Numerous commentaries have debated aspects of the $100 billion dollar U.S. Farm Bill—the legislation that funds farm subsidies, food stamps, crop insurance policies, and potentially some international food aid as well. But what’s the impact of these various programs? We took a look at the data on Farm Bill payments and effects over the last several years…
First, a look at food stamps, or the Supplemental Nutrition Assistance Program (SNAP). Currently one version of the Farm Bill has proposed cutting the program by about $20 billion. A fundamental question is: does SNAP work? Does it actually manage to reduce hunger? Two classical studies were done on this question—one survey of primarily rural Southern and Appalachian towns in 1968, and another in the late 1970’s—finding reductions in malnutrition after the introduction of food stamps. A more recent comprehensive 2004 review of primary studies found that the program does indeed appear to reduce the likelihood of severe hunger and malnutrition, doing so more effectively than just cash benefits would (given that SNAP money is restricted away from tobacco and alcohol, for example). However, there are some caveats: that while SNAP does increase overall food expenditure, many people probably cannot receive sufficient nutrition through SNAP (estimates of SNAP benefit levels vary around ~$4 per person per day), and a “food stamp cycle” appears to occur, in which people buy cheaper calorie-dense (read: unhealthy) foods early in the month immediately after receiving SNAP provisions, in anticipation of future hunger–which unfortunately may contribute to their risk of obesity and chronic disease.
Has SNAP generated massive dependency with subsequent negative economic consequences, as some have alleged? It’s true that as the recession progressed, about 1 in 7 Americans ended up on food stamps. That’s expected expansion due to automatic stabilizers (safety net budget expansion during periods of higher demand, to buffer fluctuations in real GDP—fulfilling the definition of a safety net program), complemented by some modest further program expansion. But a major question is: will all these Americans end up being permanently on welfare programs? The data suggest, to the contrary, that as economic recovery occurs, people do return off of the safety net programs to financial independence, with safety net program participation following the poverty cycle (duh, that’s the point).
Indeed, a few careful studies of SNAP’s economic effects answered a related question: can we afford this safety net program? And what are its downstream economic effects? The first study analyzed how SNAP users spent their income and what poverty impact (and therefore downstream tax revenue increase) the program had, including analysis of rate, depth and severity of poverty during the 2001 and 2007-2009 recessions, using a well-studied nationally representative sample of households. After considering a number of control variables and using a well-accepted standard statistical analysis strategy, the researchers observed that SNAP led to an average annual decline of 4.4% in the prevalence of poverty from 2000 to 2009, as well as a larger reduction in the depth and severity of poverty during that time, as families were able to make use of their earnings for other expenditures. This alludes to the “heat or eat” dilemma faced by many families who have to choose between paying for other crucial life necessities (e.g., heating costs in winter) or food. A second study involved calculations of how much the shift in income expenditure from food to nonfood items (as participants can spend on heating, etc., instead of just one food) helps stimulate economic growth during recessionary periods. It was observed that about every $1 in food stamp program funding that is deficit spending contributes to nearly $2 in subsequent economic growth and future deficit reduction due to increased job growth and consumer expenditure even in nonfood areas as people are able to make purchases like utilities that they otherwise wouldn’t be able to afford—a high fiscal multiplier, meaning that the program is stimulatory to the economy during recession rather than a net debt-expander.
Conversely, a major component of prior Farm Bills have been the large welfare disbursements in the form of agricultural subsidies to corporate crop firms, which do not appear to have the same stimulus, poverty reduction or hunger benefits as SNAP. This year’s Farm Bill contains changes to farm subsidies; current sponsors of the Farm Bill have advertised reducing or eliminating direct subsidies to farming businesses. But upon close inspection of the Farm Bill draft, these direct subsidies appear to be offset by the expansion of crop insurance programs. The Congressional Budget Office calculated that most of the money saved by cutting direct subsidies would be used to boost such insurance programs and their related components. While insurance sounds like a good idea, given risky weather events, in fact this particular insurance provision involves taxpayer subsidization of both the premiums on the insurance as well as rather generous payouts that some have argued may lead to more risky farming practices ecologically, and essentially constitute a crafty form of continuing subsidies in sheepish insurers’ clothing.
What are the data on current subsidies and crop insurance programs to agricultural businesses? First, at present, it does appear that a vast majority of subsidies go toward large agricultural firms rather than small-scale farmers. Second, far from being a truly new proposal, it appears that—over time—crop insurance has been an increasingly large redistributive mechanism from taxpayers to larger agricultural firms during the last several years, already exceeding direct subsidy payments even before this current Farm Bill draft (see graph below). Similar to direct subsidy programs, while some farms annually collect more than $1 million in crop insurance premium support, the bottom 80% of policyholders annually collect about $5,000.
A more extensive set of reviews of subsidies and their relationship to global hunger and energy policies is available here. The direct subsidy data are available for public download and analysis here. The deep irony in this data is that it appears less debt-reducing to cut SNAP programs than to alter the crop insurance and subsidy proposals for large agribusinesses.
Food aid reform
A final issue that may make it to center stage is the White House proposal to shift foreign food aid toward purchases from nations near hunger zones rather than American-grown food (although at the time of this writing, it appears that the House is voting against even discussing this issue). American vegetable oil, wheat and other crop commodities are sometimes “dumped” in poor countries, with adverse effects on local farmers as crop prices are destabilized; the food itself also appears to be less than ideally matched to actual hunger needs, and more matched to surplus supply levels among large agribusiness producers.
At risk, of course, are major government contracts to U.S. for-profit firms involved in the aid business (not just agribusiness, but also consulting firms, shippers and processors). There have been numerous commentaries about this proposal of so-called “local and regional purchasing” to improve food aid, but most interesting and less accessed are the actual data on government contracts to companies who are in the current food aid business. Here’s a look at the most recent publically-available data on which companies get contracts, for which food items, and for which countries: