The Economist: At last ... a farm bill
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It looks like a new farm bill may finally be making its way through the Washington political maze after a contentious two-year sojourn. The nearly $1 trillion piece of legislation would get us through the next five years without additional conflict. It consolidates some of the subsidy programs, expands support for crop insurance, and cuts $8 billion from the food stamp program over 10 years. As a major agriculture-producing state, Texas clearly has a notable stake in the process.
It looks like the bill will save a total of about $23 billion over the next 10 years (according to the DC definition of “save”). Media coverage is focusing on the cut to food stamp benefits (1%). It’s somewhat surprising to many that the food stamp program falls under the farm bill, but it has since the early days of trying to match up people with insufficient food with surplus agriculture products. In fact, the food stamp program typically accounts for about 80% of farm bill spending.
The renamed Supplemental Nutrition Assistance Program (SNAP) will be streamlined to reduce waste. Requirements to encourage recipients to work are to be tested in 10 states, and the US Department of Agriculture (USDA) has been charged with eliminating problems such as people receiving benefits in more than one state and other abuses. Also, budget gaming by some states via a loophole in the program is ending, and the USDA can no longer use funds to advertise to try to increase beneficiaries. These changes to the program comprise the bulk of the spending reduction. It does not involve any cuts to eligible recipients and is only a fraction of the amount in the original house bill. The savings depend on reducing fraud and abuse, which is always easier said than done.
As for the portion of the bill that’s more directly related to agriculture, some of the big savings relative to past measures come from eliminating direct subsidies to farmers (which were paid whether they farmed or not) and transitioning more into supporting insurance programs. Direct subsidies had long come under fire, since landowners could be paid to do nothing. Now, famers must first incur a loss (such as a crop failure) before they can get compensation (via government-subsidized insurance). Even farm-friendly states and legislators tend to agree that it was time for this change.
The bill is hailed as helping protect the millions of jobs in the agriculture sector. The Texas Department of Agriculture estimates that one in seven working Texans is employed in an agriculture-related job (although farms and ranches directly employ less that 0.5% of the state’s workforce). Agriculture cash receipts in the state total $20 billion each year, and Texas exports billions of dollars in crops and livestock to world markets. At the same time, agriculture and the ability to produce (and control) the food supply for the nation has security implications. Protecting farming and ranching clearly makes sense from this perspective, though of course programs should be as cost effective and efficient as possible (and ideally should reflect market outcomes, including rational hedging for risk).
While there are counterexamples, the financial situation of farm families has been improving. Net farm income and farm wealth have recently been at record levels. Also, farm asset values are rising faster than debt, pushing the debt-to-asset ratio down to levels not seen since 1960. The Congressional Research Service reports that farm household incomes have surged ahead of average US household income over the past decade. The latest available data (2011) indicates that average farm household income was almost $87,300, well above the overall US average of less than $69,700.
A deeper dive into this income data reveals that it is skewed by the huge number of family farms with gross sales of less than $10,000; a full 59% of farms fall into this category. Another 30% are in the $10,000 to less-than-$250,000 category (with household income averaging $79,800). At the large end are the 10% of farms selling more than $250,000 per year, where average incomes exceed $205,200 per year. Not bad.
The agriculture industry is an integral part of Texas history and remains important (though less so) today. Farms and ranches provide a crucial source of jobs in rural areas, and exports of crops and livestock improve the US balance of payments. Supporting and protecting ag through a workable farm bill is important for these reasons and many more (though to the extent that waste, inefficiencies, and inequities in the system can be eliminated, they certainly should). Enhancing the efficiency of programs providing food for hungry Americans is also desirable. Passage of a farm bill is clearly good news and hopefully a further sign that modest cooperation in Washington can indeed be sustained.
Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com). He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.