NCPA - National Center for Policy Analysis

Farmers Facing Loss of Subsidy May Get New One

October 20, 2011

It seems a rare act of civic sacrifice: in the name of deficit reduction, lawmakers from both parties are calling for the end of a longstanding agricultural subsidy that puts about $5 billion a year in the pockets of their farmer constituents.  But in the same breath, the lawmakers and their farm lobby allies are seeking to send most of that money -- under a new name -- straight back to the same farmers, with most of the benefits going to large farms that grow commodity crops like corn, soybeans, wheat and cotton.  In essence, lawmakers would replace one subsidy with a new one, says the New York Times.

The new subsidy is being championed by Senator Sherrod Brown, Democrat of Ohio, and Senator John Thune, Republican of South Dakota, but it is unclear how much support a new subsidy would garner, since many lawmakers view farm programs as a likely source of budget savings.

In lean times, such support might seem vital, but in recent years commodity farmers have done well.

  • The Agriculture Department forecasts that farm profits this year, measured on a cash basis, will total $115 billion, 24 percent higher than last year, thanks to soaring crop prices.
  • Adjusted for inflation, profits are expected to be at their highest level since 1974.
  • The average income for farm households has been higher than general household incomes every year since 1996, and was $87,780 for all farms in 2010 and $201,465 for families living on large farms.

It is unclear how much the proposal would cost taxpayers.

  • Gary D. Schnitkey, a professor of farm management at the University of Illinois, said the plan could pay farmers $40 billion over 10 years.
  • That would be $20 billion less than the programs it replaced, including direct payments and some smaller subsidies.
  • But Vincent H. Smith, a professor of farm economics at Montana State University, said the cost could be much greater because the plan used recent high crop prices as its benchmark: "If farm prices move back towards what are widely viewed as more normal levels than their current levels, farmers will be compensated for going back to business as usual."

Source: William Neuman, "Farmers Facing Loss of Subsidy May Get New One," New York Times, October 17, 2011.

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