WASHINGTON, D.C. – A new price guarantee program in the House farm bill could cost nearly $20 billion more than the discredited programs it is designed to replace, a new analysis shows.
The new Price Loss Coverage (PLC) program could exceed the cost of current programs if prices fall, according to the analysis by Nick Paulson, an assistant professor at the University of Illinois at Urbana-Champaign.
Paulson’s analysis of the House proposal, commissioned by Environmental Working Group, concludes that it would fix crop prices at levels high enough to trigger far larger payments than the current counter-cyclical program and direct payment programs it would replace.
In addition to driving up government spending by $2 billion a year or more, the analysis found that raising price supports could also distort growers’ planting decisions and threaten trade agreements that have helped U.S. agriculture expand exports.
“By setting price guarantees just below or even above average market prices, the PLC program will produce huge and unjustified government payouts,” said Craig Cox, EWG’s senior vice president for agriculture and natural resources. “Even modest drops in prices will generate billions in subsidy payments.”
The House proposal would raise the price floor to 85 percent of the U.S. Department of Agriculture’s 2014-2018 projected average price for corn, 79 percent for soybeans and 96 percent for wheat. The already very high prices guaranteed for cotton would increase to 99 percent of projected average prices and the price floor for rice would rise from just over 56 percent to 91 percent of projected prices. The price floor for peanuts is actually set 8 percent above the projected market price.
The Price Loss Coverage proposal would reverse the much-heralded advance in farm policy that in 1996 decoupled farm subsidies from farmers’ planting decisions. The higher price floors and tying payments to actual acres in production, as proposed in the House measure, would once again link federal farm income support to farmers’ production decisions.
“The proposed increase in price support levels and the recoupling of price supports to planted acreage represents a retreat from the important reforms made in the 1996 farm bill,” Paulson writes. “Once again, farmers may be led to make production decisions with an eye to which crops get the most generous government support, rather than on the signals the market is sending.”
Because the United States is the largest exporter of several subsidized crops, the House proposal could also have significant effects on global prices, production and trade and erode the much sought-after gains in export markets that U.S. producers have enjoyed under current trade agreements.
“Price Loss Coverage is yet another cynical game of bait and switch – ending direct payments while ginning up another subsidy that is even more problematic,” Cox said. “If crop prices fall as little as 15 percent, this program will trigger payments that are far larger than the current direct payment program while calling into question our commitment to trade agreements.”
