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Weekly Basket: Profiting from Entitlements

 Volume XVII No.21: May 24, 2012 

As farmers finish the last of their spring plantings, lawmakers on the Agriculture Committees are scrambling to sow the seeds for costly new entitlements. Most of the programs under their jurisdiction—from payments to farmers and conservation programs, to research funding and food stamps—will soon expire, unless they are re-authorized in a new Farm Bill. But instead of leading efforts to separate the budgetary wheat from the chaff, the committees are digging in their heels and braying against real reforms like a pack of stubborn mules.

Recently the Senate Agriculture Committee passed its bloated version. Despite the President’s call for $33 billion in cuts, and the House $30 billion, the Senate Agriculture Committee included only $23 billion. Senators found it so hard to prune these programs—projected to cost $995 billion over the next decade—that when the bill’s preliminary score came in at $24.7 billion in savings, they promptly “spent” this unexpected $1.7 billion "windfall" on subsidies for ethanol blender pumps and special entitlements for cotton.
Bowing to the reality that agricultural businesses experienced record revenue for the last few years, the bill eliminates some wasteful entitlements: direct payments, counter-cyclical payments, and the Average Crop Revenue Election program (a failed subsidy from the last farm bill). But it makes no improvements to the costliest support for agricultural businesses, taxpayer subsidized crop insurance. In fact, Senators plowed more subsidies into the program and made it worse.
With “leftover” cash from eliminating direct payments, the Committee created new entitlements to essentially make much of agriculture a no-loss business. With fancy names like Agriculture Risk Coverage (ARC) and Crop Insurance Supplemental Coverage Option (SCO), these new programs will force taxpayers to send checks to agricultural businesses that seem to suffer losses—but not enough losses to trigger crop insurance payments—in a given year. But to be clear, we’re not simply talking crops. These programs guarantee a level of expected revenue, meaning a drop in prices could trigger a payment from taxpayers. Sweet deal if you can get it. What American wouldn't have wanted guaranteed revenue during the recession? This is a business cash guaranteeunparalleled in any other industry.
The grass doesn’t look any greener in the House. Months of hearings have shown Representatives hoeing another subsidy row for special interests. With Rep. Lucas (R-OK) and southern agriculture interests behind the reins, brand new wagons are looking to hitch onto the subsidy gravy train. Even though the Senate tried to quell a southern uprising by adding crop insurance for profit margins (a boon to rice and even catfish farmers), special treatment for peanuts, and a whole new program for cotton (a crop that just can’t get enough special treatment), that’s not enough. Rumblings indicate that the House Agriculture Committee might use its Farm Bill to create an optional parallel universe of target prices, where the government steps in when prices dip below a mandated level.
Talk of farm subsidies sends most Americans, like most lawmakers, into a stupor. That’s what Ag fat cats count on. But not everyone is asleep at the wheel. Fiscal conservatives have awoken and demanded billions in savings. And reformers like Rep. Flake (R-AZ) have emerged, calling for no new entitlements, while Senators Coburn (R-OK) and Durbin (D-IL) are directing Congress towardcommon sense savings.
There can be a role for the federal government in agriculture. Protecting against catastrophic losses caused by widespread flooding and drought may be in taxpayers’ interests. But commodity groups aren't interested in a limited safety net. They want to add to the tangled web of overlapping subsidy programs to create a springboard to perpetual profits. While this may be a win-win for agriculture, it is a lose-lose for taxpayers.
Let us know what you think.
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