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Proposal: Peel Back Farm Subsidies

Our farm subsidies allow large agribusinesses to increase their profits at taxpayer expense.  They also contribute to America's obesity and other health problems by subsidizing junk food products. If you're concerned about Americans' economic and physical health, explore this proposal for ways to improve farm subsidies.

The Issue

Problem Defined

Since 1995, the US government has distributed $292 billion in agricultural subsidies. The government originally enacted farm subsidies in the 1930's to provide a safety net for family farmers and stabilize the food supply after the Great Depression and Dust Bowl, which destroyed many crops. The subsidies were intended to be temporary. However, over time, Big Agriculture's lobbying has resulted in an expansion of subsidy programs.

When subsidies were introduced in the 1930's, the average size of a farm was 155 acres; today it's over 1,100 acres. These subsidies reflect neither current economic realities nor public priorities. They enable large agribusinesses to increase profits at taxpayer expense, with little going to the small family farmers they were originally designed to help. Most subsidies prop up a few basic commodities such as corn and soybeans. Nearly 20% of the corn and soy produced in the US is turned into the sweeteners and fats that are staples in junk food.

Background
Expand all bullets
1.
1. Farm subsidies support big agriculture, while providing little to small farms

2.
2. Corn and other commodity crops receive the bulk of farm subsidies

Big Agriculture's lobbying efforts have led to many new subsidy programs that fund select commodity crops — corn, wheat, cotton, soybeans, and rice — while small farms that produce "specialty crops," including fruits and vegetables, receive little support. 

3.
3. The farm economy is robust

The financial outlook for American farms is good. The Department of Agriculture reports that productivity has soared in the past 60 years. Since the 1990s, farm income has trended upward at a much faster pace than for other US households. In 2014, the median annual income for a farming household was $80,620, well above the current national median household income of $53,046.

4.
4. Federal agricultural subsidies at a glance

Direct Payments: Between 1996-2014, the government gave farmers a fixed amount of money for every acre they owned, based on historic production for a given plot of land. They were given this amount regardless of the nation's economic health, individual economic need, or what they actually planted. The Direct Payments program was eliminated as part of the 2014 Farm Bill. 

Crop Insurance: The federal crop insurance program was expanded in 2014. The program pays over 60% of farmers' insurance premiums, as well as most of the insurance claims, guaranteeing revenue regardless of crop failure or price swings. In addition, the government pays nearly 25% of the operation and administration costs of the private insurance companies administering the program. The crop insurance program is estimated to cost taxpayers $90+ billion over the next 10 years.

Agricultural Risk Coverage (ARC): ARC is one of two programs introduced in 2014 to replace the Direct Payments program. ARC covers "shallow losses" that are not covered under crop insurance deductibles. If a farmer experiences a 15% loss and his crop insurance has a 25% deductible, ARC will cover the gap. This makes the deductible irrelevant and ensures that farmers get compensated for virtually any loss.

Price Loss Coverage (PLC): PLC is the second program introduced in 2014 to replace the Direct Payments program. Farmers receive payments if prices for corn, soybeans, and 12 other crops fall below certain levels. With this program, taxpayers guarantee revenue for farmers.

5.
5. Crop insurance cost taxpayers $54 billion between 1995-2012 and distorts the free market

The crop insurance program costs taxpayers billions of dollars and subsidizes insurance premiums for agribusinesses on coverage they would otherwise purchase on their own. The program distorts both the commodity crops market by encouraging overplanting and the insurance market by duplicating other farm insurance programs (e.g. Crop Disaster Assistance). Crop insurance also encourages harmful planting by having farmers grow on environmentally sensitive land that would otherwise be unprofitable.

The new Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) crop insurance programs were supposed to deliver big savings for taxpayers compared to the former Direct Payments system. Unfortunately, due to larger-than-expected payouts, the programs cost 73% more than projected in the first year alone.

6.
6. Farm subsidies subsidize the junk food industry

The US government preaches a policy of healthy eating but spent $19 billion on junk food subsidies between 1995-2012. Nearly 20% of the subsidies that go to the corn and soy industries are used to produce high-fructose corn syrup, corn starch, and soy oil, key junk food ingredients. The US government subsidizes 17 of the 37 ingredients in a Twinkie.

