Commentary: Agricultural subsidies aid the wealthy

  • Vincent H. Smith and Ryan Nabil
Nov 28, 2017
Ryan Nabil is an economic and agricultural policy researcher at the American Enterprise Institute.

As Congress and the current administration seek to reduce poverty, policymakers should be wary of wasteful programs that do little to help poor Americans. Agricultural subsidies — especially popular with the largest and wealthiest farm business operations — largely fall into that category.

Those subsidy programs are often marketed by farm interest groups as helping the rural poor, many of whom voted for the current president in key Electoral College states such as Pennsylvania, Wisconsin, Georgia, North Carolina and in the Florida panhandle. In fact, farm subsidy programs do little for the rural poor and even less for the urban poor.

The subsidy programs that the House and Senate agricultural committees are defending and would like to expand include the federal crop insurance subsidy program, direct payments to farm businesses through so-called supplementary “farm income safety net” initiatives, and outlays on conservation programs.

Taken together, these programs cost about $20 billion every year. Crop insurance subsidies alone cost $8 billion, 30 percent of which goes to private insurance companies. Two additional “safety net” programs — price loss coverage and agricultural risk coverage — cost taxpayers between $6 billion and $8 billion in annual payments. Farm businesses also receive $5 billion a year in subsidies for adopting or simply continuing farming practices (such as soil conservation and protecting the environment) that are already being used because they are profitable.

Who gets all that federal money? About 70 percent of all crop insurance and other farm income safety net payments flow to 10 percent of the largest crop-producing farm businesses. This group comprises less than 100,000 farm operations, each of which on average receives more than $140,000 every year. Those farms are owned by households with annual incomes and levels of wealth that are multiple times higher than those of the typical American family, and certainly far higher than those of families in poverty. Conservation subsidy payments also predominantly flow to the largest farm operations and wealthiest farming households.

In contrast, 10 percent of the smallest farms receive a mere pittance, on average no more than about $50 — from the federal crop insurance and safety net programs. And the bottom 80 percent, including midsize farms, receive less than 10 percent of all subsidy payments.

Subsidy advocates have also argued that farm subsidies increase employment opportunities in rural areas, but there is no substantive evidence to support that claim. Labor needs continue to decline within and beyond farm households, and among farms that receive most of the subsidies. For example, about 70 percent of all crop insurance subsidies and other safety net program outlays are paid to the producers of three crops: corn, soybeans and wheat.

If a major objective of Congress and the Trump administration is to develop and sustain programs that help many low-income households, then continuing these programs is not the way to go. While far from perfect, the supplemental nutrition assistance program (SNAP) targets 43 million Americans — including 13 million children — whose family incomes fall below the poverty line. Many of those families and children are not able to have adequate access to food.

Programs that increase food availability for those families, and feed children in need who would otherwise go to bed and to school hungry, are far more effective tools in the fight to mitigate hunger and improve nutrition. In the present, they would improve the health of those in need, and in the future, they would improve the children’s learning outcomes.

One current problematic idea that is being given serious consideration by some lobbyists and legislators is the proposal to cut nutrition programs to provide more farm bill revenues for expanded farm safety net subsidy programs. The reality is that those programs would continue to favor financially advantaged farm business owners.

Instead, improving the cost-effectiveness and targeting of SNAP and other nutrition programs makes better policy sense.