The High Price of Federal Agriculture Subsidies: What’s the True Cost of Farming as Usual?

Background

The U.S. Department of Agriculture (USDA) administers a massive array of programs for agribusinesses, covering everything from marketing and conservation to loans and disaster assistance. The three major programs covered here—agriculture risk coverage (ARC), price loss coverage (PLC), and crop insurance— make up the bulk of the farm income safety net. ARC and PLC are price or revenue guarantees for a favored handful of crops like corn, soybeans, and wheat. Crop insurance, administered by private companies guaranteed a top-dollar rate of return, shifts much of the risk involved in farming to taxpayers, who cover over 60 percent of the crop insurance premiums.

These programs are rooted in outdated, New Deal-based, one-size-fits all policies that are out of step with the robust and varied modern farm economy. According to a February 2024 report on mandatory agriculture costs from the Congressional Budget Office (CBO), the official price tag for ARC, PLC, and crop insurance programs over the next 10 years is $181.8 billion—though if history is any guide, that’s probably a lowball figure. Farm bills tend to spend well over their original estimates.

Worse, that dollar figure is only one part of the total toll federal farm subsidies can take on taxpayers, the environment, the economy, and even other farmers.

The Off-Budget Costs of Federal Farm Subsidies

1. Regardless of productivity, guaranteed profits can incentivize farmers to plant on marginal or sensitive land, such as highly erodible areas or wetlands. Not only does this waste taxpayer dollars, but it also takes away spaces that play an essential role in the ecosystem as habitat or as a protective buffer for waterways.
2. Subsidies often favor certain crops regardless of market demand—which, in essence, creates an artificial market. When that happens, it can be more lucrative to repeatedly grow the same crop on the same acreage for multiple growing seasons without rotating or using cover crops. Heavily subsidized corn growing is a major culprit, requiring large amounts of nitrogen fertilizer that can then run off into nearby streams, contributing to harmful algal blooms and dead zones in major bodies of water.
3. Federal favoritism toward a handful of commodities can result in riskier farm operations. Monoculture—growing a single crop—can also increase vulnerability to blight, pests, and weather events.
4. Lucrative subsidies can incentivize growing water-intensive crops like corn in areas with less than ideal growing conditions, particularly when it comes to the availability of water. Not only do subsidies favor thirsty crops, but they also insulate producers from the true cost of water extraction, which might otherwise lead to different business decisions. This has had extremely damaging effects on the Ogallala Aquifer, which provides groundwater for the central plains stretching from South Dakota to the Texas panhandle. Federal subsidies have created a “vicious cycle of overproduction” that exacerbates water use for irrigation, depleting the aquifer to levels far below sustainability.
5. Subsidies increase land prices, which benefits wealthy landowners at the expense of the many farmers who rent. Agriculture subsidies—and the expectation of more in the future—are capitalized, further elevating prices and making farmland a good bet for hedge funds, wealthy investors, or better established nearby farmers. 
6. The combination of inflated land prices and unlimited subsidy payments that are more accessible to the largest farms makes it easier for already large enterprises to accrue more land, which increases consolidation.
7. Young farmers can’t afford to rent or buy land at inflated prices. Likewise, young farmers often have smaller farms that don’t benefit from the primary federal subsidy programs. This creates a major barrier for new agribusinesses.
8. Farm subsidies can and will pay out year after year, giving farmers little reason to change where or how they grow products. Studies show that some businesses have raked in subsidies 37 years in a row. Likewise, crop insurance payments have gone to farmers with repetitive losses in flood-prone areas—some of whom didn’t even live or work on the farm itself.
9. Subsidies impede innovation and reward the status quo. If necessity is the mother of invention, then an overly generous farm safety net eliminates or dulls the incentive to adopt more efficient, more environmentally friendly, or more sustainable business models.
10. Subsidies are holding back the U.S. farm industry’s potential. In places where agriculture subsidies were significantly reduced, such as Australia and New Zealand, the farm economy has grown.

What Congress Can Do

In 2022, the R Street Institute—along with Taxpayers for Common Sense, the National Sustainable Agriculture Coalition, and the U.S. Public Interest Research Group—issued a joint letter providing principles for a sensible approach to reforming the farm subsidy regime. We urged Congress to consider reforms that would be cost-effective, transparent, sensible, responsive, fair, and simplified. Together, these principles would help drive down the unintended consequences and costs of our current federal policies, particularly those that distort markets and heap risk onto taxpayers.

For specifics on what these reforms could look like, Congress has access to a wealth of resources:

1. The CBO provides each Congress with deficit-reduction options. The most recent report suggested eliminating Title I agriculture programs (ARC and PLC), reducing crop insurance premium subsidies, limiting taxpayer-funded reimbursement for insurance companies’ administrative costs, and reducing crop insurers’ already above-market rate of return.

2. Another legislative agency, the Government Accountability Office, recommends reducing insurance premium subsidies for wealthy farmers and bringing crop insurer profits in line with market returns.

Conclusion

The true cost of propping up farm incomes and shielding agribusiness from the competitive market forces other industries face is extremely high. While this lucrative subsidy regime benefits certain crops and the largest, wealthiest farms, it does so to the detriment of many other factors—from the environment to small, beginner farmers to individual taxpayers’ wallets.

As the price to maintain the status quo keeps mounting, Congress should consider if it’s worth the cost.

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