Fruit and vegetable farmers, on the other hand, received less than $300 million of subsidies during the same time period. To put it in perspective, if those farm subsidies had gone directly to US taxpayers, each taxpayer could have bought 20 Twinkies, but only 1/2 an apple, every year.

US obesity levels increased from 19% in 1997 to 31% today. With estimates of annual obesity-related medical costs — obesity is a contributing factor to diabetes, high cholesterol, and heart disease — reaching $150 billion, can American taxpayers afford to finance sweeteners and oils?

Go deeper
1.
Flake, Shaheen introduce Crop Insurance Reform Bill

Senators Jeff Flake (R-AZ) and Jeanne Shaheen (D-NH) - (2015)

http://www.flake.senate.gov/public/index.cfm/press-releases?ID=994e4716-c000-4484-91a8-c0f856ce84c6

Introduced November 5, 2015 by Sens. Jeff Flake (R-AZ) and Jeanne Shaheen (D-NH), The Assisting Family Farmers through Insurance Reform Measures (AFFIRM) Act is a bipartisan reform bill that would save taxpayers $24.4 billion over a decade, put limits on pay-outs, apply means-testing to premium supports, and bring transparency. 

2.
Apples to Twinkies: Comparing Taxpayer Subsidies for Fresh Produce and Junk Food

Laura Etherton, Mike Russo, and Nasima Hossain - (2012)

http://www.uspirg.org/sites/pirg/files/reports/Apples%20to%20Twinkies%20vUS.pdf

The US PIRG Education Fund report presents key findings that show the amount of tax dollars spent on junk food ingredients, demonstrating the need to reform federal agricultural subsidies.

3.
Toward Common Ground: Bridging Political Divide with Deficit Reduction Recommendations for Congress

Jaimie Woo, Dan Smith, Pete Sepp, Brandon Arnold - (2013)

http://www.ntu.org/library/doclib/uspirg-ntu-toward-common-ground-2013-1.pdf

The US PIRG and National Taxpayers Union joint report identifies mutually acceptable deficit reduction measures in the following categories: subsidies, military programs, program execution and government operations, and entitlement programs. Each recommendation includes an estimate of potential savings over the next decade.

4.
2012 Farm Subsidy Database

Environmental Working Group - (2012)

http://farm.ewg.org

The database tracks $256 billion in farm subsidies from commodity, crop insurance, and disaster programs and $39 billion in conservation payments paid between 1995 and 2012.

5.
Top programs in the United States, 1995 - 2012

Environmental Working Group - (2012)

http://farm.ewg.org/region.php?fips=00000

Environmental Working Group obtains data for the Farm Subsidy Database from the US Department of Agriculture. 

Expert Authors

NATIONAL TAXPAYERS UNION FOUNDATION (NTUF), founded in 1973, is a 501(c)3  research and educational organization dedicated to showing Americans how taxes, government spending, and regulations affect them. Through difference-making data, analysis, and commentary, NTUF empowers citizens to engage in the critical policy debates of our time – and hold elected officials accountable. NTUF's State of the Union budget analysis, Presidential travel study, candidate agenda analyses, and Bill Tally project reveal what government costs taxpayers.

US PUBLIC INTEREST RESEARCH GROUP EDUCATION FUND (PIRG-EF) is a 501(c)3 organization that works to protect consumers and promote good government. Founded in 1970, PIRG started as a grass-roots campus-based initiative. Through research, public education and outreach, the PIRG Education Fund serves as a counterweight to the influence of powerful special interests that threaten our health, safety or well-being. PIRG-EF investigates problems, crafts solutions, educates the public, and offers meaningful opportunities for civic participation.

Brandon Arnold
Executive Vice President - National Taxpayers Union Foundation (NTUF)

Brandon Arnold is the Executive Vice President of the National Taxpayers Union (NTU) and the National Taxpayers Union Foundation (NTUF). In this role, he helps to oversee strategic planning and government affairs efforts for NTU and its staff. He also assists with the supervision of research at NTUF.

