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I hope you all had a very happy Vax Day yesterday and are eagerly awaiting your jabs in the coming months. I know I am. We’ll talk more about the COVID vaccine in the future, but for now I’d like to change gears and talk about something totally different: farm subsidies. (I know, I know—it’s almost too much excitement for one newsletter, but let’s all try to keep it together, shall we?)
Anyway, you may be surprised to learn that, in the midst of a global pandemic and continuing trade war(s), the USDA just announced that American farmers are having a banner year in terms of income and profits:
U.S. net farm income this year will jump 43% to $119.6 billion, the highest inflation‐adjusted level since 2013, the government said Wednesday in a report. The projected surge occurred as the virus pandemic roiled the food‐supply chain in the spring, driving grain prices down and meat costs higher.…
U.S. agriculture is on track for one of the three most‐profitable years in a half century. Adjusted for inflation since 1973, projected net farm income in 2020 will be surpassed only by 2011 and 2013 figures.
So what’s driving these major increases? Back to Bloomberg:
The latest data show the increasing dependence of growers on government assistance after three years of trade and Covid‐19 aid on top of traditional subsidies. Farmers face a murky outlook next year if the Biden administration adjust[s] payments.
Direct government aid, accounting for 39% of net farm income, rose to a record $46.5 billion from $22.4 billion last year. …
Yes, you read that right. This year, farmers (on net) will derive almost 40 percent of their income directly from the U.S. government. Forty percent.
As we’ll discuss, a good chunk of these government payments come from the CARES Act, but much of it flows from earlier government programs. And all of it is due to American farmers’ historically disproportionate pull in the U.S. Congress—pull that has resulted in decades of massive, harmful, and (mostly) unnecessary taxpayer support. At least it can provide some broader lessons about U.S. subsidies.
So let’s jump right in.
History and Context
The United States has subsidized American farmers in some form since the New Deal era (the Agricultural Adjustment Act of 1933) and today doles them out primarily via one vehicle: the farm bill—a large and complex piece of legislation that’s renewed every five or six years and includes two main parts: (1) various types of support for domestic agribusiness (i.e., farm subsidies); and (2) “nutrition” (mostly the Supplemental Nutrition Assistance Program). Although we think of the farm bill as a subsidy bill, it’s actually heavily tilted toward nutrition—in the last (2018) farm bill, for example, more than 75 percent of federal outlays were actually for SNAP and related programs.
We’ll talk more about this balance in a moment, but for now let’s focus on the subsidies. As noted by the Cato Institute’s Chris Edwards, U.S. government support for farmers is “deep and comprehensive”: via the farm bill, the government “protects farmers against fluctuations in prices, revenues, and yields,” and “subsidizes their conservation efforts, insurance coverage, marketing, export sales, research, and other activities.” Back in 2014, Congress made some significant revisions to the subsidy programs—limiting direct payments and subsidies to certain farmers while amplifying federal crop insurance—but the overall amount of money remained relatively steady in subsequent years..
That amount is substantial: according to the Environmental Working Group’s compilation of Department of Agriculture data, for example, the federal government has provided approximately $424.4 billion in current‐dollar subsidies—crop insurance, commodity payments, conservation payments, and disaster payments—to U.S. farms since 1995 (the 2020 data are incomplete)