WASHINGTON, Feb. 10, 2016 – The crop insurance and commodity programs authorized by the 2014 farm bill came under withering criticism here Wednesday by a panel of agricultural economists assembled by the conservative think tank American Enterprise Institute (AEI).
The current programs are “designed less to help farmers manage risk than to let farmers maximize payments,” said Bruce Babcock, an Iowa State University economist who has published several analyses critical of the current crop insurance system.
Babcock traces the history of farm bills designed to “reform” agricultural subsidy programs to conclude that Congress each time sought to maximize payments to farmers. The purpose of the 2014 bill enacted two years ago this month was “to put more money in farmers’ pockets than they would have got in direct payments,” Babcock said. “It’s not risk management, it’s really Congress looking for ways to spend money.”
“Changing policy is very difficult,” said Barry Goodwin of North Carolina State University. “It doesn’t seem to me that there are real changes that take place” in farm legislation, he said. “The beneficiaries are food aid recipients, landowners who may be distant from production agriculture and politically powerful ag state representatives.”
The cotton and dairy programs of the 2014 bill have a common characteristic, said Dan Sumner of the University of California-Davis. “In both programs, we eliminated what had been long-standing programs dating to the 1930s.”
The bill repealed dairy product price supports because they had become irrelevant, he said, replacing it with a “net revenue insurance” known as the Market Protection Program. While farmer adoption has been slow to build, he said, “that doesn’t mean it’s irrelevant in general. Farmers can wait to sign up until they are likely to see a payoff. When it pays off, big farms can offset big losses and the program can keep marginal operations in business.”
Signup for the new cotton program also was low, Sumner argued, “for the same reason that dairy farmers didn’t sign up, the likelihood of a payoff was small.” However, he said that large cotton program costs “are almost guaranteed” if cotton producers succeed in persuading USDA or Congress to classify cottonseed as an oilseed for subsidy purposes.
Sumner and Joseph Glauber, a former USDA chief economist now at the International Food Policy Research Institute, suggested that escalating farm program expenditures and other factors could make the United States vulnerable to a World Trade Organization (WTO) challenge.
If there were to be much greater farm program outlays, Glauber sees some probability of exceeding the annual limit of $19.1 billion. But he said there’s a greater likelihood that another country could challenge individual commodity programs under WTO agreements. “Frankly, the bigger concern is that individual commodity payments could be quite high,” he said, alluding to reports that Brazil is considering a case against the U.S. soybean program. “Peanuts is also seen as having some potential vulnerability to challenge,” he added, but neither is a “slam dunk.”
Sumner called it “unsettled legal territory whether crop insurance subsidies can stimulate production enough” to violate Washington’s WTO obligations. “We might find out if there’s another case.”
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