Farms and Free Enterprise: A Blueprint for Agricultural Policy

Heritage Foundation’s New Report Offers a Free-Market Alternative to the Farm Bill

Daren Bakst / September 22, 2016

 

    The Heritage Foundation report, “Farms and Free Enterprise: A Blueprint for Agricultural Policy” provides not just an alternative to the farm bill, but a free-market vision for agricultural policy.

    Agricultural policy is much broader than the costly and harmful subsidies that exist in the farm bill. In addition to the subsidies, the report analyzes many issues that aren’t usually a focus of the farm bill, such as the Clean Water Act and the Renewable Fuel Standard.

Here’s the free enterprise blueprint at a glance:

Address agricultural programs on their own merits. Before even getting into the substance of agricultural policy, a critical process issue needs to be addressed. The farm bill is really the food stamp bill. At the time of the 2014 farm bill’s passage, the projected costs for food stamps and the nutrition title covered about 80 percent of the farm bill’s costs.

The purpose of separation is to ensure that agri­cultural programs and nutrition programs, which have no business being combined together, are debated and considered on their own merits. They are combined together for political purposes to get the programs passed; legislators who support agri­cultural programs will support food stamp policies in order to get their agricultural programs enacted, and vice-versa. As a result, neither gets the attention they deserve, and this logrolling makes enacting any meaningful reforms more difficult.

Move away from subsidies to address agricultural risk. Agricultural producers, like other businesses, face a wide range of risks. Yet why is there a special taxpayer-funded safety net to help many farmers with risk, when other businesses manage risk without such federal government intervention?

Before even examining the major programs such as the federal crop insurance program and the sugar program, we asked preliminary questions to identify why these programs even existed in the first place. Agricultural producers are well positioned to manage risk and have many private means to do so.

Further, the harm caused by subsidies is far greater than the approximately $15 billion annual cost of the taxpayer-funded safety net. For example, farmers will farm the subsidies. Instead of meeting the needs of the market, farmers will make planting decisions based on how to maximize the subsidies that are being offered to them. This isn’t a criticism of farmers; it is a rational action they take based on the market-distorting incentives created by subsidies.

Congress has gone way beyond providing a taxpayer-funded safety net for agricultural producers. For example, Congress created a major new program called the Agricultural Risk Coverage program in the 2014 farm bill that protects farmers from even minor dips in their expected revenue.

Under the federal crop insurance program, agricultural producers can have bumper crops and still can get indemnities. Basically, the “safety net” has become a pretext for helping to ensure that large agricultural producers (who receive most of the subsidies) do well financially.

The report does recommend moving away from subsidies, but not all at one time. To help ease the transition, we should move away from these excessive subsidies and move to what most reasonable people would think is in fact a safety net.

Specifically, the report recommends keeping programs that only address deep yield losses (such as losses from disasters). This includes keeping the federal crop insurance program, but getting rid of the revenue-based policies that seek to insulate farmers from the market.

Removing the extensive federal intervention would free farmers to engage in agricultural production without government meddling.

End favorable treatment for biofuels and the Renewable Fuel Standard. The report provides significant detail about how the RFS in particular is very harmful. For example, as highlighted by the report:

  • Higher feedstock prices from the mandate unnecessari­ly raise costs for livestock farmers and ranchers.
  • Biofuel policies cost taxpayers $7.7 billion in 2011 and $1.3 billion in 2012—after the expiration of the ethanol blenders tax credit, a 45-cent-per-gallon tax credit for blending eth­anol into gasoline. Over a 30-year time frame, ethanol subsidies have diverted $45 billion in taxpayer money.
  • The RFS has failed to deliver on its promise of reducing dependence on oil.
  • The RFS has increased food prices. The USDA’s Economic Research Service notes that “increased corn prices draw land away from competing crops, raise input prices for livestock producers, and put moderate upward pressure on retail food prices.”

The report calls for the repeal of the RFS and eliminating the bioenergy programs in the farm bill, and argues that producers should be allowed to drive alternative fuel innovation.

It explains that policymakers should “use the repeal of the mandate as momen­tum for greater reform in the energy sector. Such future reforms should include a further leveling of the playing field for all energy companies and technologies. Congress should also remove pref­erential treatment for all transportation fuels and technologies.”

Promote free trade in agriculture. Free trade benefits consumers with lower prices and greater choices and helps agricultural producers with being able to export to new markets.

The report explains, “U.S. agricultural exports have had a ripple effect through the economy. According to the USDA’s Economic Research Service, the $150 billion in agricultural exports in 2014 created an additional $190.6 billion in economic activity and over 1 mil­lion full-time jobs.”

