July 30 (Bloomberg) -- The worst drought in more than a half-century is gripping most of the U.S. Midwest and South, damaging crops and presaging higher food prices.
Congress is deadlocked as it tries to pass a new farm bill, as it does every five years, amid demands for broad emergency assistance for the hardest hit areas.
This impasse may be the best thing that one could hope for, considering the flaws in the proposed legislation. Instead of trying to adopt a new bill before its August recess, Congress should approve a one-year extension of the current law and create a narrow aid package aimed mainly at livestock producers. As bad as the existing law is, there is no reason to replace it with legislation that’s even worse.
Although some ranchers might need emergency aid, existing crop insurance protects 85 percent of the nation’s cultivated land against losses, according to the U.S. Department of Agriculture. This summer’s drought also follows a year when farm net income was a record $98 billion, thanks to some of the highest commodities prices ever.
This isn’t to play down the severity of the drought, which started last winter with reduced snowfall. More than half the country is officially in a drought, and the Agriculture Department has declared 1,300 counties -- about a third of the nation -- disaster areas. Much of the U.S. corn crop, the world’s largest, has been damaged, and some of it has been destroyed.
The drought will eventually affect consumers. The Agriculture Department forecasts price increases of 3 percent to 4 percent next year. Even so, one upshot could be a temporary decline in some food costs: Many farmers are harvesting damaged corn crops for animal feed, and ranchers are slaughtering more cows and pigs than anticipated this year to avoid having to use more expensive grain next year.
What is Congress doing about this potential national crisis? Making things worse, alas, which has too long been the rule in U.S. farm policy. Both the Senate and House versions of the farm bill would encourage practices that make the agriculture industry more vulnerable to drought damage.
The bill would achieve some savings by reducing land conservation payments by $6 billion in the next decade, while a generous new crop insurance subsidy would provide an incentive for farmers to plant on marginal grasslands and wetlands. These soils are more prone to erosion and permanent damage, with yields more susceptible to unfavorable weather. The legislation gives farmers incentive to bring these areas into production. If they plant and the harvest is bountiful, they win; if nature or markets turn against them, taxpayer-subsidized insurance programs bail them out.
This was supposed to be the year of farm-bill reform. Congress eliminated the $5 billion in annual direct payments to farmers. But it replaced one indefensible jackpot with another, offering crop insurance that would put at least an additional $3 billion a year into farmers’ pockets, and possibly much more if commodities prices fall.
Such a benefit would be on top of existing crop insurance programs, whose total cost this year might amount to as much as $9 billion. This isn’t insurance that compensates farmers for actual losses; it’s a wealth transfer, plain and simple.
What makes the proposed farm bills even more heartburn-inducing is how they achieve cost savings. Both House and Senate versions chip away at the Supplemental Nutrition Assistance Program, or food stamps, which makes up about three-fourths of the roughly $1 trillion the government will spend on agriculture programs in the next decade. The Senate came up with $4.5 billion in cuts, and the House proposes $16 billion.
Congress says these cuts will end waste and abuse. Although there are valid criticisms of the food stamp programs, such as a lack of restrictions on purchases of junk food, the Agriculture Department has already done much to reform it, including curtailing trafficking in electronic benefit cards. What’s more, denying benefits to people barely above the poverty line -- some 2 million may be affected -- is an venal way to finance subsidies for farmers.
If Congress extends the current bill, as we suggest, it still must enact new legislation next year. Ideally, House leaders would bring the same zeal to cutting farm subsidies that they applied to food stamps. Congress could start by creating a crop insurance safety net that isn’t an income-maintenance device, paying farmers only when they incur actual losses. Some analysts have even suggested cutting out inefficient private insurers from this process to save money. Either way, Congress should end the intravenous fiscal drip that the agriculture industry has come to depend on.
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