept the contradiction.

    That's interesting, because accepting contradictions implies that you accept that a statement can be simultaneously right and wrong.

    At that point, what does it mean for Rand or Aristotle to be "wrong"? Usually, being wrong implies that it contradicts what is true. If contradictions are A-OK, what does that mean, exactly?

  • robc||

    Sigh.

    I thought referencing Gödel would be enough of an explanation.

    I tried linking but the umlaut is causing problems, google incompleteness theorems.

  • ||

    Oh, I'm aware of them. However, that doesn't really answer my question.

  • Zeb||

    I still fail to see how Goedel's theorems (and yes, I have done the proofs, I know what they actually say) apply here.

    I would contend that your accepting the contradiction is itself a utilitarian act.

  • sarcasmic||

    Nothing helps the economy quite like keeping prices high! Imagine the horrors that would ensue if people had more money left over with which to buy other things! Thank goodness we have government there to artificially distort prices! Without it people might buy (and be employed in producing) more stuff!

    Yay government!

  • Fist of Etiquette||

    Surprise, surprise. reason's cosmatarians only seem to declare war on the subsidies that affect farms because farmers are hicks who don't like gay marriage probably. But you don't see reason coming out against cocktail party subsidies.

  • Randian||

    The Orange Line Mafia strikes again!

  • Tim||

    Or people with sinister, foreign sounding names like Veronique de Rugy.

  • Tim||

    We wouldn't need subsidies if you fuckers would just eat more broccoli.

  • Ken Shultz||

    It's important to set a floor for the price of milk because without it, there wouldn't be much reason for the government to buy milk for people who can't afford it.

  • $park¥||

    !!!!!!

    Ken, are you feeling alright? Is it because of DST? Your post seems to be missing a couple of paragraphs.

  • ||

    I think his post is pretty complete. Why WOULD government need to buy milk for the poor if they didn't first price it out of the poor's economic reach? It's like how the government wouldn't "need" to tout jobs programs if they didn't first regulate some jobs out of existence. Makes perfect sense to people who think legislation is magic.

  • LTC(ret) John||

    I think he was teasing him about the unexpected brevity of the post...

  • Virginian||

    Yep. It's insidious. A guy at work is libertarianish (actually textbook cosmotarian) is dealing with his aging parents. He says Medicare is a godsend right now, even though he thinks it needs to reform, and how are you going to pay for it?

    Well, when the dollar you saved at the beginning of your career is now worth five cents, yeah you need government programs.

    More and more, I'm convinced that the root of our problems is the Fed and inflation. The rest is just deck chairs on the Titanic.

  • juliabraon||

    upto I looked at the receipt saying $6637, I have faith that my neighbour was like realy taking home money part-time on their computer.. there dads buddy haz done this less than 18 months and just now paid the mortgage on their mini mansion and bourt Lotus Esprit. we looked here,

    http://fly38.com

  • tarran||

    Couldn't you just take 10 minutes to compose a coherent, gramatically correct, and properly spelled pitch and then copy and paste it in your spammy submissions?

    It would make your spamming more effective for you, and make them less painful for us to observe.

  • ||

    I think the effort needs to be weighed against how many more webpages it can spammed with the message in that 10 minutes. Spammers rely on volume, so as long as you get a few gullible hits your work pays off.

    Also, anyone that needs a higher quality of writing to be convinced to click would probably not be convinced by the website, I'm guessing. So higher quality writing may not be cost-effective.

  • LTC(ret) John||

    Jsut so!

  • Libertarius||

    End farm subsidies: yes. But you would have to end every other government intervention and distortion in the economy, or it will simply be (mostly) corn prices collapsing with diesel prices and other inputs remaining the same, which means the immediate liquidation of pretty much every farm in America, which means no production and starvation for everyone.

    End the income tax, end the regulations, end the Fed. But you have to be smart about the way you do it, otherwise you're going to kill a whole lot of people in the process.

  • Ken Shultz||

    "End farm subsidies: yes. But you would have to end every other government intervention and distortion in the economy, or it will simply be (mostly) corn prices collapsing with diesel prices and other inputs remaining the same, which means the immediate liquidation of pretty much every farm in America, which means no production and starvation for everyone."

    Does the term slippery slope mean anything to you?

    The idea that we can't end one form of interference until we end every form of interference is the same as saying that we can never end government interference in the economy.

