NSAC's Blog


How Farm Subsidies Encourage the Big to Get Bigger

December 21, 2017


Aerial of Iowa from 10,000 feet May 6, 2017. USDA photo by Preston Keres

A recent pair of reports from the Economic Research Service (ERS) confirms that federal subsidies to farms are increasingly going to larger and larger farms, thus supporting the cycle of the big getting bigger. Fewer and bigger farms mean less money circulating in local economies, fewer farm jobs in rural areas, and fewer opportunities for beginning and young farmers to get into the business.

Since 1991, the household income threshold for farms receiving half of all commodity program payments more than doubled from about $60,000 to over $146,000. For crop insurance indemnities we see a similar shift. In 1997, half of crop insurance indemnities went to farms with incomes of over $63,000; today that number is $143,000.

This is all concerning, but with crop insurance we see an even more worrisome trend when you look at farms with over $1 million in Gross Cash Farm Income (GCFI) income, which includes large and very large farms according to ERS definitions. These largest farms saw their share of indemnities increase from 12 percent to nearly 33 percent of the total. This dramatic change – combined with the recently revealed data showing that the top one percent of farms-by-sales receive 20 percent of subsides – raises questions about how crop insurance benefits are distributed. Logically, even as large and very large farms become more common, the proportion of indemnities among different sized farms should stay the same. This seems to indicate that as crop insurance has expanded, it has provided disproportionately favorable incentives to the largest farms, including unlimited crop insurance subsidies.

Since 1991, taxpayer subsidies for crop insurance have greatly increased from $300 million to $6.1 billion. While total acreage in the program has increased significantly, the number of policyholders has stayed relatively steady meaning more acres covered by the same number of farms, also indicative of consolidation.

This is all overlaid on the fact that during this same period the number of farms in America fell by around 70,000 [1] and the percent of land owned by actual farmers declined, with nearly 40 percent of land now being rented or leased and 80 percent of rented or leased land being owned by non-farmers.

This raises the question: is the crop insurance program, under its current subsidy structure, doing a good job keeping people in farming, or is it contributing to the consolidation of farms and pushing people out of farming?

In addition to shedding light on the impacts of the current subsidy structure, these reports also shed light on the problem of access to crop insurance. Of farms with GCFI between $150,000 and $350,000, less than half have crop insurance, which is concerning especially when you consider that farms with a GCFI of under $350,000 account for 50 percent of all farmland. ERS indicates that at the $350,000-$999,000 GCFI level, participation jumps to 65-69 percent; and that when GFCI exceeds $1 million, participation in crop insurance tops out at 71.2 percent. NSAC has several recommendations for increasing access to crop insurance, including for small farms and beginning farmers.

According to ERS Large family farms, those over $1 million of GCFI only represent 13 percent of crop insurance program participants, but operate 34 percent of cropland in the program and receive 34 percent of indemnities. Small farms, those with a GFCI of less than $350,000 operate over half of farm acreage but receive only 16 percent of indemnities. This indicates that farms of substantial size, but by no means the largest, have more limited access to crop insurance than the largest farms.

Negative Impacts of Subsidies on Mid-Scale, Beginning and Young farmers

As the ERS report rightly points out, government subsidies don’t always directly translate into support for the farmers being targeted. This is because subsidy payments increase the net return on farmland, and in the case of conservation payments, can increase costs.

As has been firmly established, government subsidy programs increase land prices and rents since landowners try to capture some the increased net return that results from subsidy payments. Government subsides of all types to farms totaled $16.9 billion in 2015.

Increased land prices and rents resulting from government subsidies have detrimental impacts on mid-scale, beginning, and young farmers. When government payments of all types increase, they make land more expensive to rent and buy, thus making it more expensive for those farmers just starting out. The payments also have the perverse effect of helping the largest farms (which receive the largest portion of the payments and indemnities) get bigger by allowing them to capitalize subsides in order to bid higher for land or pay higher rents thus perpetuating the cycle. This was laid to bare in a recent Wall Street Journal article, where a farmer with over 10,000 acres in Kansas acknowledged the difficulty any young or new farmer would have in trying to outbid him for land.

What we can do to reverse the Trend of Consolidation?

The timeliest way to address the imbalance in subsidies is to strengthen existing commodity program payment limits and implement modest subsidy caps for crop insurance as part of the next farm bill.

As part of a last minute back room deal during conference negotiations in 2014, the 2014 Farm Bill jettisoned real commodity program payment limitations. Unlike the provision included in both the House and Senate version of the 2014 bill prior to conference, the final version eliminated the strict “actively engaged in farming” requirement that accompanied a relatively strict $125,000 limit. Actively engaged requirements ensure that non-farmers do not benefit from subsidy programs that are intended to help farmers. The 2014 Farm Bill exempted all family farms, which make up more than 90 percent of farms, and allowed other farms to designate farm managers to effectively raise the limit to upwards of $1 million. Congress should include a strict single per-farm payment limit in the next farm bill in line with provisions included in the House and Senate versions of the last farm bill.

Despite their shortcomings, subsidy caps and means testing have been part of commodity programs since the 1970s; yet crop insurance, which provides billion of dollars in subsidies to farmers, does not have any similar caps or means testing requirements.

Congress must consider means testing and subsidy caps for crop insurance to address the clear imbalance of benefits flowing to the largest farms, and the consolidation that results. These caps should take into account the higher value of specialty crops, be indexed to inflation, and be calculated to only impact the largest of the large.

Without strong subsidy caps, a means test, and actively engaged requirements, federal crop insurance and commodity programs will continue to advance a cycle of consolidation that benefits the largest farms to the detriment of small and mid-scale farms, beginning farmers, and rural communities.

[1] https://www.agcensus.usda.gov/Publications/2012/Preliminary_Report/Highlights.pdf


Categories: Commodity, Crop Insurance & Credit Programs


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