Farm Subsidies: Not Your Father’s Cropshares

Imagine this scenario: A massive disaster hits and America’s food sources are wiped out. Miles of crops no longer exist. The cost of food skyrockets. America’s farmers are devastated. The land is destroyed, the farm equipment turned to trash, homes and livelihoods are ruined.

The government mobilizes into action. How? By paying the farmers for their losses.

Could it happen? Well, weather disasters do occur, and drought and crop loss do impact farms. And lo and behold, the government does pay farmers for their losses. But is this assistance really necessary?

By one estimate, it would cost taxpayers about $6 billion a year to cover the losses from these disasters. More so, this level of loss doesn’t have any real impact on America’s food supply. A bigger impact from farm production and prices comes from government manipulation of the market.

So why are farmers receiving $23 billion in federal farm subsidies — government payouts — every year, more than a third of which is going to pay for crop insurance?

Farmers are vital to America and the world. America alone provides about 30 percent of the global corn supply each year and 8 percent of its soybeans.

But the image of the struggling American family farm is now more myth than fact. Data from 2014 show that the median wealth for farm operator households is $802,000, or roughly 10 times more than the median for U.S. households overall ($81,200). Farm families are six times wealthier than the average American family.

Conversely, 2 percent of farm households live below the poverty line. Compare that to the national average, where 43 million Americans, around 13.5 percent, live in poverty (if you don’t count government assistance!).

That’s not to say there aren’t a whole lot of family businesses operating farms. That’s merely to say that the vast majority of the nation’s crops comes from large farm productions.

So why is the taxpayer subsidizing farmers? For some perspective: Farmers in the top 1 percent income bracket on average collect $1.5 million in annual farm subsidy welfare checks. Seventy-nine percent of all farm subsidies are paid to the top 10 percent of the largest farm operations.

American taxpayers give farmers $8.5 billion a year to pay for insurance in case of crop losses. You think Obamacare is a a wealth redistribution program, consider this: the taxpayer effectively pays $2 to transfer $0.90 to the farmer and $1.10 to the insurance industry.

From Vincent Smith, an economics professor in the Department of Agricultural Economics and Economics at Montana State University:

The largest farm subsidy boondoggle through which the farm sector milks the federal taxpayer is the federal crop insurance program. Currently, under this program, taxpayers fund over 60 percent of all indemnities received by farmers. For every dollar the average farmer pays out in premiums, he or she gets back more than $2 in indemnity payments without making any contribution to the program’s administrative costs.

For farmers, crop insurance is an upside down Las Vegas gamble where the odds of winning are massively stacked in favor of the gambler, not the casino. The “casinos” in this case are the agricultural insurance companies, and they are not really losing any money because almost all crop insurance program losses are underwritten by taxpayers. …

There are no caps on subsidies in the federal crop insurance program; the bigger and richer the farm, the more lucrative the crop insurance program. Because the risks of crop revenue losses from poor crops or low crop prices are covered, farmers adopt more risky production and financial strategies. They win if the risky decisions pay off; the taxpayer foots the bill if they don’t. Farmers also have incentives to plant crops on lands that have poor soils, are environmentally fragile and that would never otherwise be used for crop production.

Smith notes that the current administration has proposed modest reforms to the 2018 farm bill, which comes up for renewal every five years. It calls for a 20 percent drop in the $23 billion spent every year on farm subsidies. Of that, about $2.8 billion would come from reducing insurance subsidies.

The Trump administration wants a cap of $40,000 per individual farm for government subsidies used to buy crop insurance premiums. These cuts would only affect farms with market sales for crops in excess of $750,000.

Currently the government pays an average of 62% of all premiums for crop insurance coverage, with no limits on how big an individual farm subsidy can be. In 2011, according to the nonpartisan Government Accountability Office, more than 20 farms received over $1 million in such subsidies, and most crop insurance subsidies flowed to very large corporate farms. The White House’s Office of Management and Budget estimates that the $40,000 cap would reduce annual government spending by $1.7 billion, or about 15% of current crop-insurance subsidies.

According to Smith, the reduction in subsidies to farming operations would be about 1 percent of farm revenue. At $400 billion in annual revenues on top of $23 billion in government largesse, that sum barely impacts the market.

Agriculture is only 1 percent of the overall U.S. economy, and it does involve risk, but does that explanation provide a justification to access the taxpayers’ pocketbook? And if there’s one place to start cutting, shouldn’t it be on payouts to a wealthy class of business owners?