The Independent Investor: Congressional Farm Bill Is a Disgrace

There were times in the past when farmers needed the government's protection. There may even be a limited need for it today, despite the good times many in agriculture have enjoyed in recent years. However, nothing can justify the travesty that congress has offered the taxpayer in its new five year plan for agriculture.

Lawmakers largely voted along party lines (only 12 Republicans voted no along with all of the Democrats) for the bill that dropped food stamps from the farm bill. That left "austerity-minded" Republicans to approve a new spending program that will cost taxpayers $195.6 billion over the next ten years. But, hey, says the Tea Party, we're saving you close to $800 billion by cutting out food stamps, right?  

That vote should come as no surprise since the GOP body, in my opinion, is simply taking care of its own. You see, 24 Republicans sit on the House Agriculture Committee, which oversees this country’s runaway farm welfare program. Total government farm payments to the districts of those 24 congressional reps come to more than $1 billion/year.

However, unlike the 46 million Americans that receive food stamps (who are earning less than $32,000 annually), the benefits of the congressional farm bill (around 80 percent of the money) accrue to a group of people with incomes way above the national average. As an example, net farm income is expected to reach $128 billion this year. That's the highest level in real terms since 1973. And while 12 million Americans endure unemployment, farm income overall exceeded $92.5 billion in 2010, a 34 percent increase from the year before.

Don't get me wrong. I am not talking about the small farm homestead you drive by on your way home. Although they make up almost 90 percent of the farm population, the median farm operator household consistently has a net loss from farming activities.

"Most farm income is concentrated in households associated with commercial farms, which represent 10.3 percent of the farm population," according to the U.S. Department of Agriculture.

However, that same 10 percent representing large farms and agricultural cooperatives have been getting 73 percent of all government subsidies for decades. That has amounted to billions of dollars in direct payments. Commodity farmers, for example, who grow corn, soy, wheat or cotton, are given $5 billion/year, whether they actually grow those crops or not.

Don't be fooled when congress claims they are reforming agriculture by eliminating the direct payments program, which they created back in 1996. The politicians are simply replacing that program with a $9 billion expansion in crop insurance. They argue that since farming is a risky business, the taxpayer should pick up 62 cents of every dollar the farmer pays to insurance companies to safeguard against crop failure due to droughts or floods. But today more than half of the insurance policies taken out in that sector are revenue insurance (guaranteeing big farms a minimum price) rather than weather risks.

To make matters worse, there are no caps on how much farmers can receive from this insurance subsidy program. Today, crop prices are close to their historical highs. Big commercial farmers can basically lock in those high prices by taking out this insurance, effectively hedging against a price decline in their crop and we the taxpayer get to pay for it in high prices for our food and paying the majority of insurance premiums.

The government's system of agricultural price supports makes no sense at all. Take sugar, as an example. Sugar is 50 percent higher than anywhere else in the world because our government sets a minimum price for that commodity. In order to maintain that price the USDA may have to buy upwards of 400,000 tons of sugar, costing you and me $80 million in taxpayer dollars just to keep the price of sugar artificially inflated.

So why is it, you may ask, that milk prices would actually spike higher if subsidies on that product were removed? The problem is not in the price of milk, it is in the costs to produce it. The climbing costs of feed in recent years (feed prices are kept artificially high by our farm program) make producing milk a losing proposition. If it were not for the fact the government subsidizes dairy farmers, farmers would be forced to jack up the price of milk to as much as $6 a gallon in some states.

Our farm bill is archaic. It has all the waste and inefficiencies that marked the Soviet-era central planning debacle that ultimately destroyed the agricultural sector in Russia. It is therefore interesting to note that the party that professes to abhor socialism, government interference in the private sector (food stamps, etc.) and additional spending has done a complete about face when it comes to the high-powered lobbying of a handful of corporations and their own self-interests.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.