Thursday, June 07, 2012

Farm Bill Negotiations: History of "Direct Payments"

The New York Times just published a harsh analysis of the environmental impact of our heavily subsidized crop insurance programs, emphasizing the increased cost to taxpayers under the new farm bill proposal, Crop Insurance Proposal Could Cost U.S. Billions.

The unfortunate consequence of our system of subsidized crop insurance, particularly when revenue insurance is added into the mix, is that farmers are given an incentive to farm lands that would otherwise not be profitable or at least present too much of a risk of loss.

The Times article is one of many recent articles that have criticized the current farm bill proposal. For some time, farm policy makers have indicated that they were willing to give up on the current direct payment program in exchange for more support delivered through crop insurance. Even aside from the current concern with a budget deficit, that type of horse-trading only makes sense if one ignores the history of the direct payment program.

In 1996, Congress passed a farm bill, the Federal Agricultural Improvement and Reform (FAIR) Act of 1996. It was signed into law by President Clinton.  It replaced the 1990 farm bill and covered the crop years 1996 through 2002.

The first title of the new farm bill was the "Agricultural Market Transition Act."  This title marked a shift in farm subsidy programs, eliminating target prices and deficiency payments based on market prices.  Instead, farmers would receive direct payments that were not tied to production or price for seven years under "Production Flexibility Contracts."

The shift was promoted as a way for farmers to "transition" to a free-market based production system, moving away from reliance on government support payments.  Farmers would be free to plant whatever crop they wanted based on market conditions, hence the term "Freedom to Farm" was also used to reference the new approach. The farmers who signed up for the new program received fixed but somewhat declining payments over the seven-year period.

At the end of the 7 year period, however, there was no transition. Congress renewed the "direct payment," program, and it was renewed again in the 2008 farm bill. Farmers were indeed free to plant whatever they wanted (except for fruits and vegetables, a restriction won by the existing fruit and vegetable industry), and they were not even required to farm. But, there was never a transition away from government support.  References to any "market transition" were dropped and the program was referenced simply as the "direct payment program."

I mention this bit of history, as many articles discussing the current negotiations regarding the farm bill focus on the fact that farmers are "giving up direct payments," and because of this, we need to shift additional support to an enhanced crop insurance program including enhanced revenue insurance options in order to maintain a "safety net." Given current high prices and record farm profits, it is a particularly expensive proposition to insure revenue in this market. And, the direct payment program is now being referenced as the "safety net" that needs to be replaced.

To be clear, I do believe in an economic "safety net" for farmers when they experience serious crop losses. That's good policy. But, let's be historically accurate.  The direct payment program was never a safety net.  It was sold to the public as a way to wean or transition farmers away from federal price support.

And, let's be economically accurate. Revenue insurance that is subsidized without limitation on both the premium side and the loss side is not about providing a safety net.

Many are calling for less government. We are cutting unemployed people off from benefits; we are cutting back on benefits for those in poverty; school programs are being cut. Those are safety net issues.

Let's have an honest discussion about the farm bill and develop a farm program that helps farmers when they need assistance, discourages environmental problems, and produces healthy food.


Blogger Mike Haley said...

As a farmer I want to be less dependent on subsidies, I don't want to take a "handout" that in turn blackmails me into following additional rules. We need to get rid of the extra slack that exist in all of government, not just the agriculure and food side.

However, as a farmer I face tremendous risks every time I plant a crop. I have no clue what will happen during the growing season that will allow my crop to be a success or failure. With increasing input costs and very high volatility in the market I am not sure I would continue to take these risks every year without some sort of safety net.

That said I don't ask for much, just the security that one bad year will not destroy what it took generations for my family to build.

6/17/2012 7:47 PM  

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