|
Yesterday, Senator Jeff Flake (R-AZ) and Representative John Duncan (R-TN) put forward a new bill that would prohibit the duplicative use of farm subsidy programs, a practice called “double dipping.” Farmers can currently claim subsidy payments for participating in the federal crop insurance program and receive payments from a suite of “shallow loss” programs introduced by the 2014 farm bill. These programs essentially call on taxpayers to compensate farmers twice for the same losses.
The federal crop insurance program requires taxpayers to pony up about 70% of the costs of farmers’ crop insurance policies through two mechanisms: First, farmers are provided with substantial premium subsidies. Second, crop insurance companies also receive additional subsidies to service the insurance products. At the same time, to cover the same shortfalls in crop revenues, farmers can collect additional subsidies under one of the two “shallow loss” programs (their pick) introduced in the 2014 Farm Bill called price loss coverage (PLC) and agricultural risk coverage (ARC).
The proposal by Senator Flake and Congressman Duncan simply states that farmers can only participate in one of the two programs. Under both programs, subsidy payments disproportionately go to large farms owned by wealthy individuals wasting scarce taxpayer resources.
The federal crop insurance program costs taxpayers about eight billion dollars every year, of which 30% goes to insurance companies. The shallow loss programs currently cost taxpayers another $7-8 billion a year, $3-4.5 billion more than originally predicted in 2014 by the program’s champions. Effectively, by double dipping, farmers have the potential to vastly increase the subsidies they expropriate from taxpayers for the same losses.
So where do crop insurance and shallow loss program subsidies go and which farms are double dipping? Recent research, forthcoming in a professional peer reviewed academic journal, which uses US Department of Agriculture annual survey data, has shed new light on this issue.
In 2015, a reasonably representative year, an overwhelming majority of all ARC, PLC, and crop insurance subsidies were paid to farms in the top 20% of the crop sales distribution. Those high-end farms received 82% of all subsidies under these programs, nearly half of which — 38% of all PLC, ARC, and crop insurance subsidies — was paid to the largest 5% of farms.
Furthermore, the top 2% of all farms received 20% of all subsidy payments while only 18.1% of all subsidies were received by farms in the bottom 80% of the sales distribution. As a group, smaller farms in the bottom 40% of the sales distribution, often the focus of farm lobby tales about family farms facing financial challenges, received less than 1% of all subsidies and most of those farms received nothing. Bottom line: small farms are not double dipping, but agribusinesses are.
In contrast, double dipping practices are extensive among large commercial farm businesses. For example, the overwhelming majority of farms in the top 20% of the sales distribution eligible for crop insurance and the shallow loss programs sign up for both programs. In 2015, just over half of all farms in the top 20% (51.5% of those farms) received payments from at least one program and 8.8% of those farms received payments from at least two of the three programs.
The data unambiguously show that producers who receive the majority of total ARC, PLC, and crop insurance subsidy payments also own the largest farms, generate substantial revenues from crop sales, and have the highest levels of wealth. For example, in 2015, farms ranked in the top 10% by crop sales received about 70% of all subsidies.
A brief demographic summary of these farms receiving the majority of taxpayer dollars: their average net worth was $5.51 million, they operated an average of 2,901 crop acreages (over five times the average for all farms), had average annual crop sales of $1.8 million (over seven times the average for all farms), and average crop sales per acre of $14,231 (over four times those for the average farm). These agribusinesses receiving about 70% of all taxpayer-funded subsidies are the least vulnerable to adverse shocks in production and market prices.
In summary, the Flake-Duncan proposal to prohibit double dipping is likely to save taxpayers $60 billion between now and 2027 without any measurable impacts on 80% of all farms. Current subsidized agricultural programs overwhelmingly are directed to large farm businesses that do not require assistance. Small farms that are the most vulnerable to financial shocks receive relatively or very little support from the current federal crop insurance and shallow loss programs. It is surely time to limit the subsidies which large, thriving agribusinesses can access by restricting them to feeding at only one of those two major federal farm subsidy troughs.
The Flake-Duncan proposal to prohibit double dipping is likely to save taxpayers $60 billion between now and 2027 without any measurable impacts on 80% of all farms.
|
