The Big Ag bailout

A global commodity slowdown has sent U.S. food prices falling.

After record profits in 2013, U.S. farm income is expected to drop 11.5 percent in 2016.  And while the commodity downturn is hurting multiple industries, politically powerful agricultural special interests are uniquely able to limit their losses via various government programs.

In addition to a base of steady handouts, these special interests often request one-off bailouts of “surplus” commodities.  Most recently, the U.S. Department of Agriculture (USDA) announced that it would buy $20 million in cheese and $11.7 million in eggs.

The cheese buy was a direct response to the mooing and clucking of Congress, egged on by the American Farm Bureau, the National Milk Producers Federation, and the National Farmers Union, after milk prices dropped 13 percent over the last year.  But for some special interests, the 11-million-pound cheese purchase wasn’t enough.

“The industry initially asked for $100 to $150 million, but they only gave us $20 million, which is somewhat disappointing,” said Zack Clark of the National Farmers Union.  “Perhaps next fiscal year [the USDA] can do more.”

Now, that’s a scary thought.  The USDA has already binged on agricultural bailouts this year.  Using Section 32 of the Depression-era Agricultural Act of 1935, the agency doled out $13 million for 30 million pounds of wild blueberries in April and acquired $27.5 million’s worth of cranberry concentrate in June.

All told, the USDA has spent $313 million on Section 32 agricultural bailouts in fiscal year 2016 – close to the $319.5 million figure it reached in 2009 at the height of the recession.

Unfortunately, these USDA commodity buys are just the tip of the iceberg.  And as University of California, Davis economist Daniel Sumner explains, these expensive bailouts actually do little to influence commodity prices.  These buys may produce only “some sort of very temporary little price blip” that is “essentially window dressing.”

Although it’s a relief that the government isn’t inflating prices for too long, one has to wonder: with “window dressing” this expensive, how much money will USDA programs eventually cost taxpayers?

According to the Congressional Budget Office’s latest figures, total government farm program spending will hit $14 billion by year’s end, a billion-dollar bump from 2015.  Future projections are even steeper, with spending expected to surpass $19 billion in 2017. 

The majority of these payments are simply taxpayer-funded subsidies disguised as insurance programs most of which will go to a concentrated few.  The Environmental Working Group’s Farm Subsidy Database found that just 1 percent of farm subsidy recipients received 26 percent of the subsidy payments from 1995 to 2014.  Furthermore, the top 20 percent received 91 percent of all such payments.

Big Agriculture and its cronies claim that the farm industry cannot survive without subsidies.  But many experts disagree.  Montana State University professor Vincent H. Smith argues that most farmers don’t need bailouts and “are perfectly capable of managing the year-to-year price and production risks they face.”

Moreover, these subsidies hurt farmers by distorting market signals, encouraging the continued planting of inefficient or otherwise unprofitable crops.  Ironically, this problem may actually aggravate agricultural gluts and lead to other undue risks. 

The United States is the world’s most efficient agricultural producer not because of government, but in spite of it.  U.S. farmers already have comparative advantages in technology, capital, and natural resources.  For the sake of taxpayers and farmers, too the government needs to stop doling out taxpayer money to special interests as if it’s a free giveaway. 

Jordan Campbell is a policy and research assistant at the Charles Koch Institute.  His research and writing center on the need to stop cronyism and corporate welfare.