Farm bill would cut subsidies, but will it matter?

Cattle eat a ration of feed on a farm August 3, 2012 near Cuba, Ill.

After two years of debate and stopgap measures, we may finally have a new farm bill. The House of Representatives is scheduled to take up a compromise agreement todayThe legislation includes a host of reforms to, among other things, food stamps and subsidies, but reforming subsidies might not save the government much money. 

For almost two decades, farmers have gotten what are called “direct payments” from the government -- that’s a check from Uncle Sam, no matter what.

“With direct payments, you got paid the payment even if you had great yields and high prices,” explains Art Barnaby, a professor of agricultural economics at Kansas State University.

Last year, those direct payments cost taxpayers about $4.5 billion.

Crop insurance is one of the things that would replace those payments, and Bruce Babcock, the Cargill Endowed Chair of Energy Economics at Iowa State University, says that would be a big deal. “But it’s not clear that it is actually getting the government at all out of the subsidy business,” he adds.

That is because these payments would be tied to commodity prices, so they would fluctuate.  Taxpayers would save money when prices are high, Babcock says, “but if they fall significantly, we will be spending a lot more money on farm subsidies than we would have under the old programs.”

And when commodity prices fall, they don’t tend to rebound overnight.  Babcock says it’s likely we would face many years of high subsidy payments.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.

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