Farm Spending Soars, But No One Notices

Washington Matters

Farm Spending Soars, But No One Notices

With lawmakers focused on who's too big to fail, what's happening to the farm subsidies seems too little for Congress to notice. But taxpayers may want to pay more attention.


The authors of the 2008 farm bill assured everyone they'd tightened limits on payments to the largest farms. President Obama pledged the same, and declared he'd slice a half billion dollars a year off crop insurance companies' take from the Department of Agriculture. But that's not what's happening. Far from it.


Early results: This year's spending on farm subsidies will jump 26% over last year to a whopping $16.8 billion. That's thanks to the farm bill's generous provisions and its mix of entitlements that pay out benefits based on markets, yields, crop weather and so forth. While House and Senate appropriators whack away at the 17% of the Agriculture Department budget they have annual discretion over, the rest is on entitlement autopilot, so to speak.


Traditional subsidies are soaring for milk and crops (cotton, wheat, rice) because prices plunged in mid 2008. Costs of the age-old three-legged stool of support will be up 30% for fiscal 2009, reaching $9.8 billion. Those supports are direct payments (paid at a set yearly rate), countercyclical aid (paid when prices are low) and marketing loans (to guarantee minimum prices).


Plus Congress has added more legs to the USDA farm support stool: ACRE, a subsidized supplemental insurance program that pays farmers who are hit with both a statewide crop failure and low prices in the same season. The first year payout, coming in 2011, is projected to be around $325 million. And permanent crop disaster aid that USDA can implement on its own, based on crop conditions and farm losses. It paid out $1.9 billion on 2008 crops.


Here's an especially fast growing leg: Crop insurance. The Ag Department's cost to underwrite it, usually a small slice of crop supports, will top 40% of the $16.8 billion in 2009 payments. Why? Insurance costs rise along with crop prices, boosting the dollars for premiums, indemnities and margins for insurers that sell the insurance (margins are based on the volume of crop insurance). While the program covers no more farms than it did in 2005, its coverage value has doubled to $90 billion. Gains for insurers have nearly doubled as well.


The response in Washington? Big whoopin' deal. Crop subsidy payments will come to 0.001% of next year's budget. You think Obama or congressional bosses will waste political capital on that, or risk angering influential farm and rural lobbies in Washington over such a piffle?


Don't look for any appreciably tighter caps on farm subsidies soon and not more than window dressing on for the profits of crop insurers. They sell the coverage for USDA, which will try to tie insurers' profits to operating costs and not gear their allowances to the volatile annual levels of insurance coverage when they wrap up a new five-year agreement with insurance companies next year.


The recent Senate budget resolution calls for cutting $70 million a year from crop insurance overall costs. That's hardly enough for the insurers to notice. And it surely won't come off benefits to farmers, whose premiums pay less than 50% of their claims.


Look for one significant reduction in farm program spending: The $270 million that House appropriators cut from fiscal 2010 funding for the Environmental Quality Incentives Program (a modest $20 million more than Obama himself requested).