How to phase out the $5 billion in ‘direct payment’ agricultural subsidies

Jake Caldwell in a reposted summary of a new CAP report.

Agriculture and the family farm are the foundation of strong and healthy rural communities, and a critical engine of U.S. economic growth. Regrettably, a key aspect of U.S. agricultural policy does not meaningfully contribute to the success of U.S. farmers: Most federal farm subsidies are outdated, expensive, and inequitable.

In an era of fiscal constraint and more immediate budget priorities, many of these ineffective subsidies can no longer be justified.

The federal government each year pays owners of historical croplands $4.9 billion in “direct payment” subsidies regardless of whether the people receiving the payments farm their lands. And these payments are automatically made every year despite rising fiscal deficits and a relatively healthy farm economy that saw net farm income grow by 27 percent in 2010.

An exclusive set of commodities””corn, sorghum, barley, oats, cotton, wheat, rice, soybeans, and peanuts””have received 72 percent, or $160 billion, of all U.S. farm payments since 1996. Even among this small group of commodities there are widespread disparities. Upland cotton and rice growers, for example, receive a disproportionately high level of farm program payments relative to the other crops. Meanwhile, fruit and vegetable growers, and the majority of other agricultural producers in the United States, receive minimal direct subsidies despite contributing more than 50 percent of the total farm gate value in the United States.

Because direct payments are linked to historical lands and amount of acres, the benefits of the payments tend to accrue to larger farm operations with more acreage. The Department of Agriculture found that 62 percent of farm payments, including direct payments, went to the largest 12 percent of farms in 2008. The Government Accountability Office found that 305 farm operations that same year each received $200,000 or more in direct payments.

Direct payments also tend to flow to people with high incomes. The GAO found that recipients of direct payments and other farm program payments in 2008 were more than “twice as likely to have higher incomes as other tax filers.”

Several members of Congress receive direct payments and other farm program payments. According to a recent analysis by the Environmental Working Group, 23 federal lawmakers currently in Congress””six Democrats and 17 Republicans””received agricultural subsidies between 1995 and 2009. Republicans took home $5.3 million in taxpayer-funded subsidies during this period while Democrats received just less than $500,000.

Other agricultural subsidies are doled out based on production, making prices more volatile for farmers in the United States and overseas, and often undermining U.S. development and antipoverty programs. As commodity prices fluctuate, agricultural subsidy programs in general could eventually cost taxpayers between $7 billion and $24 billion a year.

Bottom line: Poorly designed and ineffective agricultural subsidy programs weaken the competitiveness of our nation’s farmers and rural communities, drain taxpayer resources, and should be reformed. Among the recommendations we make in this paper:

  • The United States should reduce and phase out the $4.9 billion per year in automatic direct payments to individuals and apply the savings to deficit reduction.
  • As direct payments are phased out, the maximum individual direct payment should be capped at an appropriate level and the overall income eligibility amounts should be reduced.
  • $650 million saved from direct-payment reduction should be reinvested into existing rural-based programs to provide incentives for renewable clean energy, energy efficiency, and advanced dedicated biomass energy crops on the farm.
  • A portion of these savings should also be dedicated to enhancing U.S. agricultural exports in a manner that promotes small business and is consistent with international trade obligations.
  • All government spending on agricultural subsidies should be disclosed in an open and transparent manner.

If these recommendations are implemented, the federal government can save more than $35 billion by 2020 and apply most of these savings to deficit reduction while also investing in a clean energy future in our rural communities.

Read the full report (pdf)

Download the executive summary (pdf)

Read the full report in your web browser

Jake Caldwell is the Director of Policy for Agriculture, Trade, and Energy at American Progress.

4 Responses to How to phase out the $5 billion in ‘direct payment’ agricultural subsidies

  1. Mulga Mumblebrain says:

    Another malignant aspect of US food policy is the manner in which cheap, subsidised, product is dumped on poor countries, sometimes masquerading as ‘aid’, and thus destroying the livelihoods of local farmers. Rice dumping in Haiti, while under US and IMF (the same thing, actually) occupation, destroyed Haitian rice farming and drove thousands of impoverished farmers off the land and into the teeming slums, where the earthquake horror caught them. And in Mexico dumping of subsidised corn destroyed many agricultural communities throughout Mexico. In the north this calamity, plus the deepening drought that also afflicts the US south-west, has driven thousands off the land and over the border to Gringoland. To add yet another layer of horror the north is now afflicted by the daemons of the drug trade which has degenerated in many places into a diabolical death cult, with peasants slaughtered in horrific manner, or enslaved as workers or drug ‘mules’.

  2. Merrelyn Emery says:

    Excellent recommendations, especially the second last dot point, ME

  3. dbmetzger says:

    something new on the plastic front
    Scientists Turn Pineapples into Plastic
    Scientists in Brazil have developed a method of turning pineapples, banana peels and other fibrous plants into plastic. The researchers say the material is strong, lightweight and eco-friendly, and may replace conventional plastics in auto manufacturing.

  4. Cinnamon Girl says:

    Further to Mulga, it appears that NAFTA allowed the subsidized corn to flood into Mexico, putting roughly a million Mexican farmers out of business. At the same time, Monsanto’s RoundUp-ready GMO corn genes arrived, infecting the native strains. Yeah, that was a good bargain for Mexico, alright.

    On the farm subsidy thing, it seems to me that farm policy must engage that most powerful of American demons, Urban Sprawl (and its cannibalization of water and farm land). Most land use issues, other than severe erosion and wetlands destruction, probably can be remedied somewhat, but once the concrete of urban sprawl goes down, it’s there forever. Al Gore discussed urban sprawl restraint during his presidential campaign, and the issue seemingly disappeared afterward. “Food” (I use the term lightly) security demands that we maintain some domestic food production. Of course, the low-watts might say ‘hey, if that climate change thing really happens, we’ll be able to grow lettuce in Nebraska.’ Maybe, but if so, that would mean that grain production has been pressed into the low light and poor soil conditions of the northern latitudes. Truly, I expect that the approach of farm subsidies will not change (farm state Senators are too valuable), but the targets of subsidies will change. That is, I suspect that AGW will force subsidies to move from the row crop model toward the massive greenhouse/housed production model (that is, if the estados unidos model survives AGW). The scam will remain the same, though.