Agricultural policy is outdated and has not changed to keep up with modern farming and ranching. The romantic notion of the struggling family farmer does not reflect 21st-century agriculture. Average farm household income has consistently been greater than average U.S. household income. Based on the latest data (2014), average farm household income was an astonishing 74 percent greater than average U.S. household income. Agricultural production comes primarily from a small number of farms, most of which are large farms.
Congress has continued to ignore free-market principles by preserving an endless array of subsidies that shift almost all risk from agricultural producers to taxpayers. Like those in other businesses, farmers and ranchers can manage risk on their own. U.S. agricultural policy should reflect the same free-market principles that have promoted prosperity and freedom for this nation. Quite simply, a behemoth of outdated government programs needs to be torn down. In addition, environmental regulation, trade barriers, and infringements of property rights create unnecessary and costly obstacles for farmers and ranchers. Congress should create agricultural policy that benefits all Americans, from the farmers who produce the food to the consumers who purchase food.
Repeal the Agricultural Risk Coverage and Price Loss Coverage Programs. In the 2014 farm bill, Congress eliminated the direct payment program that paid farmers regardless of need. However, Congress did not stop there. It added two major new commodity programs: Agricultural Risk Coverage (ARC) and the Price Loss Coverage (PLC) programs. On a crop-by-crop basis, farmers can participate either in the ARC program or in the PLC program. The ARC program protects farmers from shallow losses (i.e., minor losses), providing payments when their actual revenues fall below 86 percent of the expected revenues for their crops. The PLC program provides payments to farmers when commodity prices fall below a fixed reference price established by statute. These programs go far beyond providing a “safety net” for farmers. The ARC program would provide protection against minor losses that could even be attributed to normal business risk. The PLC program had such high reference prices that payments were effectively guaranteed for some commodities. Not surprisingly, these programs are expected to cost even more than the direct payment program.
Seek Private Solutions to Risk Management. The most expensive farm program is crop insurance. The costs have skyrocketed. According to the Government Accountability Office (GAO), costs have averaged $3.8 billion annually in 2004–2008, $8.5 billion annually in 2009–2014, and are projected to cost $8.9 billion annually in 2015–2024. Taxpayers subsidize about 62 percent of the premiums that farmers pay for this program. This excessive subsidy can distort decisions made by farmers because they have too little personal economic risk, which discourages them from implementing risk-management strategies on their own that could minimize loss. Farmers and ranchers are more than capable of managing risk. Congress should start moving toward a private risk-based management system to replace this massive government system.
Allow Sugar to Compete in a Free Market. The sugar program manipulates the market to reduce supply and drive up prices. As would be expected, American sugar prices are consistently higher than world prices, thereby hurting American consumers and workers in industries that use sugar to manufacture goods. Congress should repeal the sugar program. Sugar should compete in a free market as other businesses do without price guarantees, supply restrictions, import quotas, and other government intervention.
Respect Individual Dietary Choices. From Obamacare’s mandatory menu labeling requirements to the Food and Drug Administration’s (FDA) de facto ban on artificial trans fat, federal government intrusion into the dietary choices of Americans is growing. Underlying these mandates is the arrogant presumption that individuals make misinformed choices and the government must therefore guide or even compel the public to make the “right” choices. Congress should respect that most basic and private aspect of our lives: eating. To this end, Congress should stop creating and funding new federal food labeling mandates and other requirements that presume Americans are incapable of making informed dietary choices. Further, Congress should prohibit federal funding to state and local governments that would be used to impose food bans.
Oppose the Mandatory Labeling of Genetically Engineered Food. From the American Medical Association and the FDA to the World Health Organization, the science overwhelmingly shows that genetically engineered food is just as safe as non-genetically engineered food. Despite the science, however, there are attempts on the state and federal level to mandate the labeling of genetically engineered food. Such a mandate would hurt consumers. A government labeling mandate would misinform consumers by giving them the impression that the government believes there is something wrong with genetically engineered food. This would be completely inconsistent with sound science and the federal government’s own position. Further, companies can already voluntarily label their products as being non-genetically engineered if they choose to do so. Genetic engineering is a critical innovation that will help feed the world and keep prices low. These misleading labeling requirements could undermine its development.