Despite the incredible benefits of free trade in agriculture, the United States continues to create protectionist schemes through tariff and nontariff trade barriers. A key recommendation in the report is for the United States to put its own house in order by getting rid of these barriers.

In addition, though, the federal government does have a key role to play in agriculture: It needs to be proactive in seeking to eliminate the barriers that block domestic producers from entering foreign markets.

For example, the United States should make more aggressive demands and offers in World Trade Organization negotiations, and should litigate more agricultural trade barrier cases before the WTO. The United States has been very successful when bringing WTO cases.

Reduce and eliminate key regulatory obstacles. Usually the policy debate on federal government intervention in agriculture focuses on how to help farmers through subsidies. The report looks at the other side of the equation, too: How does federal government intervention, specifically regulations, make it more difficult for farmers and ranchers?

The long list of harmful and unnecessary regulations impacting agriculture could take up a book on its own. The report explores many of the key regulatory obstacles such as Clean Water Act, the Endangered Species Act, public lands, and agricultural biotechnology regulation. The recommendations call for significant changes that will reduce this barrage of federal regulations on our nation’s farmers.

“Farms and Free Enterprise: A Blueprint for Agricultural Policy” should serve as a valuable starting point for much-needed public discourse on agricultural policy. At a minimum, it provides a clear choice for legislators when it comes to agricultural reform: maintain the harmful status quo or adopt policies that will free up farmers and ranchers to best meet the food needs of consumers.

FOREWORD  from Farms and Free Enterprise: A Blueprint for Agricultural Policy

“I had rather be on my farm than be emperor of the world.” — George Washington

Centuries before the birth of Christ, there lived a Roman politician named Lucius Cincinnatus. The fortunes of his career had reduced him to a modest living, tilling the soil of his own fields. But he had a reputation for faithful governance.

In those days, Rome was often at war with its neighbors. On one of these occasions, when the situation looked grim, the leaders of Rome came to Cincinnatus to offer him absolute power if he could save them from their enemies. He met them standing at his plow, as he donned his official robes.

He rallied all the men of military age and set out for victory. Within 15 days, Cincinnatus had conquered the enemies of Rome, shown mercy toward the defeated, and returned to his plow. He gave up a dictatorship for the sake of the Republic and the land he loved.

His legacy was mirrored by that of George Washington, who was so beloved by the American people after the Revolutionary War that he could have well become a despot in his own right. But after serving two terms as President, he too returned to his crops and fields. To this day, The Society of the Cincinnati is composed of the descendants of Revolutionary War officers who celebrate the ideal of Cincinnatus as upheld by Washington.

To give up the reins of government for the reins of the workhorse not only reinforces the importance of liberty and patriotism; it points to the timeless role of the land and those who work it. The agriculture which feeds us precedes government in directly serving the needs of the American people.

And yet today, unlike its honored namesake, the city of Washington prefers being an “emperor” which meddles in farming across the nation—quite a reversal.

Subsidies for politically connected industries prop up businesses and insulate them from foreign competition, disproportionately favoring big agricultural producers. Sometimes this has nothing to do with the food we eat, like the government hand¬outs to make inefficient ethanol from corn.

An oppressive regulatory regime drives up costs for farms and consumers, while mandatory labeling requirements and other faddish fears of modern farming techniques sacrifice plentiful, safe food to the altar of pseudo-science.

So many of these measures are excused and justified with appeals to the importance of American agriculture and the vital role of our farms. It is very easy to signal that one cares deeply about agricultural issues by taking money from some citizens and giving it to others—a favorite and practiced pastime in Congress.

Even politicians who normally seek to prevent the government from picking winners and losers in other sectors of the economy, like technology, the Internet, or energy development are loathe to stop interfering in agriculture, lest they be blamed for the failure of a business that was unable to stand on its own.

But we must apply the same free-market reasoning we use for any economic question: supply and demand of our food should be determined by the market, precisely because it is so essential to our day-to-day lives. Agriculture is too important to be left in the hands of the federal government.

Instead, we should treat food like any other product which we want readily and cheaply available to the consumer, from cell phones to cars. Competition—the more open, the better—will always benefit regular Americans.

Our leaders will best honor the vital role of agriculture in our society by letting us return to our plowshares unmolested by the government, and leaving despotism with the rest of the fertilizer.

It is the Washington thing to do.