    I'd rather do it all at the same time, believe me, but less interference is incrementally better--so we should take what we can get. Leviathan wasn't built in a day, and it'll take more than a day to tear it down.

  • tarran||

    which means the immediate liquidation of pretty much every farm in America, which means no production and starvation for everyone.

    Are you seriously arguing against the idea that as marginal producers go out of business, the market clearing prices for the stuff they make goes up, and the market clearing price for the stuff they consume as they do business goes down?

    If you are, your comment is even more retarded than the one suggesting that I can pay off the mortgage on my minimansion by clicking a link.

  • Libertarius||

    My argument is: You can't have your cake and eat it too.

    Fuel prices, and those of all inputs, are as drastically inflated as those of agricultural products; take away the distortions that have inflated ag prices without removing the distortions that have inflated input prices, and you will have a severe and immediate deflationary contraction in ag prices while the price of inputs will remain static (maybe coming down a little bit).

    Your argument of "marginal producers" fails to recognize the fact that all ag producers are doing business in the same market at the same prices, which means that all ag producers are by definition "marginal" in a market where the prices of their products collapse while the prices of their inputs remain the same. There can be no competitive process in such a market--save for who can get the hell out of it first.

  • tarran||

    Your argument of "marginal producers" fails to recognize the fact that all ag producers are doing business in the same market at the same prices, which means that all ag producers are by definition "marginal" in a market where the prices of their products collapse while the prices of their inputs remain the same.

    What you wrote is painfully stupid.

    Here's the score. First, not everyone is in the same financial condition. Every business has different levels of capitalization than its competitors, even if it's just a few dollars. So simultaneous bankruptcies are about as likely as me asphyxiating because all the oxygen in my office decided to randomly migrate to a corner far away from my nose.

    Secondly, how do prices get set? Prices need transactions (eg. Walmart offers to buy produce at the lowest price that a seller is willing to provide them with the produce). The collapse you predict requires producers who agree to sell at a massive loss. Perhaps you think farmers are stupid yokels, but having worked with them, I can tell you they are not.

    Thirdly, if everyone were to go bankrupt (including Cargill which was - last I checked - the most capitalized privately owned corp in the U.S.), the facilities, farmers, livestock, arable land are all available for purchase at fire sale prices by investors who are willing to take over food production to meet the higher prices that would be offered if the U.S. were to hit an instant famine.

  • ||

    Libertarius:

    the immediate liquidation of pretty much every farm in America, which means no production and starvation for everyone.

    This implies that we import no food, and could not start importing food, if all American farms collapsed. Is this correct?

  • Libertarius||

    Sure you could. The prices would be so high as to ensure the aforementioned starvation, but keep pretending someone else is going to save you.

  • ||

    If we have to subsidize farmers now to compete with imports, how does that work?

  • Calidissident||

    Is this satire? Everyone would starve and all farms would go out of business if we ended ag subsidies? Wow.

    And that's totally what happened when New Zealand ended their subsidies

  • d_remington||

    Yes, but that's because markets work different in the US than in new zealand because magic.

  • Libertarius||

    My old man has a good-sized operation back in Ohio wherein he grows corn and soybeans; despite being somewhat small-time, he grosses millions of dollars a year and everyone thinks he's rich as Rockefeller. Is he? Fuck no--the more money the farmers gross, the more they get squeezed on the input side.

    And the biggest, most widespread subsidy that I take into consideration is the ethanol mandate (what is it, like 40% of domestic corn production is pumped into this boondoggle?). Corn prices have been on a tear, largely with this huge artificial bid underneath it, but if you remove that bid without making systemic corrections everywhere else, the price of corn collapses and nobody can afford to plant it--not until the inputs come down. If I'm looking at a 50% cut on the bushel with (previously contracted) seed, chemicals and fuel inputs remaining largely static, nobody is going to plant corn. Period.

    I don't think you guys recognize anything close to the full extent of how distorted the agribusinesses are. I mean everything is FUBAR, everything is getting pushed to the moon by all the money printing of the Fed. It's very cosmo and progressive of you to sit in an ivory tower sipping lattes with your boyfriends while casting derision at the people who keep you alive, maybe they should just end the subsidies today and then we'll see who needs who. I am laissez-faire all the way, but in any decontrolling scenario you have to be very smart and deliberate about how you do it.

