A Midterm Review of the 2014 Farm Bill

The current evidence on the costs to the federal government and taxpayers of PLA and Agricultural Risk Coverage (ARC), the two major new programs introduced in the 2014 farm bill, shows that trading out of direct payments into Price Loss Coverage (PLC) and ARC has caused farm-subsidy spending to go up by about $1.5 billion a year (a 30 percent increase), not down by about $1 billion, as the House agricultural committee leadership continues to claim. So in 2014, if the House and Senate agricultural committees did “give at an office,” it was not at the federal budget deficit reduction office. Instead, they increased the size of the gifts they have been sending to the mailboxes of farmers raising corn, wheat, peanuts, rice, soybeans, peas and lentils, barley, and sunflowers.

It may be worth noting that, as was the case with the Direct Payments programs, in the PLC and ARC programs a farmer receives a payment even if he plants none of the crop to which the subsidy is attached. This is because the farm’s payment is based on the farm’s historical production record. A cynic might comment that yet again the farm lobby managed to simply negotiate for another subsidy program that, just like the Direct Payments program, requires them to do no work. In fairness, as Bruce Babcock has pointed out, because the ARC and PLC programs decouple subsidies from current production decisions, they are less distortionary and economically wasteful programs than policies such as the federal crop insurance programs, which provide incentives for farmers to expand crop production in increasingly risky environments. The flip side is that substantial amounts of government funds are being given to a relatively wealthy lobbying group for no obvious reason other than the convenient practice of crony capitalism.

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