Sonny Perdue gives some good news in his 2018 farm bill goals

Source: By Vincent H. Smith, The Hill • Posted: Thursday, February 1, 2018

The U.S. Department of Agriculture, prompted and authorized by Secretary Sonny Perdue, has just released the Trump administration’s legislative principles for the 2018 farm bill and farm subsidies. The good news is that true to the Trump administration’s widely stated fiscal objective to reduce wasteful government spending, one explicit legislative goal is to provide a “fiscally responsible farm bill that reflects the administration’s budget goals.”

Achieving this goal will mean gutting most farm subsidy programs because they are wasteful. The big ticket programs are federal crop insurance and two new farm subsidy initiatives called “shallow loss.” These do almost nothing for the few farm businesses that are in a truly financially vulnerable condition, nor do they have measurable impacts on poverty in rural areas, and if anything, increase food prices for consumers. Instead, they send “welfare checks” to wealthy landowners and financially successful farm businesses. They encourage farm businesses to adopt high risk production practices, including planting crops on fragile lands with adverse environmental consequences.

Most U.S. farm programs, especially the federal crop insurance program, are intentionally structured to send most federal subsidies to the largest farm business operations. About $10 billion a year, or 70 percent of annual crop insurance and shallow loss subsidy payments, flows to the largest 10 percent of farm businesses. On average, this translates into $70,000 annually in government welfare payments for these farm businesses owned by wealthy households worth millions of dollars of assets and with incomes multiple times those of a typical U.S. family.

With the farm bill principles document, the Trump administration is also advocating for reforms to improve the efficiency and effectiveness of environmental programs. Two current conservation programs, the Environmental Quality Incentives Program and the Conservation Stewardship Program, currently cost taxpayers about $3 billion a year.

The Environmental Quality Incentives Program is intended to provide “cost share” subsidies to farmers who invest in technologies to reduce harmful environmental impacts. In practice, many of those funds are wasted and even used for investments that the USDA itself has already identified as environmentally harmful. Clearly, reforming this program should be a top priority in a new farm bill.

About half of all Conservation Stewardship Program funds have no impact on environmental quality because they are used to pay farmers for conservation practices that have already been adopted. Much of the rest of the budget for this program is also wasted, often paying farms to use specific types of operations to comply with local ordinances already on the books. Thus, this program is also ripe for reform.

Now for the “not good” but “not completely terrible” news. An administration goal for the 2018 farm bill specifies that it should not increase spending on farm safety net programs above current levels. This affects the two shallow loss programs, the Price Loss Coverage and Agricultural Risk Coverage, first included in the 2014 farm bill.

When the Congressional Budget Office scored the 2014 farm bill, it was required to use projections of future agricultural commodity prices that, even at the time, were known to be overly optimistic. As a result, the CBO estimated then that these new programs would cost taxpayers about $3.7 billion a year on average. In fact, they have proved much more expensive and have resulted in much higher subsidies. The CBO now expects them to cost about $7 billion a year over the next four years.

Under a fiscally responsible plan, these programs would be discontinued or heavily curtailed. Almost all of the farmers who benefit from these safety net programs also double dip by participating in the heavily subsidized federal crop insurance program. At the very least, spending on shallow loss programs could be capped at their original estimated costs of $3.7 billion.

The worrying news is that the administration is seeking a farm bill that would encourage innovative insurance products that enable “farmers to make sound production decisions.” If that means new products that reduce incentives for farmers to adopt high risk production practices, all is well and good. However, the phrase “product innovation” has been a code word in the past for expanding the insurance program to more crops and increasing the subsidies paid to farmers and crop insurance companies. Obviously, the latter approach would not be a fiscally responsible way to go.

On balance, many of the Trump administration’s legislative principles for farm subsidies in a 2018 farm bill have much to recommend them, especially from the perspective of economic efficiency and common sense use of taxpayer funds. The 2018 farm bill would represent a much needed sea change in U.S. agricultural policy if only Congress takes these principles seriously. We can only hope so.

Vincent H. Smith is a visiting scholar and director of agricultural studies at the American Enterprise Institute. He is also a professor and director of the Agricultural Marketing Policy Center at Montana State University.