The Farm Bill Simplified

Why The Farm Bill Matters to You

Financial Risk of Farming

The farm bill is a multi-year law that governs an array of agriculture and food programs. Officially titled the Agriculture and Nutrition Act of 2018, it covers everything from farming and agricultural conservation to rural development and domestic nutrition assistance in the form of the Supplemental Nutrition Assistance Program (SNAP, or food stamps).

Every four years the farm bill comes up for legislative renewal. This year the farm bill debate has been particularly divisive. Even if media coverage of the bill is something you tend to scroll past, it matters to you. Farm bill issues include increasing work requirements to receive food stamps and altering the availability of financial assistance for farmers to implement environmental conservation practices. One of the primary topics under contention is crop insurance, or subsidies to help the business of farming remain viable.

The Business of Farming

Here in the U.S., we spend less of our income on food consumed at home than any other country in the world – just 6.4 percent of our income. The inflation-adjusted amount we spend on food has remained stable over the last decade, showing normal fluctuations in keeping with inflation. In fact, the USDA reports that costs for food consumed at home declined for 19 months in 2016 and 2017.

Only 8.6 cents of every dollar spent on food actually passes to the farmer. The rest goes to other food processing, distribution and sales of foods along the food production supply chain. Net farm income is projected to drop by $4.3 billion in 2018, to the lowest levels in 12 years. At the same time, production costs will increase$3.5 billion. Over-regulation also places huge costs in time and resources on our farmers.

Now, farmers face a volatile international trade environment, with uncertainty in the viability of international markets. In response to tariffs imposed by the U.S., Chinese officials have warned that they will implement 25 percent tariffs on $50 billion of American agricultural and manufactured goods. This hits American farmers with even further elevated costs. If the U.S. does not join Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) the Japanese wheat market will be demolished, with American farmers losing $500 million to Canadian and Australian competitors. 

Farmers Bound by Commodity Pricing

Farmers of many U.S. crops have no ability to raise their prices to account for elevated production costs or additional financial burdens posed by trade wars, as they are considered “price takers.” A price taker is a person or company that has no control to dictate prices for a good or service.

Farmers, particularly farmers of commodity crops, are price takers, as they have no ability to set their own prices. Prices are largely set by market exchange boards, not by the farmer or consumer market. As price takers, farmers have little to no control over their market price and are subject to financial burdens imposed by regulation and global pressures. Crops such as wheat, oats, barley, corn, grain sorghum, rice, soybeans, sunflower seed, rapeseed, canola, safflower, flaxseed, mustard seed, crambe and sesame seed, dry peas, lentils, chickpeas and peanuts are considered commodities. Fruit crops such as apples are also priced as commodities.

When Mother Nature is Your Business Partner

Farming is a business. With no control over prices for their goods, farmers work hard to maximize productivity and control production costs to generate profit necessary to stay in business. Regulation and looming trade wars threaten their ability to remain viable. Consider losing just one or two more cents to regulatory costs out of the 8.6 cents that farmers currently earn out of every food dollar spent.

Mother nature also has a great impact on a farm’s viability or its end. Farming is incredibly risky business. Even when farmers implement every effort, technology and farming practice to maximize productivity, they’re at the mercy of mother nature. Farmers often take out millions of dollars in loans to produce a single year’s crop. That investment can we wiped out with rain, flood or drought, crop diseases or pests.

Crop Insurance Protects Our Food Supply

Government assistance with crop insurance for farmers, implemented as subsidies in the Farm Bill, mitigates the risky business of farming. Crop insurance doesn’t recoup every dollar a farmer loses, but rather offers partial compensation if weather destroys crops. Payments may also go to farmers when prices set by the market exchange boards fall below their costs and threaten the viability of their farming business. This assistance is vital when a decrease of 21 percent in net cash farm income is predicted this year compared to last year

Crop insurance is available for more than 120 individual crops across the country and is made available to farmers as a public-private partnership. Reducing or limiting the ability of famers to participate in crop insurance would have devastating effects on our agriculture industry. Crop insurance is not paid for exclusively by the consumer. The costs are shared by farmers, private sector companies and the government.

Preserve a Safe, Abundant Food Supply

We depend on our farmers for a safe, abundant food supply to feed Washington and the World. If farmers can’t afford to take the financial risk to farm, they won’t farm. We need our legislators to come together and pass a farm bill that protects our farmers and preserves our food supply.

For more information about crop insurance, read our article, Subsidies: Why Do Farmers Need a Safety Net?

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