Is there a need for the “farm income safety net”?

In 2015 alone, farmers will receive about $18 billion in the form of direct taxpayer funded subsidies. In a detailed examination of what is commonly called “farm income safety net” payments, agricultural economist and American Enterprise Institute scholar Vincent H. Smith takes a look at these benefits including: federal crop price support, crop and dairy income support, and crop and livestock insurance programs.

Defenders of the Farm Bill often argue that farming is a financially risky business with volatile prices and thus farmers need to be protected — but is this really the case? On average, the top fifteen percent of all farmers receive 85 percent of farm subsidy payments and enjoy incomes of hundreds of thousands of dollars.

In his latest piece in the Washington Examiner, Smith examines and explains the pitfalls of this enormous “farm income safety net.” Among his key points:

• Farms fail financially at a fraction of the rate of businesses in other sectors of the economy
• Subsidies, like the hidden sugar subsidy, often cost jobs and increase food prices for all US families
• Many encouragements to adopt conservation practices end up as enticement for farmers to take land out of production and reduce crop supplies (thereby raising crop prices)
• The federal crop insurance program is the largest subsidy. Taxpayers fund over 60 % of all indemnities received by farmers. The average farmer gets back more than two dollars in indemnity payments without making any contribution to the program’s administrative costs. In addition, because the risk of crop revenue losses are covered, farmers adopt more risky production and financial strategies.
• While the Renewal Fuels Standards mandates are not part of the farm bill, by requiring that about 40 % of US corn crops and 15% of US soybean crops be used for ethanol production, they have had damaging consequences for the weekly food bill of every US household.

Smith concludes that:

“It is . . . feasible . . . to develop well-structured permanent disaster aid programs that would trigger reasonable payments to farmers in areas where extreme weather has genuinely devastated their operations…This type of disaster aid program would help farms only when they genuinely face extreme production losses that occur rarely (not daily or annually). The program would cost taxpayers about twelve billion dollars a year less than the current plethora of handout programs that mainly benefit wealthy farmers and landowners. This would amount to a real farm income safety net reform at less than one third of the cost of the current wasteful and poorly targeted federal farm subsidy program.”

To arrange an interview with Vincent Smith or with another AEI scholar, please contact media services at mediaservices@aei.org or 202.862.5829

from AEI » Latest Content http://ift.tt/1ARxRLU