The Cost of New Farm Bill Programs

January 13, 2014

The Direct Payments Program is likely to be discontinued in the 2014 farm bill, say Vincent Smith and Barry Goodwin of the American Enterprise Institute.

Since 1996, the Direct Payments Program has transferred $5 billion per year in the form of subsidies to wealthy farmers and landowners. That program is likely to end in the new farm bill that is expected this month. However, one part of the program -- using base acres and yields -- is likely to be retained:

  • The amount of subsidies that a farm receives is determined by its base acres and base acre yields. Moreover, subsidy payments are actually based in large part on what was produced on the land between 1983 and 1986, not current production.
  • Two new subsidy program proposals in the House and Senate versions of the farm bills -- the Price Loss Coverage program and the Agricultural Risk Coverage program -- are likely to still use that formula.

Farmers are likely going to be given the choice to pick between those two programs (and will likely pick the one that provides the largest subsidies). The two programs are expected to be more expensive for taxpayers than the current Direct Payments Program and will provide larger subsidies to wealthy farmers.

Agricultural sector profits have increased by more than 100 percent over the last few years, yet the United States continues to provide billions of dollars of support to farmers.

Source: Vincent H. Smith and Barry K. Goodwin, "The Devil Is In the Details: Base Updating and the Cost of New Farm Bill Programs," American Enterprise Institute, January 7, 2014.

 

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