Every five years, like pigs to the trough, the special agricultural interests line up on Capitol Hill, making sure to get their tasty little provisions written into the latest pork-laden farm bill. There was the National Cotton Council, the National Milk Producers Federation, the American Sugar Alliance, and countless others. Even United States catfish got some protection from their imported Vietnamese counterparts.
While the Agriculture Reform, Food and Jobs Act of 2013 (S. 954) was widely praised for ending the $5 billion-a-year direct payment program that dropped money in farmers’ pockets whether they planted crops or not, it sets up “adverse market payments (AMP)” and “agricultural risk coverage (ARC)” that the Congressional Budget Office estimates will eat up two-thirds of the $40 billion savings from direct payments. The bill passed with “bipartisan support,” 66-27 on Monday evening.
For most covered commodities, the AMP program sets target prices based on five-year averages. Rice and peanut farmers get especially special treatment though; the bill legislates reference prices well above what would have otherwise been written into law (Debbie Stabenow (D-Mich.), Chair of the Senate Agriculture Committee had to get those stubborn Southerners on board somehow). Meanwhile, the ARC, essentially a revenue protection program that is triggered if a farmer’s revenue falls below 88 percent of his benchmark, is estimated to cost $23 billion over 10 years. While there are all sorts of caps on the amount of insurance farmers can receive, if there’s another drought year like 2012, the government could be on the hook for billions. In 2012, crop insurance payouts financed by tax dollars topped $15.8 billion, well outpacing tax-financed direct payments. And with taxpayers picking up 60 percent of the premium cost, what farmer wouldn’t double down on crop insurance?
In addition, there’s a new shallow loss program in place that some estimate could cost as much as $8 to $14 billion a year, dwarfing the direct payment plan it helps replace. There’s also something called “supplemental agricultural disaster assistance,” which, among other things, pays farmers 65 percent of the market value of their livestock if the animal dies “due to attacks by animals reintroduced into the wild by the Federal government or protected by Federal law, including wolves.” So, if your cows are attacked by alligators or grizzly bears, fear not.
All of this insurance incentivizes riskier farming; after all, losses are felt by the government, while the gains are experienced by the farmer; farm incomes have soared over the past 10 years. And those perverse incentives have never gotten us into trouble, have they?