Schizophrenic U.S. Farm Policy By Ernest C. Pasour Jr., Randal R. Rucker - Independent

October 08, 2007

With the 2007 farm bill temporarily stalled in the Senate, this is a good time to reconsider America’s schizophrenic agriculture programs and how they often work at cross-purposes.

Consider government subsidies. Under the current farm bill, enacted in 2002, government payments to farmers averaged about $17.5 billion annually from 2003 to 2006. The House-passed 2007 farm bill would cost an additional $286 billion over five years, including both direct payments and other provisions.

Politicians claim to be friends of the small “family farmer” but most government payments go to large farms. Half of all U.S. farms receive nothing at all because they don’t grow corn, wheat, cotton and other major crops that qualify for commodity payments.

Because most payments are based on a farm’s past production history, they likely have little effect on current commodity prices. But they do cause land prices to be bid up, meaning those who own the most land receive the most benefits.

Escalating land prices, in turn, raise the cost of entry into farming, hurting the little guy again. The government responds by offering subsidized farm credit, which provides $3 billion annually in ownership and operating loans to farmers and ranchers who don’t qualify for private loans. These subsidies increase the profitability of farming. This, in turn, encourages more production and results in lower crop and livestock prices.

The government’s involvement in risk management also helps decrease prices. For example, farmers are encouraged to purchase government-subsidized crop insurance, which cost taxpayers $4 billion annually. But many farmers are reluctant to purchase crop insurance because Congress usually can be counted on to provide ad hoc relief when droughts, freezes, floods and other weather-related problems occur.

So why buy insurance? Such ad hoc spending totaled more than $35 billion over the past decade.

Like the loan programs, the subsidized crop insurance and ad hoc disaster relief also increase the profitability of farming, encourage more production and result in reduced prices—as do the government’s agricultural research and extension programs.

While subsidized credit, crop insurance, ad hoc relief measures and research and extension programs stimulate output and retard prices, other government programs push prices up.

For example, the food stamp program, subsidized school breakfast and lunch programs and the Women, Infants and Children program all increase demand for agricultural products. Increased demand pushes prices higher. These programs cost taxpayers more than $50 billion in 2006.

Export subsidies, which cost taxpayers an additional $4 billion per year, also drive up prices. Much of the political support for the Food for Peace foreign aid program, for example, is based on the fact that it increases overseas demand for U.S. farm products.

Over the years, the government also has raised farm prices with programs to take land out of production. The current Conservation Reserve Program, which costs taxpayers $2 billion a year, removes environmentally sensitive land from agricultural production and keeps it under long-term resource-conserving “cover.”

But other programs work at cross-purposes: in this case, an organic certification “cost share” program that provides financial assistance to organic crop and livestock producers. Because organic yields are lower, increases in organic agriculture bring more land into production, reducing wildlife habitat and partly offsetting the effects of CRP.

The dairy and sugar programs deserve special attention, raising the prices of milk and sugar while the government, through the food stamp and other subsidy programs, subsidizes the purchase of milk and sugar and products containing these ingredients.

You don’t have to be agricultural economists to realize that none of this makes sense. It’s time for a new approach.

Randal R. Rucker is Research Fellow at the Independent Institute, Professor of Agricultural Economics and Economics at Montana State University, and co-author (with E.C. Pasour, Jr.) of Plowshares & Pork Barrels: The Political Economy of Agriculture.

Charles V. Peña is Senior Fellow at the Independent Institute as well as a senior fellow with the Coalition for a Realistic Foreign Policy, senior fellow with the George Washington University Homeland Security Policy Institute, and an adviser on the Straus Military Reform Project.

William Ratliff is Adjunct Fellow at the Independent Institute, Research Fellow at Stanford University's Hoover Institution, and a frequent writer on Chinese and Cuban foreign policies.

Ivan Eland is Director of the Center on Peace & Liberty at The Independent Institute and Assistant Editor of The Independent Review. Dr. Eland is a graduate of Iowa State University and received an M.B.A. in applied economics and Ph.D. in national security policy from George Washington University. He has been Director of Defense Policy Studies at the Cato Institute, Principal Defense Analyst at the Congressional Budget Office, Evaluator-in-Charge (national security and intelligence) for the U.S. General Accounting Office, and Investigator for the House Foreign Affairs Committee. Full Biography and Recent Publications

Jonathan J. Bean is Research Fellow at the Independent Institute, Professor of History at Southern Illinois University, and editor of the forthcoming book, Race and Liberty: The Classical Liberal Tradition of Civil Rights.

Anthony Gregory is a Research Analyst at The Independent Institute. He earned his bachelor's degree in American history from the University of California at Berkeley and gave the undergraduate history commencement speech in 2003. In addition to his work with the Independent Institute, he regularly writes for numerous news and commentary web sites, including LewRockwell.com, Future of Freedom Foundation, and the Rational Review.
Full Biography and Recent Publications

Dominick T. Armentano is professor emeritus in economics at the University of Hartford (Connecticut) and a research fellow at The Independent Institute in Oakland, Calif. He is author of Antitrust & Monopoly (Independent Institute, 1998).

Alvaro Vargas Llosa is director of The Center on Global Prosperity at The Independent Institute. He is a native of Peru and received his B.S.C. in international history from the London School of Economics. He is widely published and has lectured on world economic and political issues including at the Mont Pelerin Society, Naumann Foundation (Germany), FAES Foundation (Spain), Brazilian Institute of Business Studies, Fundación Libertad (Argentina), CEDICE Foundation (Venezuela), Florida International University, and the Ecuadorian Chamber of Commerce. He is the author of the Independent Institute books The Che Guevara Myth and Liberty for Latin America. Full biography and recent publications.

Pierre Lemieux is an economist and co-director of the Economics and Liberty Research Group at the Université du Québec en Outaouais and a Research Fellow at The Independent Institute in Oakland, California.

Alexander Tabarrok is research director at The Independent Institute, associate professor of economics at George Mason University, editor of the Independent Institute books, Entrepreneurial Economics, The Voluntary City (with D. Beito and P. Gordon), and Changing the Guard: Private Prisons and the Control of Crime.

Robert Higgs is Senior Fellow in Political Economy at The Independent Institute, author of Against Leviathan and Crisis and Leviathan, and editor of the scholarly quarterly journal, The Independent Review. Click here for a bio on Dr. Higgs, the noted economist and historian.

William Marina is Research Fellow at the Independent Institute in Oakland, Calif., and Professor Emeritus of History at Florida Atlantic University.

David T. Beito is a Research Fellow at The Independent Institute, Associate Professor of History at the University of Alabama, and co-editor of the book, The Voluntary City: Choice, Community and Civil Society.

William Marina and David T. Beito belong to "Liberty and Power," a group blog at the History News Network.

For further articles and studies, see the Center on Peace & Liberty and OnPower.org.

Nicolas Heidorn is a public policy intern at The Independent Institute in Oakland, California.

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