Fixing the Farm Bill

July 19, 2011

Farm Bill programs transfer taxpayer and additional consumer dollars to relatively wealthy farmers from generally less wealthy nonfarm families.  Some programs serve no purpose other than to give farmers and landowners handouts.  Other programs are even worse because they combine handouts with required market distortions and simple waste, say Barry K. Goodwin, a professor at North Carolina State University, Vincent H. Smith, a professor of agricultural economics at Montana State University, and Daniel A. Sumner, a professor at the University of California, Davis.

Among the farm programs to be eliminated, the Supplemental Revenue Assistance Payments Program (SURE) crop disaster program should rank high on the list.

  • Almost all crop producers can obtain heavily subsidized federal crop insurance to cover up to 75 or 80 percent of their potential yields or per-acre revenues.
  • The $2 billion per year spent on the SURE program gives many farmers 90 percent insurance coverage at no additional cost almost every year.

The best solution for subsidized crop insurance is to eliminate the subsidy and let the program compete in the commercial market.  Other countries deliver subsidized agricultural insurance schemes at a much lower cost per dollar of subsidy accruing to farmers.  

  • Reforming the crop insurance delivery system could almost certainly save over $1 billion of taxpayer funds.
  • And reducing producer subsidies by about 20 percent (from 59 percent of the actuarially fair premium to only 47 percent for the most frequently purchased insurance policies) would save about another $500 million dollars.

Cotton, dairy subsidy, and sugar programs also need to be eliminated.  All three programs create substantive problems for the United States in trade relations and trade negotiations, and inhibit the development of agricultural export markets, say Goodwin, Smith and Sumner.

Source: Barry K. Goodwin, Vincent H. Smith and Daniel A. Sumner, "American Boondoggle: Fixing the 2012 Farm Bill," American Enterprise Institute, July 2011.

For text:

http://www.aei.org/docLib/Final-Goodwin-Smith-Sumner.pdf

 

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