Free Agricultural Trade from Intervention. American agricultural exports were a record high $152.5 billion in fiscal year (FY) 2014. There are still significant opportunities for increasing exports and, as a result, to create jobs and promote economic growth. Some of these opportunities are squandered when Congress subsidizes agricultural industries, encouraging foreign countries to respond in kind and even to retaliate if the U.S. is in violation of World Trade Organization rules. While other countries may subsidize their industries or create trade barriers regardless of U.S. actions, free trade will never be promoted by creating our own obstacles that also hurt domestic consumers and industries. Congress should not develop agriculture and trade policy in a vacuum, looking only at the impact on one industry, but instead should examine the entire economic picture. Congress should also proactively encourage reductions in foreign trade barriers that block American products from entering foreign markets.
Separate Food Stamps from Agricultural Programs. For decades, Congress has passed farm bills by combining food stamps with agricultural programs. This unholy alliance has existed for political purposes alone to help push through legislation. The presumption is that rural legislators will push for farm subsidies and urban legislators will push for food stamps. Separation is the prerequisite for real reform of agricultural policy because, like food stamps, agricultural policy needs to be addressed on its own merits. Congress should consider food stamps and agriculture programs in two separate bills, and the programs should be authorized on staggered schedules so that there is no potential for overlap in the future.
Facts and Figures
- Based on the latest data (2014), the average farm household income was $131,754 compared to the average U.S. household income of $75,738, an incredible 74 percent difference. Over the 2010–2014 period, the percent difference averaged about 48 percent.
- The farm debt-to-asset ratio is a key indicator of the financial strength of farms. The USDA, when determining whether a farm has a favorable financial position, uses a debt-to-asset ratio of no more than 40 percent. Over the past 45 years, the ratio has not even come close to 40 percent (not once even getting to 23 percent). In 2014, this ratio was 11.7 percent.
- The number of farms has decreased dramatically from a peak of 6.8 million in 1935 to about 2.1 million in 2014 (the number of farms has remained relatively constant since the mid-1980s).
- Most farms are extremely small operations. In 2014, 51 percent of farms had sales less than $10,000.
- Almost all agricultural production comes from a small number of large farms. In 2012, farms with sales greater than $1 million accounted for 66 percent of all agricultural sales. Farms that had sales greater than $250,000 (about 12 percent of all farms) accounted for 89 percent of all sales.
- According to the 2006 United States Department of Commerce report, “Employment Changes in U.S. Food Manufacturing: The Impact of Sugar Prices,” “[f]or each one sugar growing and harvesting job saved through high U.S. sugar prices, nearly three confectionery manufacturing jobs are lost.”
Selected Additional Resources
Daren Bakst, “10 Guiding Principles for Agriculture Policy: A Free-Market Vision,” Heritage Foundation Issue Brief No. 4213, May 5, 2014.
Daren Bakst, “Capping the Costs of the Two Major New Commodity Programs,” Heritage Foundation Issue Brief No. 4344, February 10, 2015.
Daren Bakst, “Congress Should Separate Food Stamps from Agricultural Programs,” Heritage Foundation Issue Brief No. 4375, April 7, 2015.
Daren Bakst, “FDA’s Artificial Trans Fat ‘Ban’: A Dangerous Step to Control Personal Dietary Choices,” Heritage Foundation Issue Brief No. 4246, July 10, 2014.
Daren Bakst, “The Federal Government Should Stop Limiting the Sale of Certain Fruits and Vegetables,” Heritage Foundation Issue Brief No. 4466, September 29, 2015.
Daren Bakst, “Government Control of Your Diet: Threats to ‘Freedom to Eat,’” Heritage Foundation Issue Brief No. 4033, September 3, 2013.
Daren Bakst, “A Q & A on the Mandatory Labeling of Genetically Engineered Foods,” Heritage Foundation Issue Brief No. 4440, July 22, 2015.