Ending Subsidies for Big Ag in the Farm Bill

By Michael Russo
Federal Program Director

Ending Subsidies for Big Ag in the Farm Bill

Our nation’s food policy should be aimed at simple, common-sense goals: promoting the production of safe, nutritious food, and spending precious taxpayer dollars on public interest priorities rather than subsidizing mature industries and unhealthy food products. 

Our current food policy fails to achieve these objectives, creating wasteful taxpayer handouts to large agribusinesses and underwriting the junk food ingredients that are fueling the childhood obesity epidemic. With the expiration of the current Farm Bill this year, Congress has an opportunity to eliminate this counterproductive spending.

Current food policy has disproportionately subsidized the largest agribusinesses, who are already profitable and don’t need taxpayer handouts. And subsidized crops have often been used to produce unhealthy food. The current scheme of agriculture subsidies, including the notorious Direct Payments program, is heavily skewed towards largest agribusinesses, with only 4% of U.S. farmers pocketing 74% of subsidy payments. Directing taxpayer dollars to these mature, profitable businesses enriches them and allows them to prosper at the expense of smaller, unsubsidized farmers, without any benefit to the taxpayers who are footing the bill. 

Further, our research has found that of the $262 billion spent on subsidies since 1995, roughly $17 billion subsidized junk food ingredients like high-fructose corn syrup and soy-derived vegetable oils and shortenings. This waste of taxpayer dollars is all the more egregious given the gravity of the childhood obesity epidemic that now confronts us: childhood obesity rates in the U.S. have more than tripled in the past 30 years, with a third of children nationwide now overweight or obese. Obesity and its related illnesses accounted for roughly $150 billion in health care costs in 2008, representing a doubling of such costs in the course of a decade. 

The 2012 Farm Bill presents a golden opportunity for remedying these deep problems in our current food policy. The version of the Farm Bill passed last week by the Senate does take a positive step by ending the discredited Direct Payments program, which has directed billions of
taxpayer dollars to large agribusinesses producing a small number of commodity crops. 

But the Farm Bill passed by the Senate also contains important flaws. First, it would continue the flawed crop insurance program, which also heavily subsidies the largest producers of commodity crops, without imposing meaningful caps. This program has cost taxpayers $30 billion over the decade 2001-10, and as with the Direct Payments program, the benefits are heavily concentrated on corn and soy, with nearly 40%
of the value of the insurance subsidies going to those two crops alone. Continuing the crop insurance program without meaningful reform will leave the public on the hook for billions more.

Second, even as it ends the Direct Payments program, the Senate’s Bill creates a new subsidy scheme that shares characteristics of that flawed, discredited program. The proposed Agriculture Risk Coverage program would create a revenue guarantee for the producers of commodity crops that would most benefit the largest agribusinesses. Further, it would lock in the current, high price levels for corn and soy for years to come, with taxpayer dollars serving to insulate agribusinesses from the laws of supply and demand. Because this new program would continue to send taxpayer dollars to the largest agribusinesses, and subsidize them for producing commodity crops which may be processed into junk food ingredients, it is little more than the spiritual successor to the Direct Payment program – indeed, if crop prices fall below their current high levels, it could end up costing taxpayers more than the Direct Payments program ever did.

At a time of high deficits and significant cuts to important public interest priorities, it is unjustifiable to continue sending billions of taxpayer dollars to large agribusinesses who don’t need the assistance. Programs like the Direct Payments program and crop insurance should be ended or capped, without being replaced by new programs that share the same flaws.

Over the coming weeks, U.S. PIRG is calling on the House of Representatives to:

1. End the Direct Payments program  

The Direct Payments program sends cash to farmers based on the historical commodity crop production of their land.  Because these payments are tied to land and paid on a per-acre basis, they are heavily tilted towards the biggest players, and even in years of record farm income, recipients of farm program still get the payments. 

  • Solution: terminate the Direct Payments program, and do not introduce new programs (e.g. shallow loss proposals, ARC) to take its place.
  • Savings: the CBO’s score of the Senate Farm Bill estimated that this step would save $45 billion over ten years. 

2. Set a profitability cap to limit handouts to the biggest players 

Many subsidy recipients are large, profitable operations who do not need taxpayer assistance.  If the justification for subsidies is to help small or financially struggling farmers, this rationale completely breaks down as applied to these big, high-profit businesses. 

  • Solution: create a profitability limit, such that no subsidies under the Farm Bill flow to recipients with Adjusted Gross Incomes of $250,000 or more (the limit would not be doubled if the business happens to be established in the name of a married couple, unlike some current subsidy limits).
  • Savings: a similar amendment proposed in the Senate was scored by CBO as saving $7 billion over the next 10 years (though portions of these savings may be attributable to reduced spending on the Senate’s new ARC program).

3. Limit the size of premium subsidies under the Crop Insurance Program 

The cost of crop insurance to the federal government has soared from $1.5 billion in 2002 to $7.4 billion in 2011, with taxpayers picking up 62% of crop insurance premiums for participating agribusinesses.  Much like the Direct Payments program, the structure of the crop insurance program benefits the largest players, with 4% of farmers getting 73% of the dollars.  The subsidies also benefit the crop insurance industry, which posted nearly $2 billion in profits in 2011.

 Solution: create a cap on premium subsidies, such that no recipient could receive more than $40,000 under the crop insurance program in a single year.

  • Savings: CBO scored a similar Senate amendment as saving $5.2 billion over 10 years (note that some businesses with profits above $250,000 may also receive crop insurance premium subsidies of more than $40,000 per year, meaning there may be some overlap between with these savings and those of amendment number 2).  

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