Damaged Crops: What’s Government’s Role?
GOVERNMENT SUBSIDIES FOR THE STATE’S BIGGEST FARMS ARE MORE LAVISH THAN YOU MAY REALIZE
South Carolina received quite a bit of rain recently, causing damage to, and a loss of yield for, several crops produced by South Carolina farms. Does government have a responsibility to recoup farmers for part of their losses – a responsibility that would not exist for other private businesses?
Gov. Nikki Haley thinks so. She is requesting a federal Secretarial Disaster designation, which would allow South Carolina farmers to apply for low interest loans from the federal government. Even farmers in the ten counties that don’t meet the federal disaster relief standard of a 30 percent loss of one crop would be eligible for the program as they are contiguous to the other 36 counties that do meet the standard.
This would be bad policy even if South Carolina farming interests weren’t already receiving millions in subsidies from both the federal and state government. Businesses in every industry should naturally be responsible for managing risks inherent to the industry; this is part of the role of an entrepreneur. In any case, the negatives of this policy are compounded by the fact that agricultural industries in both South Carolina and every other state do in fact get millions in subsidies.
Several of the costs that should be shouldered wholly by members of the agricultural industry in South Carolina are currently being paid for in part by state government, particularly marketing costs. We documented some of these subsidies in 2012, and their cost to taxpayers has only grown since then. This fiscal year, the Department of Agriculture is set to spend $3.66 million on marketing and promotions, $1.19 million on market services, $250,000 on agribusiness, and an additional non-recurring $2 million on marketing from the Tobacco Master Settlement Agreement.
These state subsidies, however, pale in comparison to what agricultural interests receive from the federal government. Nearly all federal agricultural subsidies come from the “farm bill,” renewed once every five years. It subsidizes farming interests through a number of mechanisms, particularly commodity payments, agricultural research, crop insurance, farm conservation, and marketing support. For the 1996 bill the five-year costs of these programs was $141 billion, for 2002 they were $125 billion, and for the 2008 bill $104 billion.
Federal agriculture subsidies are targeted heavily towards the largest and wealthiest farming interests in the country. The Reason Foundation reports that between 1995 and 2009 the wealthiest 10 percent of farm program recipients received 74 percent of all farm subsidies. In South Carolina the numbers are even worse. The Nerve has reported that between 1995 and 2009 the wealthiest 10 percent of South Carolina farms received 87 percent of all farm subsidies distributed in South Carolina, while 70 percent of the state’s farmers received no subsidies over the time period. Further, most farmers don’t receive an abundance of federal aid since most federal farm subsidies go towards only five crops: corn, wheat, soybeans, rice and cotton. Incidentally, soybeans and wheat are two of the crops being mentioned as those most damaged by the recent rain.
Leaving aside the fact that most farm subsidies go to the wealthiest farmers, the industry as a whole is not one that could be characterized as needing outside assistance. Farm household incomes are 25 percent higher than the average household income in the United States. Vincent Smith, an economics professor at Montana State University, further reports that if federal subsidies for crop insurance were eliminated, farm incomes would fall no more than 1.5% from their recent high of $400 billion a year, leaving farming one of the most profitable industries in the U.S. economy. Elsewhere Smith finds that annually only one in 200 farms shuts down due to financial problems.
Moreover, farmers across the United States already receive subsidized crop insurance, which covers farmers in cases of natural disasters and or declines in prices that could lead to lower than expected revenues. Taxpayers cover 70 percent of the premiums for all farmers covered under federal crop insurance programs. In 2012 federally subsidized crop insurance covered $514 million in liability on growing crops and insured 1.2 million acres in the state. This raises the question: If taxpayers are already covering crop insurance costs for farmers, why should they be expected to shell out extra for crop failings due to excess rain?
Farm subsidies are one of the best examples of cronyism engaged in by multiple levels of government. Rather than attempting through a disaster declaration to open up a new source of government funds to benefit the wealthiest members of a highly profitable industry, the governor and lawmakers should be looking to eliminate market distorting state subsidies for agriculture. While state politicians may not be able to stop federal subsidies they can at least end state subsidies and cease encouraging the federal government to pour more funds into the pockets of wealthy interests.