Before taking office, President Barack Obama pledged to cut government waste: “We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness.” Yet after signing the $410 billion omnibus (the largest annual increase in 30 years) on top of the gargantuan $787 billion spending package with questionable items to “stimulate” the economy, it seems like what is bleeding is that promise’s credibility.
Yet the President still has an opportunity to redeem himself on spending by following through with his $2 trillion federal cost-cutting promise. In his first address to the joint session of Congress, Obama named farm subsidy programs as a top candidate for the chopping block. The Commodity Credit Corporation (CCC) is the Agriculture Department agency responsible for administering subsidy programs, notorious for funding large agribusiness.
This wasn’t the first time the President singled out the CCC for excess. In November, Obama criticized the CCC’s gross misallocation of $49 million in farm subsidies to farmers who were ineligible for the program because they earned more than $2.5 million per year. Despite such gross mismanagement, the CCC will receive $1 billion as part of the stimulus package and more than $3 billion in the omnibus—on top of its annual $12 billion budget.
The CCC is a New Deal relic, created in 1933 to support the then-struggling farm industry. At the height of the Great Depression, the average farmer earned only half the income of the average American household. To stabilize farm income and prices, the CCC offered subsidies in the form of direct payments, countercyclical payments, price support programs, as well as conservation programs.
Direct and countercyclical payments are used alternatively to compensate farmers for producing crops depending on market demand. When crop prices are low, the price support program enables farmers to use their crops as collateral for non recourse loans from the USDA, without the risk of default. To counteract overuse, conservation programs pay farmers for not producing crops on their land.
As farmers become richer, more efficient, and fewer, the continued relevancy of the CCC is questionable. Yet the CCC’s expenditures continue to grow today despite the wealth of American agriculture. In 2005 the average farm household earned 26 percent higher income than the average American household.
Moreover, the majority of CCC subsidies are collected by large agribusiness firms. Over the past decade, 75 percent of the $177 billion in total subsidy payments was collected by the top 10 percent of subsidy recipients. This largesse not only wastes Americans’ tax dollars, it inflates the price they pay for food.
Agricultural subsidies often have a regressive effect not only on domestic but international economies as well. Protectionist subsidies create barriers to trade for less developed countries that rely most heavily on agriculture as a means of development. U.S. farm subsidies often encourage excessive crop production by artificially boosting demand. Overproduction skews world prices, which helps stifle economic development by making it difficult for developing countries to enter the market and remain competitive. The International Monetary Fund estimates that the elimination of farm subsidies could add $100 billion to global welfare.
Overproduction can also increase pollution and overuse of land. Excessive production can degrade farmland, which then requires the use of added pesticides and fertilizers to remain agriculturally viable. According to the World Resources Institute, agriculture is the biggest source of pollution in U.S. rivers and lakes. Overproduction also results in the development of marginal farmland, causing loss of habitat and other natural resources.
The CCC has outlived any purpose it may once have had. The continued subsidization of the US farm industry comes at the expense of the environment, consumers, and producers in developing countries. These costs are too high to continue.
As the financial crisis deepens, the destabilizing effect of subsidies needs to be reexamined. If President Obama is ever to make up for the current spending spree, he must confront and eliminate boondoggles like the Commodity Credit Corporation.
Amanda France is a research associate at the Competitive Enterprise Institute.