He has testified on fiscal policy before Congress and numerous state legislative committees. He has also appeared on several television and radio networks including C-SPAN, Fox News, Fox Business, BNN, and Russia Today. His writings have appeared in publications including Politico, the American Spectator, the Hill, and the Seattle Times.

Brandon joined NTU in 2012 as Vice President of Government Affairs. His previous positions include director of government affairs at the Cato Institute, manager of external affairs in former Maryland Governor Robert Ehrlich's energy office, senior legislative aide to Rep. F. James Sensenbrenner Jr., fiscal policy analyst at Citizens for a Sound Economy, and research analyst at the National Republican Senatorial Committee. He holds a B.A. in Political Science and Psychology from the University of North Carolina at Chapel Hill.

Dan Smith
Democracy Campaign Director - US Public Interest Research Group (US PIRG)

As Democracy Campaign Director for US PIRG, Dan Smith coordinates federal and state level campaigns to curb the corrosive effect of big money on our democracy, including US PIRG’s Democracy for the People campaign to amplify the voices of ordinary citizens through a small donor public financing system. Based in Washington, DC, he develops and provides support for democracy program field campaigns, lobbies elected officials, analyzes policy, and works with the media to promote solutions to the problem of big money in politics.

Smith previously worked as US PIRG’s tax and budget advocate where he organized support both inside and outside of Congress to end special-interest giveaways, increase budget transparency and accountability, eliminate waste, ensure that subsidies and tax breaks serve the public, and close corporate tax loopholes.

As tax and budget advocate, he co-authored several reports including Offshore Shell Games, a study documenting the widespread abuse of tax haven loopholes by many large US companies, Representation without Taxation, exposing companies that spent more to lobby Congress than they paid in taxes, and Toward Common Ground,a report coauthored with the National Taxpayers Union that put forth one trillion dollars’ worth of deficit reduction recommendations that garnered support from across the political spectrum.

His opinions have appeared in the New York Times, Washington Post, Wall Street Journal, CBS News, Bloomberg, Fox Business, and many other news outlets. Smith graduated summa cum laude from Cornell University with a bachelor’s degree in Government.

Nan Swift
Federal Affairs Manager - National Taxpayers Union (NTU)

Nan Swift is Federal Affairs Manager for the National Taxpayers Union, where she tracks legislation on the Hill and advocates on behalf of taxpayers. By working closely with legislative leaders, other fiscally-conservative organizations, and taxpayers across America, Nan ensures that Congress hears the message of limited government and tax reform loud and clear.

Previously, Nan was the Campaigns Manager at FreedomWorks. She was a key organizer of the Tea Party and taxpayer rallies on the front lawn of the US Capitol on September 12, 2009 and 2010, and in front of the Washington Monument in April of 2010 (events in which NTU also participated). She has also trained activists from around the country to fight on behalf of lower taxes, less government, and more freedom.

Prior to joining FreedomWorks, Nan organized issue-oriented activist groups on college campuses and later trained conservatives in the ways of political technology, specializing in communication and the media for the Leadership Institute.

In 2004, she worked as Assistant Director of the Lycoming County GOP victory center.

Nan graduated magna cum laude from Gordon College in Wenham, MA in 2004 with degrees in Political Studies and English Literature. 

When not stalking the halls of Congress, Nan enjoys cooking for friends and learning the cello. She secretly enjoys listening to NPR, watching Duke basketball, and reading the comics.

Bill Wenzel
Antibiotics Program Director - US Public Interest Research Group (PIRG) Education Fund

Bill Wenzel is the Director of the Antibiotics Program at US PIRG. He is responsible for the development of marketplace and policy-oriented campaigns to stop the overuse of antibiotics in livestock and poultry production to ensure the continued effectiveness of antibiotics critical in the treatment of human disease and illness. He works with both the US PIRG and the US PIRG Education Fund to advance program goals and objectives.

