Last week, the Environmental Working Group held the first Summit on the Future of Farm Subsidies. The National Sustainable Agriculture Coalition (NSAC) participated alongside Heritage Foundation, Taxpayers for Common Sense, R-Street, Cato Institute, Farm Action Fund, World Wildlife Fund, and more. We emerged with a broad consensus to oppose raising reference prices and to curb wasteful spending in the federal crop insurance program.
Opposition to reference price increases
The summit occurred just after the publication of new USDA data which reveals that farm income shattered previous records in 2022. Though farm income is projected to fall somewhat next year, income projections continue to outpace expenditures – all but guaranteeing a healthy profit-margin for conventional farm businesses.
Why, then, are some members of Congress calling for increased reference prices? Only farmers who grow covered commodities, such as corn, soybeans, rice, wheat, cotton, and peanuts, are eligible to receive Price Loss Coverage Program (PLC) payments. Those payments are triggered when the national average market value of a commodity falls below a price floor, or “reference price,” that is established in the farm bill.
Commodity groups argue that reference prices must be increased in the 2023 Farm Bill to reflect the rising costs of production. However, historical trends suggest production costs and commodity prices will peak and stabilize on average over several years. If reference prices were adjusted to these new peak price levels, commodity farmers will be all but guaranteed payments under PLC and even the Agriculture Risk Coverage (ARC) program, for which the reference price is embedded in calculations, every year hence. Maintaining current reference prices is in-line with the intent for these programs to serve as a safety net to protect farmers from unforeseen loss, not annual entitlements.
A new analysis from the Environmental Working Group finds that less than 6,000 farmers will benefit most from increased reference prices, mostly those growing peanuts, rice, and cotton. There are roughly two million farms in the United States. Beltway conversation suggests the proposal to increase references may cost between $10-80 billion in a farm bill negotiation where there is no new spending – which would require members of Congress to redistribute funds presently authorized for the tiny but mighty programs that actually do serve the diversity of American agriculture.
The groups who attended the Summit on the Future of Farm Subsidies were united in opposition to raising reference prices because it is a very expensive proposal that would help less than 0.3 percent of farms – even as most farmers are still unable to access any safety net programs.
Curb record-breaking crop insurance subsidies
80 percent of farmers are not enrolled in a crop insurance plan, even as the threat from floods, drought, hurricanes, and other weather events grows. The federal crop insurance program is simply not accessible for small to mid-sized, diversified, and organic farmers, even though many would enroll if it were a feasible option.
Meanwhile, federal crop insurance subsidies to the largest and highest-income farms cost taxpayers a record $19.13 billion in 2022. This shatters the record $11.63 billion that farmers received in 2021, which itself was double the prior decade’s average at roughly $6 billion annually.
A report from the American Enterprise Institute finds that 20 percent of the largest farms receive 80 percent of federal subsidies to purchase crop insurance. The top percentile of farms alone receives 10 percent of total premium subsidies, or an average of $41 per acre. These farms produce an average adjusted gross income (AGI) of $1.5 million and possess an average household wealth of $15.7 million – far above the average household wealth of Americans.
This begs a question: Why is there bipartisan consensus to subsidize multi-millionaire farmers while the vast majority of farms are left without any protection at all and most Americans struggle?
What should Congress do?
Congress has an opportunity to invest in the long-term success of American agriculture with the 2023 Farm Bill. Maintaining or even raising crop insurance and commodity program subsidies to the largest, highest-income farms will continue to perpetuate a food system that is unable to sustain itself.
Members of Congress serious about decreasing safety net costs and promoting systemic resilience should invest in policies and incentives to help farmers reduce risks on-farm through diversification and the adoption of proven conservation and soil health practices.
In the short-term, that requires curbing record subsidies to the largest, monoculture farmers whose risk is, at present, artificially shifted onto the taxpayer. There is no incentive for highly efficient but irresilient farms to adopt practices that would naturally enhance resilience against natural disasters and combat erosion so long as federal programs all but guarantee an annual profit.
To this end, the following bills have been introduced or will soon be re-introduced:
- Farm Program Integrity Act – Introduced by Senators Grassley (R-IA) and Brown (D-OH) to close loopholes to payment limitations and means tests in Title I commodity programs, so that only farmers actively engaged in farm management in labor are eligible for subsidies. It also adds a $250,000 cap for any one farm operation annually.
- Assisting Family Farmers Through Insurance Reform Measures (AFFIRM) Act – The AFFIRM Act was last introduced by Senators Shaheen (D-NH) and Toomey (R-PA, retired) in 2020. Historically, provisions include a cap to crop insurance premium subsidies, an adjusted gross income means test for millionaires, and reducing the subsidized guaranteed profit rate for private insurance companies. The bill is projected to save up to $35 billion over 10 years.
Additional bills, including the Whole Farm Revenue Protection Program Improvement Act and the Insuring Fairness for Family Farmers Act, would reform the federal crop insurance program to make the safety net more accessible to small to mid-sized, beginning, limited resource, and specialty crop farms.
For more options to cap federal crop insurance subsidies, refer to NSAC’s Economic Analysis of Payment Caps on Crop Insurance Subsidies.
Watch a recording of the 2023 Summit on the Future of Farm Subsidies here.