farm subsidies

Report: Agriculture Department Underestimated Farm Bill Cost

What does the figure $21 billion mean to you?

If you care how much money remains in your wallet and how much is confiscated by the federal government for costly, outdated agriculture programs, it should mean a lot.

On February 7, President Obama signed into law the $1 trillion food stamp and farm bill. Conservatives had long warned that this bill is a massive burden to taxpayers that inappropriately combines food stamp policy and farm policy, preventing either portion from being reformed.

As it turns out, the Agriculture Department underestimated — by $21 billion — how much taxpayers would be forking over for the farm bill’s counter cyclical program.

New economic projections released by the Agriculture Department Thursday carry a sober warning of what lower corn prices could mean for the cost of the new farm bill over the next few years.

It is projected that the price of corn will fall to just $3.65 per bushel of corn beginning September 1, compared to an average in the current year of $4.50.  The decline continues in 2015-2016 to $3.30, before increasing again slowly to $4.10-$4.20 per bushel by 2023 and 2024.  When the Congressional budget office scored the farm bill, they didn’t expect this steep decline in corn prices.

Under the farm bill’s counter cyclical program for farmers, taxpayers will be paying the difference.

Specifically, there may be a spike in payments due to the drop in corn prices under the ARC Agricultural Risk Coverage (ARC) program and/or  the Price Loss Coverage (PLC) program.  ARC requires taxpayers to cover so-called ‘shallow losses’ for farmers, while PLC covers deep losses from commodity prices dropping below their reference price. As Heritage analyst Daren Bakst noted months ago:

These payments are allegedly intended to cover deep (major) losses. According to the House Agriculture Committee, regarding its reference price program, “Price Loss Coverage (PLC) is a risk management tool that addresses deep, multiple-year price declines.” This is far from the case, though. If this were true, reference prices would be set well below projected prices so that payments would only be triggered in the event of a major loss.  

There was a spike in prices under the ACRE revenue protection program under the old 2008 farm bill.

“As crop prices decline from recent high levels, incentives to enroll in the ACRE program rise,” the report reads. “Payments under the program associated with 2014-16 crops (paid in 2015-17) are projected to be large, over $9 billion annually in 2015-16 and more than $4 billion in 2017.”

Indeed, from 2015 to 2017, the report shows that total government payments to farmers would jump by about $21 billion over what the department had forecast a year ago.

This is bad news for taxpayers, and we can truly say ‘Heritage told you so‘:

In addition to the expansion of the crop insurance program, there are major new programs that would be added to cover “shallow” losses. They represent a major shift in how the farm bill operates. The concept of a safety net for farmers who suffer significant losses is being trumped by a new model of protecting farmers from virtually all risk.

All businesses face risks, which serves as a valuable way for them to identify new ways of improving operations and competing more effectively. Taxpayers should not be on the hook for minor losses or to help eliminate competitive challenges that drive innovation in the agricultural sector. 

The news of this potentially heavier burden to taxpayers comes as no surprise to conservatives who were calling for real reforms and for the elimination of unnecessary programs.

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