New farm bill promises squeeze on family budgets as it encourages further inflation in food prices

from reason.com (click here to read original article):

Farm Bill Follies

Congress avoids every opportunity to reform wasteful and outdated subsidies

The $300 billion farm bill is being cobbled together by Congress this week. As Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) noted, “It’s not just a farm bill. This is a farm and a food and an energy bill.”

As Otto von Bismarck quipped, “Laws are like sausage. It’s better not to see them being made.” Let’s take a look at these three aspects of this unappetizing piece of sausage.

First, what do the farmers get? Answer: A lot. Last year, net farm income reached a record level of nearly $89 billion due to high crop prices. Farm household income averaged $84,000 in 2007, according to the Environmental Working Group (the 2006 average for all U.S. households was $66,000). Despite such good times, the federal government showered $5 billion in direct payments on 1.4 million farmers.

These direct payments have nothing to do with crop productivity or a safety net in case of low prices—they are basically gifts to farmers just because they are farmers. In fact, farmers with gross incomes up to $2.5 million have been eligible for these payments. President Bush wants to cap that at $200,000 in income, but the House is considering a cap of $500,000, and the Senate voted to cap the payments at $750,000 per year in income. Overall, Congress shaved just 2 percent off of the direct payments of $5 billion per year over the next four years. While this is a barely discernible improvement, one would think record high farm incomes combined with a world food crisis would make this a good time for Congress to scrap farming subsidies altogether.

It is true that about two-thirds of farm-bill spending funds nutrition programs such as school lunches and food stamps. Lawmakers added $10 billion to the food stamp program to help lower-income Americans address higher food prices. But why are food prices higher in the first place? Part of the reason is the federal government’s subsidies and its mandate to turn food into fuel—which brings us to the legislation’s energy policy madness.

In December, Congress passed and President Bush signed the Energy Independence and Security Act, which mandated that the U.S. produce 9 billion gallons of conventional biofuels this year. The Act requires that 15 billion gallons of conventional biofuels be produced by 2015 and that 36 billion gallons of conventional and “advanced” biofuels be produced by 2022. How does this affect food prices?

Higher corn prices result from biofuel mandates and subsidies, which encourage farmers to plant fewer acres of wheat and soybeans—which in turn raises their prices. In addition, corn is the chief feed grain for which producers of beef, poultry, and pork must pay higher prices which they will eventually pass along to consumers. In 2006, a bushel of corn sold for just under $2; today it sells for nearly $6.

Currently, most biofuels are produced by turning corn into ethanol. The U.S. Department of Agriculture estimates that the 2008 corn crop will be 14.6 billion bushels, of which 3.2 billion[*] bushels will be fermented into ethanol. In other words, about 22 percent of our corn crop will be floating out the tailpipes of our automobiles next year.

The new farm bill contains a small gesture in the direction of sanity by reducing bioethanol subsidies from 51 cents per gallon to 45 cents per gallon. This should reduce the price of a bushel of corn by about 3 cents, according to the Des Moines Register. On the other hand, Congress is trying get around the unintended consequences of its biofuels policy by offering $1.01 per gallon subsidy for so-called cellulosic ethanol. Large-scale production of cellulosic ethanol has yet to take off, so the farm bill also disperses $400 million in tax credits in the hope of jumpstarting such production. In addition, the bill extends the tariff on imported ethanol until 2012.

The biofuel mandate is not the only reason for higher food prices—higher oil and fertilizer prices as well as commodity speculation also contribute substantially.

But there’s no excuse for Congress to make matters worse with this farm bill. As Rep. Ron Kind (D-Wis.) declared, “Negotiators managed to avoid every opportunity to reform wasteful, outdated subsidies while piling on additional layers of unnecessary spending.” As a consequence, Americans can look forward to thinner wallets as they struggle to fuel their cars and feed their kids.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: