Farm bill would cut subsidies, but will it matter?

David Gura Jan 29, 2014
HTML EMBED:
COPY

Farm bill would cut subsidies, but will it matter?

David Gura Jan 29, 2014
HTML EMBED:
COPY

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.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.