The Heritage Foundation is already laying out its case for ending commodity programs and crop insurance policies in the 2018 farm bill. Pro Ag obtained a report that lays out the agenda for the lobbying arm of the organization to implement when farm bill negotiations get going. The report says most farmers are able to manage risk without taxpayer help. They say the $15 billion annually spent on programs actually promotes riskier farming practices, such as limited crop diversification and farming land prone to flooding and erosion. The report says some farmers would lose their land, but they feel the government should not be guaranteeing that all farming operations survive and even flourish. The Foundation wants several programs enacted in the 2014 farm bill to be eliminated, including support programs like Agriculture Risk Coverage and Price Loss Coverage. The group also wants to eliminate the dairy insurance program and current U.S. sugar policies to be discontinued as well. They want federal crop insurance to only cover deep yield losses and disasters, and not cover revenue loss.
From the National Association of Farm Broadcasting news service.
From: Heritage Foundation
Addressing Risk in Agriculture
Introduction
Agricultural producers, similar to other businesses, face significant risk. The United States Department of Agriculture’s (USDA) Economic Research Service identifies five different types of farming risk: human and personal risk (such as human health), institutional risk (regarding governmental action), financial risk (such as access to capital), price or market risk, and production risk (such as weather and pests). Of these, policymakers usually focus on the last two types.
Unlike most other businesses, however, federal government programs assist agricultural producers in protecting against risk. In analyzing these subsidies,[1] often referred to as the federal “safety net,” key foundational questions had to be asked: Is there something about agricultural risk that makes private risk management insufficient? Why would government intervention in risk management be appropriate for agricultural producers but not for other businesses?
This Special Report provides an in-depth analysis[2] of these and other questions regarding agricultural risk and examines the federal programs that make up the taxpayer-funded safety net: commodity programs and federally subsidized crop insurance. It also provides detailed and concrete policy recommendations. Ultimately, the purpose of this report is to instigate a discussion about the reforms necessary to free the agricultural sector from harmful government intervention.
America’s Robust Agricultural Sector
Most domestic agricultural production comes from large producers. For example, only 4 percent of farms (those with sales of $1 million or greater) accounted for 67 percent of all agricultural sales in 2012. It is also important to recognize that more than half of all farms in the U.S. had less than $10,000 in sales, accounting for less than one percent of all agricultural sales.
Fortunately, agricultural producers are doing well financially. In fact, farm households have much higher incomes and wealth than non-farm households.
Even very small farms with less than $10,000 in sales are also generally doing well financially. That is because while their farm income may be low, they help manage risk by relying on off-farm income. Agriculture has evolved so that off-farm income plays a critical role for farmers, including these small farms. This is an excellent example of a private risk management tool that farmers frequently utilize. The financial health of agricultural producers demonstrates that they have means to build the costs of risk management into their business models. Several critical measures demonstrate agricultural producers’ ability to manage risk. For example, debt-to-asset and debt-to-equity ratios, two key indicators of solvency and financial vulnerability, are extremely low (the debt is low compared to assets and equity).