Farm Subsides Driving Prices Up & Competition Down

What a good way to start cutting federal spending, dump the farm subsides that are already causing huge problems in the corn crop by the mandate of Ethanol production.

Let the market dictate the prices of food stuffs, supply and demand will resolve most of the problem.

The ACRE Program: A Disaster Waiting to Happen
Source: Barry K. Goodwin and Vincent H. Smith, "The ACRE Program: A Disaster in Waiting," American Enterprise Institute, November 3, 2011.

The U.S. Average Crop Revenue (ACRE) program was introduced as part of the 2008 Farm Bill. Though ACRE was marketed as a farm revenue safety net program, it has the very real effect of making direct payments to farmers when the prices of major crops fall. The damage done by this policy is twofold.

First, it is an incredibly wasteful program with American taxpayer dollars both because of its substantial price tag and also because most of the payments will go to the wealthy.

Second, an initiative such as this will likely only accomplish being torn down by numerous complaints within the World Trade Organization (WTO), say Barry K. Goodwin, of North Carolina State University, and Vincent H. Smith, of Montana State University.

The large subsidy payments could amount to as much as $10 billion in some years and average as much as, or more than, $6 billion a year.

While there is a current cap of $19.1 billion on trade-distorting amber box domestic subsidies through the WTO, a new WTO agreement will likely reduce amber box aggregate measure of support caps (the current commodity-specific and overall levels of domestic supports) by 60 percent, which may create problems for the United States.

In a time when a "super committee" of Congress is considering even some of the most drastic changes to the federal government in order to cut spending, the possibility of spending an additional $10 billion per year on farm subsidies seems contradictory to overarching goals.

Furthermore, these payments will go for the most part to well-off farmers. This is because the payments through the program are tied largely to acreage, meaning that those with the most land will receive the largest cash benefits. Additionally, this policy can also come back to haunt taxpayers indirectly through punitive measures through the WTO which could impose substantial financial sanctions if the United States exceeds the amber box domestic subsidies cap.