Jim DeMint, President

The Heritage Foundation

September 2016

 

EIGHT GUIDING PRINCIPLES FOR AGRICULTURAL POLICY: A Free-Enterprise Vision

excerpted fromFarms and Free Enterprise: A Blueprint for Agricultural Policy

Daren Bakst

Over the past 80 years, agriculture has changed dramatically. However, farm bill programs and their progeny are grounded in the same cen­tral-planning philosophies that existed during the Depression. Even some policymakers who claim to be strong proponents of free enterprise and limited government tend to forget these core beliefs when it comes to these programs.

Agricultural policy is not restricted to those farm bill programs that limit choice, stifle innovation, distort consumer prices, and cost taxpayers billions of dollars a year. It also includes food safety, inter­national trade, environmental policy and property rights, research and innovation, and general issues applicable to all sectors of the economy, such as labor policy.

There are alternatives to agriculture beyond the status quo of central planning and subsidies. The same free-enterprise solutions that have allowed the U.S. to flourish are just as applicable to agricul­ture as they are to other sectors of the economy. The following are eight guiding principles for agricultur­al policy.

  1. Markets—Not Government Incentives and Controls—Should Inform Farming Decisions

Many farmers make decisions based on restric­tions imposed by central-planning policies and the subsidies that distort their choices through mis­guided incentives. These policies include loans, disaster assistance, price and revenue guarantees, supply restrictions, import barriers, payments to idle land, marketing orders (which are effective­ly government-sanctioned cartels), and subsidized crop insurance.

Too often, there is an assumption made by pro­ponents of the status quo that the federal govern­ment can use central planning to best allocate resources. No government has the knowledge to plan economies. Instead, agricultural policy should be responsive to markets, thereby freeing farmers to produce what they deem fit—not what a government subsidy encourages.

  1. The Government Should Not Distort Food Prices

Prices provide a signal to agricultural producers as to where to allocate resources and best respond to market demand. By insulating agricultural pro­ducers from prices, the government undermines this critical signal necessary to inform producers regarding how best to meet market demand. As the Organization for Economic Co-operation and Devel­opment (OECD) explains “price interventions will isolate farmers from underlying market fundamen­tals such as high prices that signal a negative supply shock or low prices that signal over-supply.”1

Some existing policies also artificially drive up food prices, such as the sugar program2 and the Renewable Fuel Standard.3 Artificially higher food prices hurt low-income individuals the most because a greater share of their incomes go to food costs compared to individuals with higher incomes.

  1. Agricultural Producers Should Succeed (or Fail) on Their Own Merits

Government should not intervene in the market to help ensure that agricultural producers are prof­itable, such as through the “shallow loss” program that protects farmers from even minor losses.

Like other business leaders, farmers should suc­ceed or fail on their own merits and assume the risks and reap the rewards of doing business. In addition, though, government should not intervene in the market by making it difficult, if not impossible, for farmers to succeed financially. Burdensome regu­lations can harm farmers as can restrictions limit­ing access to capital and labor necessary to meet the unique needs of farms.

  1. Property Rights Are the Cornerstone of American Agriculture

Farmers and ranchers are the best stewards of their property. Property ownership creates power­ful incentives to maintain property. Many farmers and ranchers depend on their land for their very live­lihood: According to the U.S. Department of Agricul­ture, “With a value of $2.38 trillion, farm real estate (land and structures) accounted for four-fifths of the total value of U.S. farm sector assets in 2014.”4

Too often, farmers and ranchers bear an exces­sive cost for government regulations that place restrictions on how they use their property. This problem is particularly egregious with laws such as the Endangered Species Act. Farmers and ranchers bear costs that should be borne by society general­ly, not by a narrow group of property owners alone. In many instances, the restrictions are so great as to amount to regulatory takings, which should trigger just compensation to the harmed property owners.

Clearly defined and strongly enforced property rights might also help develop solutions to address many agricultural challenges. For example, water rights can be used by the property owner to par­ticipate in water markets, likely serving as the best means to allocate scarce water resources.

  1. The Regulatory Burden on the Agricultural Sector Should Be Minimized and Sound Regulatory Approaches Used

Regulations can hinder farmers and other businesses throughout the food supply system. Farm-specific regulations should generally be limit­ed to covering health and safety. Furthermore, when agencies promulgate regulations, they should have clear statutory authority and use sound regulatory and scientific analysis, including adopting the least costly alternative to achieve its objective. Unnec­essary, duplicative, or outdated regulations should be repealed.

One-size-fits-all regulation does not work, espe­cially given the diverse work of farmers and the unique agricultural challenges that exist on the state and local levels. Regulation should become more decentralized with states and local govern­ments having more influence and responsibility as the federal government plays a smaller role.

