WASHINGTON, Sept. 7, 2016 - One of the nation’s most influential conservative organizations is calling on Congress to phase out commodity subsidies and end federal support for revenue-based crop insurance.
In a 65-page report obtained by Agri-Pulse, the Heritage Foundation argues that most U.S. farmers are well-positioned to manage financial risk without government help. Subsidies distort commodity markets while artificially inflating land values to the detriment of aspiring new farmers, the report says.
The report calls for eliminating the Agriculture Risk Coverage and Price Loss Coverage programs created by the 2014 farm bill but also the sugar program, which supports domestic prices through import quotas and marketing allotments, and the Margin Protection Program for dairy producers.
To soften the blow from abolishing those farm income supports, the report calls for providing one-time grants to states to spend on agricultural needs, such as research or temporary aid to farmers. The money would come from one year’s worth of savings from cutting the subsidy programs.
“U.S. agricultural producers are sophisticated business people who can succeed without taxpayer help, just like other businesses,” the report says. “Moving away from subsidies will free up agricultural producers to better use their ingenuity and expertise to achieve even greater success.”
The Heritage plan would leave intact the permanent disaster assistance programs, including those for livestock and the Noninsured Disaster Assistance Program, which compensates for crop losses when there is no federal insurance coverage available.
As a think tank, Heritage’s policy recommendations have long been influential with congressional Republicans, and since 2010 the group has had an affiliated advocacy arm, Heritage Action, to lobby and rate lawmakers on priority issues.
Heritage’s policy proposals are frequently pushed by members of the House Freedom Caucus and Tea Party Republicans. During debate on the 2014 farm bill, Heritage Action played a key role in getting the House version of the legislation split into separate bills so that nutrition assistance had to be debated apart from farm programs.
The strategy was ultimately unsuccessful. The House’s separate farm and nutrition bills were later merged during negotiations with the Senate. But this year’s Republican Party platform includes a recommendation to strip the Supplemental Nutrition Assistance Program from the next farm bill. Some conservatives believe that splitting the bill will make it easier to cut both farm programs and nutrition assistance.
The Heritage report concedes that some farmers might go out of business without government aid: “The federal government should not be guaranteeing that all operations will survive, and even worse, guaranteeing that all operations will flourish. Taxpayers should not be forced to subsidize and if necessary save everybody who wants to farm.”
But the group says most farms today are relatively prosperous, with low debt and considerable off-farm income, and they have numerous ways to manage risk without subsidies, including by rotating crops more frequently and using the futures markets. The report also suggests vertical integration as an option.
The report’s authors argue that the federal crop insurance program was originally intended to be a “lower-cost alternative” to temporary disaster programs to help farmers cope with crop losses. “Instead, it has become a high-cost way to help farmers receive their expected revenue, regardless of whether a farmer has had a bumper crop or whether a disaster has even occurred.”
The report calls for abolishing subsidies for revenue insurance policies, leaving them only for insurance that covers crop losses of at least 30 percent. The insurance would be unaffordable without premium subsidies.
The authors acknowledged that there would be pressure on Congress to respond to future downturns in the farm economy by passing one-time disaster aid bills, but said lawmakers would have to resist doing that.
Crop insurance now costs taxpayers six times more than disaster programs cost in the 1970s, when adjusted for inflation, said Daren Bakst, Heritage’s primary agriculture policy specialist and one of the report’s three co-authors.
Think tanks that are critical of federal farm policy have long made proposals for incremental changes in programs, but Heritage wanted to get ahead of the next farm bill by laying out a “free-market vision” for agriculture and raising bigger questions about the justification for subsidies and revenue insurance, said Bakst.
The report’s other co-authors were Brian Wright, an agricultural economist at the University of California-Berkeley, and Joshua Sewell, who manages research and outreach on agriculture and other issues for the Taxpayers for Common Sense.
Heritage reports released earlier this year have addressed regulations, trade and biofuel policy.
Representatives of two other organizations that have long advocated cuts to crop insurance, the Environmental Working Group and the American Enterprise Institute, provided advice and feedback to the authors.
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