Bill is a 1981 graduate of the Hamline University School of Law and has worked extensively on state and federal policy development and advocacy on a wide variety of agriculture, environmental and food issues in collaboration with farm, food, consumer and environmental groups and organizations. Many of the policy successes were the result of grassroots organizing efforts driven by broad collaborations of partners and allies. Bill has more than 20 years of experience in the development, implementation and management of effective grassroots campaigns.

He has also worked as Chief of Staff for two Wisconsin state Senators and served as Staff Director for the Wisconsin Senate Committee on Agriculture and Environmental Resources. 

The Solution

Proposed Recommendations
Expand all bullets
1.
1. Reduce federal spending on the Crop Insurance Program

Implement the recommendations from the Assisting Family Farmers through Insurance Reform Measures (AFFIRM) Act:

Lower the share of crop insurance premiums paid by the government:

  • Eliminate premium payments for additional coverage for any person or legal entity with average adjusted gross income greater than $250,000.
  • Cap premiums at $40,000 to any person or legal entity.

Lower the guaranteed rate of return for crop insurance providers from 14% to 9%.

2.
2. Reform the Agriculture Risk Coverage and Price Loss Coverage Programs

Increase transparency. Under Direct Payments, taxpayers could see clearly who was benefitting from their hard-earned dollars. It’s important that the current programs have the same degree of accountability.

Apply means-testing. Tax dollars shouldn’t go to people who don’t need it. Means-testing is a determination of whether an individual or household is eligible for government assistance, based upon whether the individual or household has the means to do without that help. Reducing premium supports and pay-outs for high-income farm households helps ensure subsidies go to those who need it most.

Use historical pricing to determine loss payouts. Basing losses on recent record-highs is inconsistent with commodity markets, inflates payouts, and increases risk to taxpayers.

Expected Results
Expand all bullets
1.
1. $24-37 billion in taxpayer savings over 10 years

According to the Congressional Budget Office, implementing the AFFIRM Act recommendations would save taxpayers $24.5 billion over 10 years. Eliminating the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs could save $36.7 billion over 10 years.

2.
2. Environmental improvement

Reining in crop insurance subsidies would help improve the environment and crop diversity by forcing farmers to assume more of their own risk – increasing reliance on a wider variety of crops, crop rotation, and the use of proven, fertile land as opposed to plowing up unproductive, environmentally sensitive areas.

3.
3. Increase in the cost of junk food

Without government subsidies, corn and soy farmers will need to charge higher prices for their crops – or grow a wider variety of other crops – which will increase the cost of junk food. This could influence consumer food purchase decisions and lead to a reduction in junk food consumption.

4.
4. Empowered consumers

Without market-distorting subsidies that favor some crops over others, the agriculture industry would be more responsive to consumer needs and wants.

Budget
Budget Impact

$24-37 billion in taxpayer savings over 10 years

Net Present Value

TBD

The Conversation

George Schramm
Outreach Marketing
4 months ago
While increasing the cost of junk food is potentially beneficial, how would smaller scale farms react to the lack of subsidies? Many farms produce goods that don't sell to fast food or junk food creators and still receive subsidies.
Claire Kopsky
College Student
4 months ago
How do farmers feel about applying means-testing? Are they generally okay or not okay with some farmers receiving government assistance and others not receiving anything?
Don Hemedes
11th Grade Student
7 months ago
The government subsidizes tobacco more than apples which, to me, sounds ridiculous as it is detrimental to public health. If tobacco subsidies are taken down and funds saved are transferred to other crop subsidies, who will be more affected, the big Agri businesses or family farms?
David Wolfson
Retired Engineer. Travel Agency Owner
a year ago
I'm in favor of the proposal however all this will do is transfer the cost of the insurance from the tax payers to the consumers of the products. This does nothing to reduce the underlying cost of insurance. Receipients of the subsidies will simply pass on the cost of insurance to the price they charge to their buyers. Ultimately the consumer will pay.

