Federal farm subsidies have increased greatly since 2017. Under current law, actual farm program spending can vary dramatically from one year to the next, and the Administration has a great deal of discretion to increase support to farmers when circumstances warrant.
The subsidies provided under the farm bill are in some ways similar to other federal safety net programs, such as Medicare. Congress sets the general framework for how the programs should operate, and everyone who meets the program requirements receives the payments set by program rules.
In the case of farm programs, this can result in huge swings in actual spending from one year to the next. One crop program makes no payments when prices are above a fixed reference price but can make billions of dollars of payments when prices are low. The crop insurance program can operate at little taxpayer cost in a year with good weather and high prices, but its costs can increase dramatically when there are widespread droughts or floods.
In spite of this uncertainty and variability, there is an important limitation on farm bill program spending. When a farm bill is passed, the Congressional Budget Office (CBO) provides an estimate of what the bill’s provisions will cost taxpayers. When the 2018 farm bill was debated, there was a political agreement in advance that its CBO-estimated cost should not exceed the estimated “baseline” cost of simply continuing previous programs.
CBO’s estimates are just that — estimates. Actual spending will always differ from the projected levels, perhaps by a lot. However, CBO estimates do put a check on the policies that can be approved. For example, the reference price for corn is set at $3.70 per bushel, in part because CBO said that setting the reference price higher would have increased corn program costs, making it harder to stick to the agreement to limit total farm bill spending.
Trade disputes have reduced U.S. agricultural exports and resulted in lower farm commodity prices. Farm bill programs provide some support to offset those lower prices, but the Administration has used its own authority under legislation passed decades ago to provide additional payments to farmers.
That discretion has limits. USDA lawyers have ruled, for example, that the Secretary has the ability to compensate farmers for lost export sales, but not for lower prices. That ruling has had a major impact on how the 2018 and 2019 compensation programs are structured.
USDA cannot borrow more than $30 billion from the federal treasury each year to fund farm programs, and that cap may be one reason why the announced program for 2019 is no larger than it is.
Another limitation has to do with U.S. obligations under international trade agreements. The U.S. can provide no more than certain amounts of particular types of subsidies. Those rules appear to have had some impact on how the trade compensation payments are structured and how large they will be.
As is often the case in government, the rules only matter when people agree they should matter. There are times when disputes over a few million dollars can hold up a farm bill, and other times when billions of dollars of previously-unauthorized spending can occur without anyone blinking an eye.
Pat Westhoff is director of the Food and Agricultural Policy Research Institute at the University of Missouri and a professor of agricultural and applied economics. The opinions expressed here are his own and do not reflect official positions or endorsements of the University of Missouri.