From a Heritage Foundation research paper by Brian Riedl.
Although farm policies serve no legitimate purpose, they have profoundly negative effects on taxpayers, consumers, and small farmers, including:
- Higher prices.James Bovard once wrote, “For almost every farm program, there is another equal but opposite farm program or provision.” Commodity subsidies encourage overproduction and therefore lower prices. The Conservation Reserve Program encourages underproduction and thereby raises prices. Tariffs raise import prices. Export subsidies lower export prices. Price supports triple the price of sugar and raise the price of milk. Calculating the net effect of these contradictory programs, the Organisation for Economic Co-operation and Development estimates that U.S. farm policy raises food prices enough to cost consumers an extra $12 billion annually-in effect, an average annual food tax of $104 per household.
- High taxes. As the farm economy booms, Congress is expanding farm subsidies. After averaging less than $14 billion per year during the 1990s, annual farm subsidies have topped $25 billion in the current decade since passage of the 2002 farm bill, the most expensive farm bill in American history. All federal spending must eventually be funded by taxes. Thus, these subsidies cost the average household $216 in annual taxes in addition to $104 in higher food prices.
- No added rural economic growth. A study by the Federal Reserve Bank of Kansas City concluded that farm subsidies do not promote rural economic growth. Between 1992 and 2002, the vast majority of the 783 “farm dependent” counties experienced job growth below the national average. In fact, more of these counties suffered outright job losses than experienced job growth exceeding the national average. While critics can argue that growth would have been worse without subsidies, these policies are clearly not creating new growth centers. Farm subsidies are likely funding farm consolidations, which in turn are reducing employment on farms and in related industries.
- Small farmers driven out of business. Small family farmers are generally not eligible for significant levels of farm subsidies. Furthermore, subsidies to large commercial farms harm small farmers by (1) reducing crop prices and, therefore, farmer incomes; (2) raising the prices of farmland, thereby preventing family farmers from expanding; and (3) subsidizing agribusiness buyouts of family farms. Small farmers receive virtually none of the subsidies, but they must endure the market distortions and financial pain caused by these policies.
- Less trade.Federal Reserve Chairman Ben Bernanke has stated that “the increase in trade since World War II has boosted U.S. annual incomes on the order of $10,000 per household” and that “removing all remaining barriers to trade would raise U.S. incomes anywhere from $4,000 to $12,000 per household.” Yet massive tariffs and import restrictions raise food prices and make the American economy less productive. Bringing free trade to agriculture would also make free-trade agreements in other industries much more likely.
Conclusion
If Congress takes the path of least resistance and extends current farm policies for another five years, it will have surrendered an enormous opportunity for reform. Most debates over federal programs force lawmakers to balance a program’s social benefits with the costs of financing it, but current U.S. farm policies serve no legitimate purpose. They burden American families with higher taxes and higher food prices. They harm small farmers by excluding them from subsidies, raising land prices, and financing farm consolidation. They increase trade barriers that reduce incomes in America and in lesser-developed countries. They are falsely promoted as saving the family farm and protecting the food supply. In reality, they are America’s largest corporate welfare program.