  • robc||

    Good, let them grow barley instead, like they use to. Beer needs some downward price pressure.

  • ||

    Yeah, either that, you're you're just very laissez-faire all the way, but not in the ways that directly benefit you and your family, in which case, laissez-faire results in massive horror for everyone.

    I guess that explanation is to simple.

  • d_remington||

    It's also too wrong. And quite frankly it doesn't get any point across.

  • CatoTheElder||

    You libertarians have no understanding of agricultural economics.

    Your callous disregard of the plight of the struggling family farmer certainly proves that you have no heart. I know the travails of struggling family farmer. Most of my friends think of me as an affluent management consultant in Dallas, but I inherited a share of a small family farm in the Midwest several years ago. I want to keep getting my annual checks from the USDA. I need the services of USDA county agent to apprise me of how to maximize my benefits. How heartless of you to deprive me of this essential function of government! It's my birthright: I inherited that farm!

  • ||

    And apparently, if we don't, we'll all starve.

    Too big to fail?

  • LTC(ret) John||

    Too subsidized to fail?

  • ||

    It's funny how these programs are all sold to the public as necessary for "safety" and "stability".

    However, if the government ever can't/won't continue funding them, we all die.

    One would think avoiding that situation would be safer and more stable.

    I'm sure the next big subsidy will be different. Obamacare, here we come!

  • Sevo||

    "Your callous disregard of the plight of the struggling family farmer"

    Disregard, the hell you say! I regard them well! I'll polish my monocle as I have them evicted into the streets when the government vigorish doesn't arrive on time!

  • daveInAustin||

    The sugar subsidy price floor has huge environmental costs. While the government is putting folks in jail for removing junk from their wetlands, it subsidizes uneconomic industries on others. Unfortunately, most prominent Republican politicians think it's a great idea.

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  • RussTTU||

    Farm subsidies do not hurt the poor. Subsidized food does more to alleviate hunger than any single program out there. Now that's not to say that subsidies are necessary or even good or even that hunger in and of itself is bad. But it is ridiculous to make a statement like that without understanding how the food economy works.

    What libertarians also need to contend with, me among them is that certain products are necessary for a stable society be it war or peace time. While many have used the example of imported food to make up a short fall in domestic food production, that is based on the loose premise that there is enough food at reasonable prices to satiate the domestic demand for food. Products like food and energy are two things that need to be present domestically or you run the real risk of social unrest.

    If you look at the past year with record droughts over a great portion of the country, we would have had tens of thousands of farmers go broke without insurance programs. While you can argue that insurance premiums are reflected in inflated land prices, agriculture is an industry that can completely break farmers based on completely external and unmitigated risks. Ad yes being a farmer is a choice that comes with these risks but doesn't it behoove us as a society to ensure something as necessary as food remains inexpensive and abundant?

  • Sevo||

    Russ, you're full of shit.

  • ||

    You're right, Russ. we need to make sure food remains inexpensive and abundant. Why, you wouldn't happen to be personally connected to farming in any way, would you?

    However, I don't think you're taking it far enough with subsidies. After all, when the demand is high and the supply is low, some farmer with some yield on his hands may get the idea that he can raise prices and make a hefty profit. But, if we're subsidizing his losses, why should he keep his gains? What we need are price ceilings, to go along with price floors. The average person makes about $50K/year, and that should be good enough for a man of the land.

    Still, that doesn't go far enough. Food supply is too important to leave in the hands of dirty, hick heartland farmers. Why, with price ceilings, they may decide to reduce production. After all, arable land is a national resource, and food supply is a national security issue. Who the hell is a farmer to say he owns and controls that?

    Therefore, all farms should be confiscated and nationalized. The previous owners/employers may be allowed to continue farming the land, however, as federal employees, similar to the post office (if they meet the guidelines and whatnot). That way, we can ensure appropriate food production and prices, without dealing with the whims of supply and demand, or hick farm people and their farming profits.

    Thanks for opening my eyes, Russ: We must ensure, as a society, that food remains inexpensive and abundant.

  • d_remington||

    That ranch, he didn't build that! Someone else made that happen!

  • Sevo||

    Brian,
    Wonderful presentation! Why I can see an entire economic system based on your proposal.
    All it needs is some very smart people to establish what everything should cost, and presto: Instant wealth and prosperity!

