Agricultural policy covers a wide range of issues—from farm subsidies, trade, and agricultural biotechnology to the crushing regulatory burden imposed on farmers and ranchers. Unfortunately, policymakers usually think government intervention to assist agricultural producers in managing risk through the so-called taxpayer-funded “safety net” is the primary issue in agricultural policy; this is exacerbated by the narrow agricultural special interests defending every dollar flowing to them through the out-of-control handout system.
While this misguided safety net is in need of major reform, policymakers need to look at the other side of the equation: How does government intervention make farming more difficult for agricultural producers? This primarily means addressing regulation and other obstacles that the federal government creates that prevent farmers and ranchers from having the freedom necessary to do what they do best: produce food for this nation and the world.
Reform the Current Agricultural “Safety Net”—a Crony Welfare System—and Replace It with a Real Safety Net to Protect Farmers Only from Major Crop Losses. The existing safety net can trigger payments even when farmers have bumper crops, or merely receive less revenue than expected. The federal government should stop insulting farmers by treating them as incapable of operating in a capitalist system and responding to market forces, such as prices, like other businesses. Instead, the taxpayer-funded safety net, at most, should provide government assistance when farmers and ranchers experience major crop losses.
Repeal the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) Programs. In the 2014 farm bill, Congress added two major new commodity programs that did not require crop losses: Agricultural Risk Coverage (ARC) and the Price Loss Coverage (PLC) programs. The ARC program provides payments when agricultural producers do not meet expected revenue targets. The PLC program provides payments to farmers when commodity prices fall below a fixed reference price established by statute. Both programs are open-ended in terms of costs, with taxpayers being forced to write a blank check to producers. The House of Representatives recognized this problem, including a provision in its version of the last farm bill that would have capped the costs. The provision was removed in the final bill. As it turns out, these programs are now projected to cost about 80 percent more than initially projected when the farm bill passed ($31 billion compared to $18 billion over the first five years of the programs).
Eliminate the Sugar and Dairy Programs. 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. The dairy program also interferes in the market by guaranteeing minimum prices through marketing orders and providing payments when margins between prices and feed costs fall below certain levels.
Modify the Federal Crop Insurance Program to Eliminate Revenue Policies While Maintaining Yield Polices. There are generally two types of policies: yield-based and revenue-based. A yield-based policy protects farmers from yields that are lower than expected due to events beyond the control of farmers, such as weather and disease. Revenue-based policies are more popular than yield-based policies because they do not even require yield losses. A revenue-based policy protects against dips in expected revenue due to low prices, low yields, or both. These revenue policies are relatively new, starting in 1997. The federal government should not be in the business of insuring prices or revenues; agricultural producers, like other businesses, should not be insulated from market forces and assured of financial success. Yield policies should provide protection exclusively for major crop losses.
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 entirely for political purposes to help push through legislation. The presumption is that rural legislators will push for farm subsidies and that 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 agricultural 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.
Free Agricultural Trade from Intervention. American agriculture is extremely dependent on free trade. 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 is undermined by the U.S. creating its own obstacles that also hurt domestic consumers and industries. Congress should not develop agricultural 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.
Repeal the Federal Mandatory Genetically Modified Organism (GMO) Labeling Bill. From the American Medical Association and the Food and Drug Administration (FDA) to the World Health Organization, the science overwhelmingly shows that genetically engineered food on the market is just as safe as its non-genetically engineered counterparts. Despite the science, however, Congress passed a federal mandatory labeling bill, giving consumers the impression that the government believes there is something wrong with genetically engineered food. This is inconsistent with sound science and the federal government’s own research. Further, companies can already voluntarily label their products as non-genetically engineered if they choose to do so, as many already do. Genetic engineering is a critical innovation that will help feed the world and keep prices low. These misleading labeling requirements could undermine its development.
Make Significant Changes to the Clean Water Act. Congress should properly define “navigable waters” in a manner that is generally consistent with Justice Scalia’s plurality opinion in the 2006 Rapanos v. United States, clarify that the normal farming exception applies to any farm that engages in an activity that is normal for farming in general (not normal for the specific farm), and prohibit the federal government from directly or indirectly regulating non-point sources of water pollution.
Reform the Endangered Species Act (ESA). While the law needs many changes, a central theme should be to ensure that the costs of the ESA are not borne by individual property owners, but by society as a whole.
Respect Individual Dietary Choices. From Obamacare’s mandatory menu labeling requirements to the FDA’s de facto ban on artificial trans fats, 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 Americans’ 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.
Facts and Figures
FACT: While agricultural special interests try to perpetuate the myth of the struggling small farmer in order to help justify government intervention, farm households in general are much better off than non-farm households, and key financial indicators continue to show the financial strength of farms.
- In 2015, the median income of all farm households was $77,000; it was $51,700 for all U.S. households. That is an incredible 49 percent difference. Farm households have consistently had higher average and median income than all U.S. households for decades.
- The wealth numbers are even more staggering. The median wealth of farm households was $827,000 in 2015, compared to $82,600 for all U.S. households. That is about 10 times greater than the median wealth of all U.S. households.
- The debt-to-asset ratios and debt-to-equity ratios for farms have been low for decades. The debt-to-asset ratio is projected to be 13.9 percent in 2017, well within the U.S. Department of Agriculture’s Economic Research Service’s favorable standard of 40 percent or less.
FACT: Commercial farms, including the largest agricultural producers, receive most of the farm subsidies.
- Commercial farms—midsize, large, and very large family farms, as well as non-family farms—represent only about 10 percent of the total number of farms in the U.S., but account for 76 percent of the value of production.
- These commercial farms received 70 percent of government commodity payments in 2015, and 78 percent of federal crop insurance indemnities.
FACT: The federal crop insurance program has veered far off its mission when it was greatly expanded in 1980 to replace the disaster payments program.
- The disaster payments program of the 1970s was viewed as too costly, and as a result, the federal crop insurance program was seen as an alternative. Ironically, crop insurance is far costlier than the program it was meant to replace (about six times greater adjusted for inflation) and now goes way beyond protecting against disasters.
- In 1990, the Bush Administration proposed eliminating the crop insurance program. The Administration argued that a “standing disaster assistance program that provides protection against catastrophic losses would allow private insurers to develop multiple peril crop insurance coverage for individual farmers.” This proposal to eliminate the crop insurance program was not adopted, but the concerns expressed 27 years ago are even more relevant today.
- The program had very low participation, and it was not until Congress continued to provide more subsidies and greater coverage levels that farmers started to participate. Currently, taxpayers pay for an astonishing 62 percent of the premiums for crop insurance and now have to cover revenue losses, not just losses connected to disasters.
- Eliminating revenue insurance, while maintaining yield insurance, would get the federal crop insurance program back on its mission.
Selected Additional Resources
Daren Bakst, “Congress Should Separate Food Stamps from Agricultural Programs,” Heritage Foundation Issue Brief No. 4375, April 7, 2015.
Daren Bakst, ed., Farms and Free Enterprise: A Blueprint for Agricultural Policy, The Heritage Foundation, Mandate for Leadership Series, 2016.
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, “Federal and State Governments Should Not Require Mandatory Labeling of Genetically Engineered Food,” Heritage Foundation Issue Brief No. 4567, May 20, 2016.
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, “Three Key Reforms for Federal Water Policy,” Heritage Foundation Issue Brief No. 4633, November 23, 2016.
Daren Bakst, “A Q & A on the Mandatory Labeling of Genetically Engineered Foods,” Heritage Foundation Issue Brief No. 4440, July 22, 2015.