  1. Obstacles to Agricultural Research and Innovation Should Be Removed

Groundbreaking innovations in fields such as agricultural biotechnology will help the agricultur­al sector feed not only Americans, but the world as well.5 These innovations can yield many benefits including greater productivity, reduced food costs, and improved nutrition. However, misinformation campaigns instead of sound science are creating obstacles that are undermining innovations.

Any approval process for these innovations should be streamlined, consistent, and based on sound sci­ence. When approval is arbitrary and unpredictable, innovators are discouraged from moving forward with their research.6 Other unnecessary govern­ment obstacles that hinder research and innovation should be removed, including any taxpayer-funded research that discourages private research.

  1. Promoting Free Trade in Agriculture Benefits Farmers and Consumers

Trade opportunities are lost when Congress subsidizes domestic agriculture industries, there­by inviting other countries to respond in kind, or even to retaliate if the U.S. is in violation of World Trade Organization rules.7 While other countries will inevitably create protectionist schemes, taking comparable action only hurts American consumers by restricting competition and making free trade more difficult.

Trade policy should not focus on the narrow interests of one industry. Such an approach usually comes at the expense of consumers, other industries, and the economy as a whole.

Free trade in agriculture should be aggressive­ly pursued. This means eliminating domestic trade barriers, which would promote competition by giv­ing consumers access to foreign agricultural prod­ucts, and aggressively seeking the removal of bar­riers that block American products from entering foreign markets.

  1. Agricultural Policy Should Not Promote Special Interests

Everyone is affected by agricultural policy because, after all, everyone eats. When agricultur­al policy debates occur, farming interests and other “stakeholder” interests are usually involved in the formulation of policy, but consumer and taxpayer interests are not. When crafting agricultural policy, lawmakers should remember two important facts: (1) Agriculture exists to meet the needs of the mar­ket; and (2) The government is not spending its own money on agriculture programs; it is using taxpay­er money. The market, not government interven­tion, is the appropriate tool to sort out all of the var­ious interests.

Agricultural policy debates should be conducted in an open and transparent manner. Political maneu­vers should not be used as a way to push legislation through at the expense of thoughtful discourse on agricultural policy, as is currently employed in the farm bill, which combines farm programs with food stamps.

Moving Forward

A free enterprise vision for agriculture starts with recognizing the flaws of government interven­tion while embracing freedom and individual rights. Such broad-based principles, if applied, can help transform agricultural policy, moving it from an era of excessive government control that bestows public largesse to the few to an era of respecting individual freedom that benefits all.

ENDNOTES:

  1. Organization for Economic Co-Operation and Development, “Risk Management in Agriculture: What Role for Governments?” November 2011, http://www.oecd.org/agriculture/agricultural-policies/49003833.pdf (accessed March 16, 2016).
  2. Daren Bakst, “Should Government Restrict the Candy Supply?” The Daily Signal, October 31, 2013, http://blog.heritage.org/2013/10/31/should-government-restrict-the-candy-supply/. See also U.S. Department of Commerce, “Employment Changes in U.S. Food Manufacturing: The Impact of Sugar Prices,” November 2006, (accessed March 23, 2016).
  3. See Section 6 of this report. See also Nicolas D. Loris, “Examining the Renewable Fuel Standard,” testimony before the Subcommittee on the Interior and the Subcommittee on Healthcare, Benefits, and Administrative Rules, Committee on Oversight and Government Reform, U.S. House of Representatives, March 16, 2016, http://www.heritage.org/research/testimony/examining-the-renewable-fuel-standard.
  4. Economic Research Service, USDA, “Land Use, Land Value and Tenure,” (accessed March 21, 2016). See also U.S. Department of Agriculture, “Data Files: U.S. and State-Level Farm Income and Wealth Statistics,” http://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-us-and-state-level-farm-income-and-wealth-statistics.aspx (accessed March 23, 2016).
  5. U.S. Department of Agriculture, “Agricultural Biotechnology,” December 30, 2013, http://www.usda.gov/wps/portal/usda/usdahome?navid=BIOTECH (accessed March 23, 2016).
  6. For example, see Henry Miller, “With a Forked Tongue: How the Obama White House Stymies Innovation in Food Production,” Forbes, March 19, 2014, (accessed March 23, 2016).
  7. See, e.g., Daren Bakst, “This Program Epitomizes Waste and Favoritism. Lawmakers Now Have a Chance to Repeal It,” The Daily Signal, May 18, 2015, http://dailysignal.com//2015/05/18/this-program-epitomizes-waste-and-favoritism-lawmakers-now-have-a-chance-to-repeal-it/.