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More Skepticism Of Obama's Farm-subsidy Reforms

As we noted last week, the new White House budget contains a proposal to end "direct payment" subsidies to commodity-crop farmers who have more than $500,000 per year in sales. As I noted in an earlier post, it’s a good proposal, but it only marks a small step in the right direction on farm subsidies. Because direct-payment subsidies go out to farmers whether or not they produce a crop, they don’t really affect farmers’ decisions on how much to grow, which means that ending them isn’t going to do much solve the problems associated with corn and other commodity crops being overproduced and hence artificially cheap.

But now it turns out that there’s another good reason to be skeptical of Obama’s plan to limit direct-payment subsidies to relatively small-scale farms. As agricultural economist Michael Roberts points out on his blog, farmers—and agricultural corporations—have proven themselves adept at circumventing existing limits on farm-subsidy payouts. After the federal government capped the amount of subsidy money that any one farmer could receive, many farmers reacted by legally subdividing their farms into smaller pieces, each given to a different family member or business partner. The Department of Agriculture was supposed to stop these attempts to get around the subsidy limits by ensuring that farm-subsidy checks went out only to individuals and entities who were "actively engaged in farming." But in a 2004 report, the GAO found that inadequate enforcement allowed many farmers to get around this restriction.

So existing farm-subsidy caps haven’t made the subsidy system particularly progressive—the Environmental Working Group estimates that in the past twelve years, 75 percent of subsidies have gone to the wealthiest 10 percent of  beneficiaries—and there are reasons to suspect that a new cap on direct-payment eligibility wouldn’t do much to improve matters. Given that direct payments were established in 1996 as a supposedly temporary program, why not simply decide that the time has come to get rid of them altogether?

--Rob Inglis