So suggestion: where's the proposals to reduce the cost of insurance? Is government subsidy a real underlying cause? Are insurance companies taking advantage? Is the risk really that high and if so, perhaps consumers really should pay (market driven economics) assuming we get equitable international trade deals.
a month ago
The farmer is the only raw product producer in the world who has no say in the prices he receives for his products. The middleman, processor controls his livelyhood. Ask gm, ford, sony, how they would like someone else to determine their earnings? IL sure as a retired, old farmer I do not know the answer but we need to level the playing field someway. Then kill the subsidies.
a year ago
I am a farmer in Kansas. During years in which a drought ravaged my crops, crop insurance saved me from bankruptcy.
Zack Mercer
Mechanic
a year ago
My family has trouble making ends meet. It would be great if the decrease in agricultural subsidies led to lower taxes.
a year ago
Some areas where we can specifically allocate the first $500 million in savings toward, include: our crumbling infrastructure, Pell grants for low-income college students, cultural institutions, R&D, etc.
Felicia Obermayer
Head Curator
a year ago
Why should taxpayers, and not the farming operations, be responsible for price and revenue risks associated with producing commodity crops?
a year ago
Crop insurance should be eliminated because it goes against the principles of free trade. The oil and natural gas industries are not subsidized, they simply enjoy a much lower federal tax rate.
Claire Kopsky
College Student
4 months ago
Farmers, would a much lower tax rate and a complete cut of crop insurance satisfy you? Would that tie you over during the years when the elements ruin your crops?
Donald Hermann
Vice President of Marketing
a year ago
How can the US maintain its global competitiveness if subsidies (e.g., crop insurance) are removed?
David Wolfson
Retired Engineer. Travel Agency Owner
a year ago
great point. One would think this would go into a new duty calculation though via the trade pacts we have.
a year ago
In my state, rice farms dominate the agricultural sector. Most farmers own 100-acre farms. However, last year, a local agribusiness used farm subsidy payments to buy out 6 family farms. This has tilted the playing field in favor of Big Ag.
a year ago
Usually, small farms grow the unsubsidized fruits and veggies. One way to improve the current scenario is to encourage family farmers to contact their local politicians to lobby for more government assistance.
a year ago
Do small family farms use fewer intensive agricultural methods and pesticides/fertilizers, than Big Ag?
Toby Trichter
Cardiologist
a year ago
Many of my patients are obese, and high-fructose syrup is in many of the foods they consume. I have seen firsthand the correlation between heart disease and unhealthy diets. I never realized farm subsidies impacted my patients' health in such an adverse way.
Jackie Sanders
Kindergarten Teacher
a year ago
How about a $50 million government program for tax credits to promote increased demand for fruits and vegetables. This program can focus on implementing healthier diets and exercise.
Don Hemedes
11th Grade Student
7 months ago
I agree! I also think that the first step should be to require public schools who receive federal funding for school lunch to source their food from local family farms and eliminate unhealthy food choices in school lunch menus.
Maria Anderson
Executive Director
a year ago
Can we increase production of healthier alternatives to high-fructose corn syrup in junk food products? For example, evaporated cane juice, tapioca syrup, honey, and rice syrup.
Don Hemedes
11th Grade Student
7 months ago
Very interesting suggestion. Moreover, maybe food subsidies for big AgriBusinesses that plant corn should be reduced and instead increase subsidies for fruit and vegetables planted by small family farms.
a year ago
We own a family farm and it has become increasingly difficult to produce oranges. Last year, we almost halted our operations. Our predicament is due in large part to the work of agricultural lobbies in DC that encourage the federal government to prioritize acreage size over crop type.
a year ago
I don't understand how the agricultural lobbies in DC are making it difficult for you to produce oranges. Can you explain?
Troy Williams
Photojournalist
a year ago
Small farms usually produce multiple crops rather than engage in single-crop production. This makes the quality of their soil and labor activities much higher, ultimately delivering better crops. Communities impacted by Big Ag can encourage "shop local" trends to counter the influence of agricultural lobbies that support large farms.
Sarah Carter
President
a year ago
How can we limit the influence of agricultural lobbies?
Tseren Zurganov
Junior Policy Analyst
a year ago
There's a Small Donor Tax Credits proposal that addresses this issue.

https://thechisel.com/proposal/counter-big-donor-influence-with-small-tax-credits

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