Costly, Regressive and Market Distorting: The Return of the Farm Bill

The current law is too expensive and doesn’t benefit the small farms it’s supposed to help

By Jack Salmon

As the dust settles on the 2022 midterm elections, policymakers will be looking to the 2023 legislative agenda for new spending priorities. High on the list is the 2023 farm bill, which comes up for renewal every five years.

Originally created during the fallout of the Great Depression, the farm bill (officially the Agricultural Adjustment Act of 1933) was intended to provide financial support to poor farmers and struggling agricultural workers. Over the decades, the nature of the farm bill has evolved into a mega spending bill giving handouts to wealthy landowners, breaking down economic dynamism in the agricultural industry and promoting welfare dependence by discouraging work.

Too Many Costs, Not Enough Benefits

Assuming the statute continues in its current form, the Congressional Budget Office projects that the baseline cost of the forthcoming farm bill will be roughly $1.3 trillion over the coming decade—an eye-watering 50% increase since 2018.

Of these costs, around $200 billion will be funneled to high-earning households in the form of farm subsidies. According to USDA data, average incomes for farming households during the decade 2011-2020 were 42% larger than average household incomes for the country at large, with the average farming household making more than $122,000 in 2020.

Despite this, policymakers often claim that farm subsidies go toward alleviating rural poverty. In reality, it is the largest and wealthiest farms that benefit most from billions of dollars in federal subsidies. According to the 2017 Census of Agriculture, only 23% of small farms (with sales of less than $100,000) received subsidies, while 76% of larger farms (with sales of $500,000 to $999,999) received subsidies. The average small farm recipient received an average annual government payment of $5,812, while the average large farm recipient received an average annual government payment of $44, 297. This data hardly paints the picture of a subsidy program targeting the most vulnerable farmers.

In addition to the regressive nature of farm subsidies, financing of crop production and subsidized crop insurance dissuades farmers from making decisions to improve market efficiency. Instead, federal subsidies lead to overproduction, distorted land use and inflated land prices. Subsidies may also increase the cost of foods because they act as nontariff barriers to agricultural products from overseas. As Montana State University economist Vincent Smith explains, “By subsidizing crop insurance, taxpayers are encouraging farmers to work less efficiently, produce fewer crops, and make smaller contributions to the overall productivity of the U.S. economy.”

The farm bill is a good example of government failure resulting from special interest groups (in this case, farmers) wrangling for government-granted privileges. As Mercatus Center senior affiliated scholar Matthew Mitchell notes:

When governments dispense privileges such as insurance subsidies, price supports, or protection from foreign competition, they create incentives for firms to invest large sums of money in obtaining and maintaining these privileges, as the farm bill demonstrates. . . . Members [of Congress] who voted for the bill drew in substantially more political contributions from various agricultural interest groups than those who voted against it, receiving nearly three times as much throughout the period analyzed.

In recent years, advocacy groups and policymakers have wanted to use the farm bill to address environmental concerns such as climate change. However, far from alleviating environmental concerns, farm subsidies have damaged the natural environment through encouraging overproduction of lands that might otherwise be reserved for forests, parks and natural wetlands.

As the Cato Institute’s Chris Edwards notes, thanks to federal farm subsidies, “Lands that would have been used for pasture or grazing have been shifted into crop production.” Subsidies may also induce excessive use of fertilizers and pesticides because crop rotation is discouraged in favor of subsidized crops.

Problems with Nutrition Assistance

Environmental concerns aside, by far the largest and burgeoning portion of the farm bill is the nutrition title of the bill, which includes nutrition assistance to low-income households through the Supplemental Nutrition Assistance Program (SNAP). In the 2018 farm bill, this portion of the bill comprised 76% of total spending, while this time around the CBO forecasts that 84% of spending under the 2023 farm bill will be spent on nutrition.

When the SNAP program was first expanded nationally in the early 1970s, there were around 4 million SNAP recipients, or about 1 in 50 Americans. Today there are over 41 million SNAP receipts, or about 1 in 8 Americans. The 10-fold increase in beneficiaries wasn’t driven by a surge in poverty; in fact, the poverty rate in recent years has been notably lower than that of the early 1970s.

As my colleague Veronique de Rugy points out in a National Review article: “Most of the increase in the number of people on food stamps over time has nothing to do with fraud, as some like to claim, but it has everything to do with changes in eligibility rules and increases in payments per eligible person.”

It isn’t just the number of recipients that has exploded over the years. After growing modestly for some time, the average food stamp benefit per person has shot up by 79% between 2019 and 2022. This rapid growth was mainly driven by two large upward adjustments the Biden administration made in 2021. As the American Enterprise Institute’s Angela Rachidi notes: “Despite these dramatic increases in federal spending, we have not seen similar declines in food insecurity rates.”

Supporting families at risk of food insecurity is very important. At the same time, we have to acknowledge that having 1 in 8 Americans dependent on food stamps comes with some notable tradeoffs, such as reduced incentive to work and lower income mobility. Much of the empirical literature supports this.

A recent report on SNAP changes conducted by the Pennsylvania Independent Fiscal Office found that a family of four enrolled in the program would receive almost $1,000 a month in benefits. The report raises some concerns, noting that “households could gain significant benefits if members work less to move below the threshold. While emergency allotments provide relief, they will also likely reduce the supply of labor, which is reinforced by expansion of the income thresholds.”

A Better Path to Food Security

True food security and abundance is not likely to come from endless expansions of government welfare programs. Rather, it will be achieved through innovations in agricultural technology. The adoption of vertical farming—the practice of growing crops in vertically stacked layers—would lower transportation costs, reduce carbon emissions and increase the freshness of our food. The development of genetically modified foods would engineer more nutritious foods at lower prices than traditional methods of livestock farming.

Combined with lab-grown meat and non-dairy milks, these new farming methods don’t just improve food security, but also advance the goals of the environmentally conscious and those concerned with animal welfare. Such innovations bring an abundance of quality foods, but also an abundance of lands that can be reserved for forests, parks, natural wetlands and wildlife.

As de Rugy points out at Reason: “While these innovations are not yet ready for prime time, I put my faith in their ability to reduce food insecurity faster and better than can the gazillions of dollars of subsidies the government is angling to provide next year and in years to come.”

Achieving abundance through innovation will also involve moving away from the old model of subsidizing big agribusiness. Policymakers should look to New Zealand for inspiration. In 1984, the government of New Zealand (a country four times as dependent on farming as the U.S.) ended all farm subsidies. The result was a significant increase in productivity, earnings and output. Land use in New Zealand was diversified, the quality of produce improved and food costs decreased.

Once market signals were allowed to operate unfettered, farmers in New Zealand realized that lands formerly used for sheep grazing— farmers were paid a subsidy per head of sheep—were better suited for growing grapes. This led to the launch of the very lucrative New Zealand wine industry.

With major U.S. farm subsidy programs set to expire in September of next year, policymakers should use this time to reevaluate the costs, regressive nature and market-distorting effects of the farm bill.