POLICY FEBRUARY 4, 2014
The Senate passed on Thursday a farm bill that took two years to complete. Most of the discussion around the bill—and the reason for the delay—concerns the level of cuts to food stamps, which wound up at $8.7 billion over 10 years (about 1 percent of the overall program). But while the parties argued about how much food to take away from poor people, it’s just as revealing to look at the area where they both agreed. Democrats and Republicans alike have pointed to the repeal of $4.5 billion in annual direct cash payments, a long disfavored policy where farmers received a fixed amount of money for every acre they owned, regardless of whether it was planted. The Senate will “end outdated and unnecessary subsidies,” said lead Democratic negotiator Debbie Stabenow on Monday. Her Republican counterpart, House Agriculture Committee chair Frank Lucas, once supported direct payments, but highlighted their repeal upon House passage of the bill. “Don’t underestimate the magnitude of the reforms,” he said last week.
But don’t be fooled: The politicians patting themselves on the back for repealing subsidies to farmers have found a surreptitious way to deposit these savings right back in the pocket of agribusiness. That’s because the farm bill will expand subsidies for crop insurance, which looks like a private-sector program but which actually hands over virtually the same amount of taxpayer money to farmers, mostly wealthy ones, as the old direct payment program. What’s more, the shift from direct payments to crop insurance ensures that those handouts can be distributed in a hidden, more politically palatable way, making it more difficult to ever dislodge them.
Direct payments were not traditionally tied to prices, and were distributed whether farmers planted crops or not. The new system, according to supporters, only delivers payouts if farmers take losses. But this is a bit misleading. Federally subsidized crop insurance programs pay almost two-thirds of a farmer’s premium, as well as most of the insurance claims, guaranteeing revenue regardless of crop failure or even price swings. The current farm bill expands the program to cost the government $90 billion over ten years, an increase of $7 billion. But that’s just an estimate, which may be low. Farmers received $16 billion in crop insurance payments alone during last year’s Midwest drought, most of it paid by the federal government. Despite the poor conditions, net agriculture income increased 15 percent last year, a tribute to the relative pointlessness of the subsidies.
Referring to beneficiaries as “farmers” underplays how giant agribusinesses really benefit from subsidized crop insurance. There have traditionally been no limits to premium support, meaning the richest businesses reap the most benefits. A provision from Sen. Tom Coburn to reduce payouts for farmers with over $750,000 in income was stripped from the final bill, despite passing the Senate twice. The Environmental Working Group, a critic of crop insurance, estimates that 10,000 policyholders receive over $100,000 a year in subsidies annually, with some receiving over $1 million, while the bottom 80 percent of farmers, the mom-and-pop operations, collect only $5,000 annually. These are educated guesses, because under current law, the names of individual businesses receiving support are kept secret, a provision maintained in the new farm bill. The House version included a measure that would disclose which members of Congress receive subsidies, but that was dropped.
Another beneficiary of crop insurance subsidies are the private insurance companies administering the program, which received $1.3 billion for administrative expenses in 2011. That’s despite the fact that a crop insurance program largely paid for by the government is extremely lucrative for these companies, with a 30 percent average return and $10 billion in profits over the past decade. The generosity of the program also leads insurers to cover outsized risk, with farmers planting in low-yield areas, knowing they will get rewarded either way.
In addition to crop insurance, farmers will also reap the benefits of one of two programs to replace direct payments. Under what’s known as Price Loss Coverage, farmers receive payments if prices for corn, soybeans and 12 other crops dive below a certain level. But the bill raises that floor price in ways that almost guarantee payouts for some crops, particularly rice and cotton, which are coincidentally the crops for which farmers most frequently receive direct payments. There already exists a perfectly good check on crop price swings, known as the commodity futures markets, where producers can lock in rates and guard against forthcoming instability. Price Loss Coverage is duplicative and forces taxpayers to guarantee revenue for private businesses.
Another program, called Agriculture Risk Coverage, would cover “shallow losses” which are not covered under crop insurance deductibles. In other words, if a farmer experienced a 15 percent loss and his crop insurance carried a 25 percent deductible, Agriculture Risk Coverage would cover the gap. But this makes the deductible irrelevant and ensures that farmers get compensated for virtually any loss. Overall, of the $40 billion in projected savings over ten years from ending direct payments, $27 billion go right back into these insurance programs.
Despite opposition to the crop insurance scheme across the political spectrum, and even mainstream condemnation for the status quo, the final farm bill supersizes it rather than dismantling it. While some limits were put into the final bill, individuals with over $900,000 in annual income still qualify for insurance subsidies, and an individual farmer could still receive up to $125,000 a year from government programs. Moreover, multiple individuals in the same farm operation (including “absentee investors” with no real connection to the business) could each get the $125,000; a provision eliminating that possibility was tightened in both the House and Senate versions but then stripped from the bill. So while the poor had to bear cuts to nutrition programs, no wealthy farmer will need to spare a dime. As Scott Faber of the Environmental Working Group put it, “We're replacing a discredited subsidy with a soon-to-be discredited subsidy."
Moving away from direct payments and toward indirect insurance subsidies is an example of what author Suzanne Mettler calls “the submerged state.” So many federal social programs lurk underneath the surface that the public cannot get a good handle on who benefits from government largesse. “Appearing to emanate from the private sector, such policies obscure the role of the government and exaggerate that of the market,” Mettler says. And the vast majority of these programs benefit the wealthy, refuting the conceit that the rich boldly succeed without a government safety net protecting them.
These hidden programs are actually a lot harder to eliminate than something as blatant as a direct subsidy payment. This is why the submerged state has grown over the years, and why federal spending has lagged while “tax expenditures”—essentially spending through the tax code—has soared.
So the farm bill, far from “reforming” the process of well-heeled agribusinesses living off corporate welfare, actually locks that support in place through misdirection. It’s easier to denounce a farmer getting paid not to plant their field than to decry an overly generous insurance payout. Congress, particularly a Senate that over-represents rural agricultural states, knows well how to hide the ball in this fashion, keeping the focus on undeserving food stamp recipients rather than undeserving agribusinesses.