  • PatrickHenry||

    I'd like to point out something that no one here has probably though of. If you take away the farmer's subsidies in the red states what do you think will happen to the grocery bills in the blue states? Farm subsidies benefit the blue states, rich and/or poor. The conclusion here that the subsidies benefit the rich is just fucking laughable.

  • Sevo||

    PatrickHenry, you're full of shit.

  • PatrickHenry||

    And why would that be? You got anything to back that up? Nope!

  • Sevo||

    PatrickHenry| 3.12.13 @ 11:01PM |#
    "And why would that be? You got anything to back that up? Nope!"

    Yes, I certainly do:
    *ANY* free exchange adds value to both of the principles and therefore to humanity in general.
    By comparison, *ANY* coerced exchange or trade is a net loss. So you (that's YOU PatrickHenry) have to show the first coerced exchange (taxes) are somehow balanced by a net gain elsewhere.
    For now, since I save ammo, I won't require proof that the supposed gains in grocery costs aren't offset by losses elsewhere. But, given idiots like you, I *will* require that proof.
    Oh, and you're full of shit.
    Let's see it.

  • ||

    Not only that, but the dairy bill clearly discusses a government buy program. Government buying = increased demand = increased prices, not decreased prices.

    You take that away, Patrick Henry, and people in blue states are paying less for their dairy.

    Direct payment subsidies are also silly: if supply is so high compared to demand that you have to pay people tax money to farm, then I assume prices are pretty damn low. Increasing the tax burden to help farm people does not benefit the poor.

  • PatrickHenry||

    Jesus H Christ, I'm not for subsidies for the big farm corporations, or corn ethanol, or solar plants, etc. What did I say to incite such vile invective from you elitist creeps. The fact is the urban counties(usually Blue)receive way more federal funds per capita than rural(usually Red). If you live in NY you are going to be very unhappy with your grocery bills when they terminate the subsidies. That all folks.

  • Sonderegger||

    Farm subsidies also hurt young farmers through their impact on land values. Almost half of the country’s farmland is operated by someone other than its owner. Those renters—especially young farmers who generally have higher borrowing costs to start with—face increases in both the price of renting and the cost of buying. On the other hand, farmers near retirement age, who own land through inheritance http://www.toneweras.com/new-e.....-c-56.html or length of tenure, reap the benefits of higher land values induced by the subsidies. In 2010 some 90,000 direct payments went to wealthy investors and absentee land owners in more than 350 American cities, according to an EWG report.

    “It’s no accident that the average age of farmers is nearing 60 years old,” a friend who runs a farm wrote in a recent email to me. “We’ve drastically increased barriers to entry through subsidy programs, at huge social and economic costs. If I’m a 30-year-old farmer, as my sons-in-law are, I should mightily resent the fact that the landowner whose land I need receives government subsidies while I’m forced to compete against those subsidies to secure enough land to have a viable farm business.”

  • rachelpool4||

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  • Sevo||

    PatrickHenry| 3.13.13 @ 7:59PM |#
    "What did I say to incite such vile invective from you elitist creeps."
    Just that you favor subsidies, you ignorant twit. Is that clear? Go suck a government regulation, asshole.

  • ||

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  • Brad Wilson||

    The article fails miserably.

    First, economically, farm commodity prices, (for 140 years,) don't self correct very well at all in deregulated "free" markets, so farm prices have usually been low, below a reasonable cost of production.

    Second,original programs fixed this without subsidies, and made a profit, (as farmers paid interest on price floor loans,) through 1948. The programs also set Price Ceilings to protect consumers, all was backed with supply management. The US is the dominant farming country in terms of exports, so Price Floors bring in wealth to the US.

    Third, Congress reduced (1953-1995) then ended (1996-2013) these programs, creating a need for subsidies, which started years later, and added up to about 1/8 of the reductions, for a net reduction below 1942-1952 standards of 7/8, (or about $3.5 out of $4 trillion in today's dollars).

    Fourth, so dairy and crop commodity farmers have massively subsidized agribusiness, and through them, consumers, as the farm/food system has been destroyed by the changes.

    Most subsidies have gone to full time family farmers and similar (bigger/smaller) farmers, ($1 for each $8 in reductions), who make up most of the top 10% of recipients.

    Eliminate the need for subsidies: "Farm Justice Proposals for the 2012 Farm Bill."

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