THE VINE FEBRUARY 26, 2009
In addition to sketching the course of future climate legislation, Obama's budget proposal today also dropped some hints about the direction he plans to take on farm policy. Most notably, the White House budget proposes the elimination of direct subsidy payments to farmers making more than $500,000 per year. This makes a lot of sense from the perspective of eliminating government waste, given that the government spends billions each year on “direct payment” subsidies to farmers growing commodity grains and pulses—and much of that money goes to large corporate farms. On the other hand, curbing these direct payments won't actually do much to stop the overproduction of commodity crops like corn–a problem that has arguably contributed to everything from obesity (because it makes processed food so cheap) to the death of the family farm at home and abroad.
That’s because the direct-payments program, unlike some other agricultural subsidies, doesn’t really give farmers an incentive to overproduce. Farmers get a lump sum of money each year that’s calculated by multiplying their “base acreage”—the number of acres they historically planted in a certain crop—by the number of bushels of that crop they could expect to produce per acre times a fixed per-bushel subsidy rate. They get that lump-sum payment even if they plant a different crop, or no crop at all. The one big restriction on what they can do with the land is that they can’t use it to grow fruits or vegetables. (There’s a pilot program to lift this restriction for some farmers, but only on the condition that they sell their vegetables to a processing company, rather than letting them be consumed fresh—apparently the American public needs to be protected from eating too many fresh veggies.)
So while the direct-payments program is by all means a wasteful giveaway, it’s hard to see how it’s massively distorting the markets for agricultural commodities. Getting rid of it isn’t going to transform U.S. agriculture. In fact, the really transformative idea in Obama’s Department of Agriculture budget proposal—redirecting the money that would otherwise go to agricultural subsidies to pay farmers for the ecosystem services they provide—gets only a passing mention. It will be interesting to see the Obama administration flesh out its ideas for ecosystem-services payments—something it will hopefully do sooner rather than later.