“The mark of a healthy, dynamic market is having new firms constantly challenge the business models of old firms. Without this creative destruction, economies fail to serve consumer desires and stagnate.” – Matthew Mitchell, senior research fellow, Mercatus Center
If I told you that you could run a business where you were guaranteed to sell your product at a certain price or make a certain amount of revenue with no regard for planning or best-practices, would you believe me? Under our current federal farm bill, that is exactly what is happening, and it is happening at the expense of you, the taxpayer.
The current farm bill, passed in 2014, utilizes price controls and subsidized “crop insurance.” At face value, crop insurance sounds like a wise investment that aims to minimize risk to farmers and help ensure bank loans for crops. In practice, these heavily subsidized plans provide a disincentive for farmers to plan accordingly, because any losses incurred are footed by the taxpayers. This policy stifles innovation and decreases productivity by motivating farmers to plant crops on poor-quality land that they know will not produce, not diversifying their operations and cut back on important things such as fertilizer and new technology.
When farm subsidies began in the 1930’s, farmers were struggling to make ends meet because of the Great Depression and the Dust Bowl. Although they were originally meant to be a temporary band aid, they have ballooned over the decades into a seemingly untouchable government program that artificially props up a handful of incredibly large farms at significant expense to the American taxpayers. The fact that agribusiness donates nearly four times more money to members of the House Agriculture Committee than non-members makes meaningful change seem all but unlikely.
This article, put out by the Mercatus Center, argues that these subsidies and price controls actually redistribute wealth from low and middle income Americans to the wealthiest farmers in the country. A prime example of this is sugar. Taxpayers foot the bill for $1.1 billion in subsidies annually for sugar producers. Of that $1.1 billion, $600 million (over half) went to only 3 farms in 2013. The cost to the American taxpayer doesn’t end there. Americans take another hit when they go to the grocery store. The government also sets price controls, and because of this, Americans pay nearly twice what average world consumers pay for sugar. American taxpayers are both subsidizing and paying more than the rest of the world for the same product. Does this sound like a free market to you?
It doesn’t end with sugar. In fact, of the $17.5 billion paid to farmers each year in “crop insurance,” about 80% goes to only 15-20% of the wealthiest farmers in the nation. These policies, initially enacted to raise farmers out of poverty and create some stability in the industry, are making a few farmers very wealthy. According to the Wall Street Journal, farmers who receive the majority subsidies are worth between $6-10 million on average. In general, farm households average 15% more income than average non-farm households.
The net worth of the median commercial farm increased drastically between 2000 and 2013. Farms that were worth $800,000 in 2000 were worth over $2.5 million in 2013. Farms also enjoy a much better stability today than other types of businesses. In fact, the average annual business failure rate is 14 times greater than the average farm failure rate. Only 1% of all farms, or one in 200, go out of business in any given year, and the top three reasons for failure are catastrophic health care costs, divorce and poor management.
Proponents of farm subsidies argue that subsidies are necessary to ensure food security for the American people, even though America is a net exporter of crops and only a handful of grains such as corn, wheat and soybeans are subsidized. Meat and farms that produce other produce demonstrate the ability of farms to succeed in securing loans and turning a profit without the use of taxpayer dollars.
While some states, primarily in the mid-west, are bloated with subsidized farming, Maine comes in 41st when it comes to agricultural subsidies. According to the EWG Farm Subsidies Database, Maine received $277 million in subsidies between 1995-2014, $9.3 million of which was paid directly to farms. Eighty-two percent of our farms did not collect subsidy payment. Between 1995-2015, ten percent of our farms collected 72% of all subsidies. It is interesting that while dairy and corn received a significant portion of the subsidies, potato farmers received only $535,858 over the 9 years, in spite of the fact that potatoes are a major crop in Maine.
As significant as these numbers seem at the federal level, they only constitute about 20% of the farm bill. The remaining 80% funds the food stamp program, which has spending and waste issues of its own. However, as it says in this Washington Post article, “If we can’t eliminate the least valuable spending, then we will be condemned to perpetually large deficits, huge tax increases or indiscriminate cuts in many federal programs…” These subsidies have long outlived their usefulness. We cannot afford subsidies for those who are not in dire need any longer.
If farm subsidies were to end today, we would still grow corn in Maine.