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Farm Bill Recipe for Financial Ruin?

Friday, January 3, 2014

As the Wall Street Journal (subscription required) noted this week (Jan. 2), negotiators cooking up a new farm bill may well blend together a mix of commodity and crop insurance subsidies that would leave taxpayers with a bad taste in their mouths.

By including the most costly components of the farm bills that passed the House and Senate, the bill expected to emerge this month from a House-Senate conference committee could cost taxpayers even more than current farm programs – and ignite a trade war to boot.

Here’s one recipe for financial ruin:

  • One Scoop of Guaranteed Prices – Through its proposed Price Loss Coverage (PLC) program, the House bill seeks to lock in today’s record prices for crops such as corn and cotton in the form of statutory price guarantees. If prices fall even modestly, the cost of the program could balloon to nearly $7 billion a year – or $5 billion more a year than advertised.
  • A Second Scoop of Shallow Loss Coverage – The Senate bill includes a new program to cover losses in revenue, called Average Revenue Coverage (ARC). Though forecast to cost about $3 billion a year, experts warn that the cost could exceed $7 billion if crop prices drop back close to their historic averages.
  • Three Cups of Crop Insurance – Both bills increase unlimited crop insurance subsidies in three ways: by increasing coverage levels to 90 percent and by creating special, super-charged crop insurance programs for cotton and peanuts. In combination, the cost of crop insurance could total more than $10 billion a year.

At time when most of us are going on a diet, farm bill negotiators could well be feasting at the federal trough. Beefing up commodity and crop insurance subsidies could eliminate most of the savings from the elimination of the long-discredited “direct” payments program.

As EWG’s Scott Faber told the Wall Street Journal, Congress could wind up “replacing a discredited subsidy with a soon-to-be discredited subsidy.”

And expanding commodity and crop insurance won’t only bloat our fiscal waistline.

Larding up these programs might also run afoul of international trade agreements, which place a $19.1 billion annual limit on “trade-distorting” subsidies.

With the cost of these trade distorting or “amber box” subsidies potentially topping $20 billion a year, the World Trade Organization may no longer consider U.S. crop insurance subsidies to be de minimis, inviting a legal challenge from our trading partners.

That should make some policymakers – and business leaders – sick to their stomach.