November 13, 2013

Mandatory SpendingOption 4

Function 350 - Agriculture

Eliminate Direct Payments to Agricultural Producers

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Outlays 0 0 -4.6 -2.2 -2.9 -3.0 -3.1 -3.0 -3.0 -2.8 -10.1 -24.5

Note: This option would take effect in January 2015.

According to the Congressional Budget Office’s projections, the Department of Agriculture’s (USDA’s) direct payments to agricultural producers for certain commodities (cotton, feed grains, oilseeds, peanuts, wheat, and rice) will cost $41 billion between 2015 and 2023. Under current law, producers will receive payments each year regardless of market prices for those crops or which crops, if any, the producers plant on eligible land.

This option would eliminate those direct payments beginning in 2015. However, if producers did not receive direct payments, they would probably increase their participation in other federal programs that provide payments to farmers, such as the Average Crop Revenue Election (ACRE) program (which makes payments when farms’ actual revenues are less than their expected revenues). CBO estimates that eliminating direct payments would result in an increase in ACRE payments of $13 billion between 2015 and 2023. In addition, because USDA takes direct payments into account when it calculates countercyclical payments (which are payments made when market prices are below legislated target levels), eliminating direct payments would probably boost countercyclical payments by $3 billion. With savings of $41 billion in direct payments and partly offsetting costs of $16 billion, this option would reduce overall spending on farm programs by $25 billion between 2015 and 2023, CBO estimates.

The primary rationale for eliminating direct payments to agricultural producers is that continued significant subsidies to the farm sector that are made regardless of the perceived need of producers have become less defensible given recent high commodity prices and record farm income. Because of structural changes that have occurred in commodity markets—for example, increased use of corn for ethanol production—few analysts expect the prices of most agricultural commodities to return to their lower levels of the past.

An argument against this option is that reducing certain other payments to farmers might increase efficiency in the farm sector more than would eliminating direct payments. For example, USDA payments in the form of price supports essentially guarantee minimum prices for certain crops and therefore distort market signals more than direct payments do.