Farm versus fork
July 29, 2013
by Robbin Johnson
The 2013 farm bill, after clearing the Senate on a 66 to 27 vote, went down to defeat in the House, 234 to 195. Its two primary entitlement programs, farm commodity provisions and feeding programs, played very different roles in the outcome.
A segment of American agriculture representing most of America’s farmed area but only about one-third of the value of farm output would enter its ninth decade of “temporary” income supports with this 2013 bill. Commodity programs cover designated commodities, including grains, oilseeds, cotton, sugar and dairy products. The two-thirds of agricultural output not covered include livestock, fruits and vegetables, horticulture and the like. The covered segment of farming, however, looks very different from what was at risk during the Great Depression. Then, a quarter of the population lived on farms, and farm gate prices had collapsed under the pressure of falling demand.
Today, roughly 250,000 farmers account for about 80% of covered commodity production and capture the lion’s share of farm program benefits that total around $20 billion per year. These are largely middle- and upper-income families. As a group they have enjoyed record incomes in 7 of the last 10 years. This has enabled them to pay down debt, purchase new equipment and put their balance sheets in the strongest position in a century. And they are riding the crest of a wave of double-digit increases in land prices in recent years.
Yet the farm provisions of the 2013 farm bill include a new revenue insurance scheme on top of other income protections. Taxpayers would pay nearly two-thirds of the premiums for this coverage, as the coverage is not sound from an actuarial standpoint. Moreover, the coverage reflects the record high commodity prices of recent years; if prices were to fall back to more normal levels, taxpayers would face an explosive program cost.
Given a new farm provision targeting mainly well-off individuals, with large and unpredictable taxpayer exposure at a time when farm subsidies might be expected to wind down, you might expect that the controversy around the 2013 bill would center here. You might think that Democrats would object on equity grounds and that Republicans would resist heavy-handed subsidies in an economic sector that could and should be market-based. You would be wrong. House and Senate provisions are very similar and enjoy bipartisan support.
The larger share of farm bill expenses actually goes to food programs, including for school breakfasts and lunches and special programs for women, infants and children. The largest fork provision, however, is the Supplemental Nutrition Assistance Program, or SNAP.
SNAP is a classic countercyclical safety net. To be eligible, people must be living at or near the poverty level. The scale of benefits is tied to their needs, and total benefits available are capped at quite modest levels. The recession that started in 2007, however, drove SNAP program costs from $35 billion per year to $80 billion in 2012.
A number of economists have defended the program before Congress not just on equity grounds but also as one of the most effective ways the federal government can prop up spending in a recession. The 47 million Americans receiving SNAP benefits last year were typically disabled, elderly, children living in poverty, the unemployed and the working poor. While they cover on average about two-thirds of their food expenses, they depend on SNAP, food shelves and feeding programs for the balance, rapidly putting that support into circulation in the economy.
SNAP program costs are likely to decline in coming years for a couple of reasons. First, enhanced benefits passed in the American Recovery and Reinvestment Act of 2009 expire this fall. Second, as the economy recovers, the number of individuals qualifying for SNAP will decline as people find employment or are able to get better-paying jobs.
Nevertheless, the Senate sought an additional $4 billion in savings over a projected 10 years through restrictions on how some states treat utility costs in their relief efforts. The House sought more than $20 billion in savings over the projected 10-year period by adding limitations to how states could apply “categorical eligibility,” which most states use to align various relief programs and to streamline administration. These changes would mainly affect children living in poverty and low-wage working families.
So the 2013 farm bill is hung up, much like it was in 2012, because of the tensions created through the marriage of two kinds of entitlement programs in the bill. The farm provisions are an activity-based entitlement that is not means-tested, scales benefits up in line with farm size and places no real caps on the size of individual benefits. The fork provisions are means-tested, targeted at people living in or near poverty and caps individual benefits at very low levels.
In other words, the farm bill offers a microcosm of what Congress faces in reining in federal spending in an efficient and equitable manner. Activity-based entitlements enjoy well-organized and well-funded support, which buoys them along even when common sense might call for cutbacks. Means-tested entitlements typically enjoy less well-organized and well–funded support, which makes them vulnerable when votes must be counted. In these circumstances, the meat-axe approach of a sequester may have more appeal: it may not be well-considered, but at least it is not counterintuitive.