The U.S. Farm Bill’s subsidies cost Americans twice, affecting both domestic taxes and global financial aid.
The U.S. Farm Bill’s subsidies cost Americans twice, affecting both domestic taxes and global financial aid.
T he Farm Bill is up for renewal this year. With a total estimated cost of $1.5 trillion in the next ten years, it includes a myriad of subsidies for U.S. farmers. These consist of insurance programs, agriculture and price-loss coverage, conservation and marketing loans, and export promotions, among others. In fact, there are nearly 150 different programs that together cost more than $30 billion a year. All that money is going to come from American taxpayers.
Yet the implications of the farm subsidies extend beyond national borders, creating a “boomerang effect” that causes Americans to pay taxes twice. First, to fund these programs, and then to contribute to the IMF, which gives part of its money to agricultural countries impacted by these subsidies. A way to avoid this (and save money) is to eliminate these appropriations from the Farm Bill and let the global commodity price system work.
The farm subsidies cost a lot of money, which is mainly directed to big farmers. Here, the typical rent-seeking problem is clear: concentrated benefits in terms of subsidies for farmers and dispersed costs in terms of taxes for American taxpayers. Farmers waste valuable time and resources to get these subsidies instead of being more productive in their activities. Moreover, these are frequently big farmers who can pay lobbyists to get the grants for them, while small farmers are left behind. All this makes the U.S. economy less productive overall.
At the same time, these subsidies make certain products more profitable than they otherwise would be. For example: Farmers will cultivate fields that would not be planted if it were not for the subsidies. This increases the soybean, corn, and wheat supply, among other commodities. The obvious result is a reduction in global commodity prices due to the increase in the U.S. supply.
Here is where the law of unintended consequences comes into play. The increase in the U.S. supply and the consequent reduction in global commodity prices directly affects the exports of agricultural countries. For instance: Farmers in Argentina, an agricultural powerhouse, will decide to grow less soybeans, corn, and wheat due to the reduction in commodity prices, so they will reallocate their lands to other, less productive activities. From an economic perspective, this implies an inefficient assignment of resources: Fields in the U.S. that are not very productive are planted, while those in Argentina that are more productive are left unused.
The problems do not end there, however. Countries relying heavily on agricultural exports often suffer economic challenges when commodity prices are low. In that situation, some of them are prone to ask global financial institutions for help. Specifically, Argentina went to the IMF in 2018 and asked for the biggest loan in its history: $57 billion.
As it happens, the U.S. is the largest contributor to the IMF. Or, more accurately, the American taxpayer is. According to the last quota reform in 2016, the U.S. agreed to contribute $118 billion to the IMF until its following review. That means that people in the U.S. first pay for farm subsidies and then pay again for the unintended consequences of those farm subsidies.
The U.S. should eliminate these subsidies from the Farm Bill. It will result in a twofold reduction in taxes — not only those required for the subsidies but also those that fund the IMF. The wonderful global price system will do the rest: A reduction in U.S. agricultural production will increase global commodity prices, which will send a signal to farmers in Argentina to grow more soybeans, corn, wheat, and other products. The increase in agricultural exports in Argentina will, in turn, reduce its necessity to finance its economy via IMF loans. Argentina’s economy will grow much more genuinely and with less governmental help. Furthermore, the world economy will be more productive overall: The most efficient lands will be used to produce commodities, and the U.S. economy will also improve thanks to the reduction in taxes.
The current Farm Bill’s expenditure on agricultural subsidies is costly and counterproductive, impacting American taxpayers and global economies. A comprehensive overhaul is long overdue. Eliminating the farm subsidies will not only ease the financial burden on Americans but also benefit the whole world.