It is time to get serious about reducing corporate welfare, including farm subsidies

Over at BenSwann.com there is a good post reminding us that more money goes to corporate welfare than social welfare programs.  How much more goes to corporate welfare than social welfare? BenSwann.com points to a report at ThinkByNumbers.com for the answer:

About $59 billion is spent on traditional social welfare programs. $92 billion is spent on corporate subsidies. So, the government spent 50% more on corporate welfare than it did on food stamps and housing assistance in 2006.

I’m no fan of any government welfare programs, whether they be corporate or social. I do however think it makes many fiscal conservatives look hypocritical when they attack social welfare programs and ignore the billions of dollars used in wealth-redistribution done for special interest groups in rich industries.

The energy industry (oil, coal, wind, solar, etc..) is often a target for those of us opposed to corporate welfare. And right fully so, they account for a large portion of corporate welfare. Yet that industry is not the biggest corporate welfare recipient. It is actually the agricultural industry. This from the ThinkByNumbers report:

However, the largest fraction of corporate welfare spending, about 40%, went through the Department of Agriculture, most of it in the form of farm subsidies. (Edwards, Corporate Welfare, 2003) Well, that sounds OK. Someone’s got to help struggling family farms stay afloat, right? But in reality, farm subsidies actually tilt the cotton field in favor of the largest industrial farming operations. When it comes to deciding how to dole out the money, the agricultural subsidy system utilizes a process that is essentially the opposite of that used in the social welfare system’s welfare system. In the corporate welfare system, the more money and assets you have, the more government assistance you get. Conversely, social welfare programs are set up so that the more money and assets you have, the less government assistance you get. The result is that the absolute largest 7% of corporate farming operations receive 45% of all subsidies. (Edwards, Downsizing the Federal Government, 2004) So instead of protecting family farms, these subsidies actually enhance the ability of large industrial operations to shut them out of the market.

Farm-Subsidies2
Graph Source: http://ers.usda.gov/data

As the Farm Bill takes center stage again it is time to look at truly getting rid of corporate welfare subsidies for the agricultural industry. Now I don’t think it would be a good idea to cut the subsidies cold turkey. The unintended consequences of that would cause undue short-term hardship on the economy. As a nation we are already experience enough government-produced hardship upon the economy. Instead we need to get back to a five-year plan that will remove farm subsidies. Doing so would allow the agricultural industry to plan accordingly. It would also remove the largest corporate wealth-redistribution scheme and allow food prices to closer reflect free-market prices.

Personally I don’t believe the current majority of DC politicians will be willing to take on the lobbying power of the agricultural industry. But if the fiscal conservatives in DC want to be taken seriously they have to look at all forms of welfare. Supporting corporate welfare over social welfare is not just hypocritical, it makes them appear to be ‘bought and paid for’ by special interest groups.

6 thoughts on “It is time to get serious about reducing corporate welfare, including farm subsidies”

  1. Ken, I like your idea about farming subsidies being reduced over a period of time. We already have a land bubble that’s developed. However, I can’t agree with your premise that the farm subsidies help large farmers over small farmers. Maybe in other agricultural industries (I don’t read the farm bill lol) but definitely not regular corn/soybean farming. My husband’s family has a large farm, and they get the same subsidy any farmer with 500 acres gets, because the payments are capped. In fact, the farming subsidy hurts large farmers and puts them at a competitive disadvantage because the value of the subsidy has been built into the price of the land, so a large farmer overpays for land because when the small farmer bids on land the value of the subsidy payments is taken into account. For the large farmer that value is spread out over more acres to the point that it has no noticeable valuable effect on the economics of the farm. The farm subsidy also drives up the cost of inputs for the large farmer because the small farmer gets a significant portion of his income from that subsidy and can pay more, so just like with the value of land the market price of inputs like fertilizer are inflated. The farm subsidy does exactly what it was intended to do, which is prop up the small family farm and make it harder for the large “greedy” farmer to survive. I’m not in the partnership, but my family (the three of them) does take the subsidy payment because to not do so would put them at even more of a competitive disadvantage than they already are at. Due to the farm subsidy program, they have inflated land and input costs, and go into the red or make nothing most years.

    The crop insurance program is even in economic value for all farmers, but its just insurance. You don’t make money off of it, it just helps you keep from going in the red as bad with a catastrophic weather event. You still lose money.

    My concern would be that if you got rid of the subsidy program too fast you would hurt the small farmer depending on how fast land and input prices equalize. We have a land bubble and the drop in land value would make it hard for them to get loans. Also, next year will be a very bad year for farmers. Just be planting something in the ground you lose money. The land prices have been greatly inflated past their already over inflated prices by the recent years of high commodity prices, which although a short term benefit will hurt farmers in the large run (thank you, hedge funds.) Small farmers won’t hurt as bad as large farmers, but they will still hurt. However, that bubble has to pop sometime

    Maybe you’re right about the corporate farms, I don’t know anything about them since we don’t have any corporate farms in South Dakota – they’re illegal. In order to farm in South Dakota, the farm must be privately owned. I’m dubious though.

  2. Bree,

    I understand what you are saying. I grew up working on a farm; and my wife and I own an Accounting & Tax business with a large percentage of farmers as customers (she HATES me doing posts on this subject btw.).

    I am working on a magazine article about the farm bill and this post happens to be something I ran across that was interesting, yet not quite related to the articles topic.I will share some of what is going into the article though.

    South Dakota is a perfect example of where the farm bill is going wrong. Crop insurance in South Dakota typically works on a ‘crop by crop’ basis. Which makes sense, but is misleading when Congress and the media talk about crop insurance programs in the Farm Bill. Most of the crop insurance programs that come from the farm bill don’t get shared with anyone we would call a ‘farmer’; actually less than 4% of these subsidies ever see a true farmer. Crops that do not have a set “crop by crop” insurance program are the ones that really get major subsidies (that includes corn in some states where corn is not an optimal crop to plant, thus there is no ‘crop by crop insurance plan there).The amount of direct subsidies that goes to what think of as farmers in South Dakota is so small that is almost negligible compared to other places agricultural welfare goes.

    The input statistics you mention are even worse than I thought they were. I’m still researching that, but the amount of money that goes to Monsanto and a few other companies dwarves most of our social welfare spending as a country. This is the true reason nothing will ever be done to reduce or remove the farm bill. If Congress were to change the Farm Bill into what most Americans think it is (something to help out small farms) it would cost certain companies and large corporate farms billions of dollars in subsidies per year.

    The land values you mention are crazy. That is the bubble I fear could devastate South Dakota’s economy when it bursts. I think that day will be coming regardless of what is done in the farm bill. It is simply unsustainable. So far I haven’t seen any good proposals to stop bubble from expanding. Actually most sources I’ve studied on the topic think this land-price bubble is a good thing???

    At the same time it was brilliant for the House to remove SNAP from the Farm Bill and now to put it back in. It distracts the media from what else is in the Farm Bill and allows them to pass this corporate welfare unhindered from scrutiny.

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