A new way to do farm policy? Crop insurance savings accounts

Debates over government shutdown and the debt ceiling have recently overshadowed the drama surrounding the farm bill.  The farm bill will eventually be back on the table, and when it is, the time for fresh ideas has arrived.

In 2012, $14.9 billion were paid out by the USDA in farm subsidies, with Oklahoma receiving $382 million.  The latest iteration of the farm bill is moving more in the direction of "crop insurance" rather than direct subsidies (although those are still left on some level for some commodities).  Crop insurance sounds like a move in the right direction.  The trouble is that it is hardly anything like the insurance you and I pay for our car our house.  The insurance payments are heavily subsidized and benefits often flow to large insurance companies. 

According to this article in Bloomberg: 

The government subsidies show how a program created to safeguard the nation’s farmers has evolved into a system that in most years all but guarantees profits for insurers. In 2012, taxpayers spent $14 billion paying more than 60 percent of farmers’ insurance premiums, the companies’ operating costs and the lion’s share of claims triggered by a historic drought, according to the Congressional Research Service (.pdf).

What is to be done?

An interesting idea was recently proposed by Octavio Ramirez and Greg Colson, agricultural economists at University of Georgia.  They write: 

Given the escalating costs of crop insurance to taxpayers and the lingering doubts of whether it can provide an effective and equitable safety net for all producers, the natural question emerges: Is there an alternative safety net scheme that could be broadly applicable at a lower cost to taxpayers? One possibility, which has been debated off and on during farm bill discussions since the mid-1990s, is a system based on individually owned savings accounts that would serve as a backstop in times of negative revenue shocks.

They describe further: 

The proposed CISA system is similar to programs already used in the United States and internationally for health and unemployment insurance, but is designed to mimic the current crop revenue insurance programs with which farmers are now so familiar. Under CISA, producers would be eligible to annually deposit a pre-determined percentage of their before-tax income in an interest-bearing personal savings account. Farmers could then withdraw money from the account when their revenue in a particular year falls below a pre-specified threshold. For example, akin to traditional crop insurance, if a producer's revenue is just 65% of his or her past five-year average and the pre-selected revenue guarantee was 75%, then he or she would be able to withdraw an indemnity equal to the 10% difference. If the farmer, at some point, does not have a sufficient CISA balance to cover a justified withdrawal, the required funds are lent to the account by the overseeing government agency at the same interest rate earned on savings.

As with any proposal, there are some downsides, but this is just the kind of free-er market thinking needed in food and agricultural policy.

Conservatives split over farm bill?

At Business Insider, Josh Barro discusses some interesting developments on the conservative side of the spectrum with respect to the farm bill. After discussing that some Republican members are upset with the Heritage Foundation, a conservative "think tank," for opposing farm subsidies, Barrow writes:

I'm no fan of Heritage. But here's what's maddening about this fight: Heritage is not only right about the farm subsidy issue, they're advocating a consensus view among policy experts all across the political spectrum.

and

The [Republican Study Committee]'s problem with Heritage isn't that it's trying to push the GOP too far to the right to be competitive in elections. Their problem with Heritage is that they're interfering with the GOP's effort to put special-interest politics ahead of conservative principles.

House Republicans do not actually care about free markets or cutting government. They care about pleasing their electoral constituencies and getting re-elected. Old people tend to vote Republican, which is why House Republicans have built their last two campaigns around attacking President Obama with claims he was cutting Medicare. Almost all rural areas are represented by Republicans, which is why Republicans don't want to cut farm subsidies.

Democrats are just as likely Republicans to pander to special interests.  But, I think this special issue is particularly perplexing for many conservatives.  Our research shows strong support for farm subsidies among most Americans, including rural, Republican voters.  Interestingly, those rural, Republican voters are also relatively free market and small-government oriented.  Somethings gotta give.

Steinbeck and Farm Policy

Over at Econlog, David Henderson has been blogging recently about the life of the economist John Kenneth Galbraith.  Henderson pointed out that Galbraith (who was often in favor of price controls and help implement them during WWII) knew that FDR's farm policies designed to increase prices consisted of destroying said crops - an act that was certain to hurt those who were starving at the time.  

I was absolutely astounded at John Steinbeck's description of the effects of those farm policies.  Here is what Henderson had to say: 

But if Galbraith's friend, John Steinbeck, was aware of FDR's policies, he never said so. Instead, he attributed the crop destruction policies to farmers rather than the feds.

In The Grapes of Wrath, after describing a scene in which orange growers spray oranges with kerosene to make them inedible, Steinbeck writes:

There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificates--died of malnutrition--because the food must rot, must be forced to rot. The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quicklime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is a failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.

Galbraith and Steinbeck were friends. I wonder if Galbraith ever told Steinbeck the truth: the criminal here was Franklin D. Roosevelt. He's the man against whom Steinbeck should have directed his wrath.

What are the impacts of mandatory GMO labeling?

Genetically modified (GM) food products and their labeling have become a major policy issue with impassioned public debates. We explore the impact of different labeling regimes on consumer attitudes towards GM products and consumer welfare. Our experimental results illustrate that these consumer attitudes do not follow the Uniform distribution as has often been assumed in the literature but instead fit an adjusted Kumaraswamy distribution. If a Uniform distribution is assumed, the advantage of mandatory labeling would be exaggerated. Using an adjusted Kumaraswamy distribution our simulation results demonstrate that voluntary labeling is superior to mandatory labeling with the higher separation cost, while mandatory labeling is not necessarily better with lower separation cost. Therefore, the governments of China and other countries with similar consumer characteristics should consider voluntary labeling for GM food while encouraging innovations that reduce the price of GM food as well as controlling the opportunistic behavior of its producers so as to enhance the advantage of voluntary labeling

That's from a paper just published Li Zhao, Haiying Gua, Chengyan Yue, and David Ahlstrom in the journal Food Policy. 

What Do Food Stamp Recipients Buy?

This editorial in the LA Times sounds an "alarm" about our lack of knowledge about how food stamp recipients spend their money:

The debate in Congress  about cutting the food stamp program has sparked predictable clashes between those who want to help the poor and those who want to cut government spending. But strangely missing from the arguments is a shocking fact: The public, including Congress, knows almost nothing about how the program's $80 billion is spent.

The underlying premise of article seems to be a notion that we need to know how food stamp recipients spend their money so we can decide if they are using it wisely.  That is, should purchases of food stamp recipients should be restricted to exclude unhealthy items?  I'm a bit skeptical of the impacts of such policies for reasons I talked about previously:

we have to realize that restricting [food stamp] use may not have the intended effect.  Money is fungible.  If you can't use food stamps to buy sodas, you'll use them to buy more of something else - freeing up money to buy soda.

But, that's not the reason I'm weighing in here.  Coming off a highly successful meeting of the Agricultural and Applied Economics Association earlier this week, I was again reminded of the exciting and energetic work being done by my fellow food and agricultural economists.  I can only think that many of them who study food stamp (SNAP) issues would bristle at the statement in the LA Times that: 

SNAP is kept under wraps. And Congress acts blindly, with the House voting to remove SNAP from the farm bill altogether and the Senate proposing to cut $4 billion from the program.

If Congress acts blindly, it is only because they (or their staffers) are unwilling to read the peer-reviewed research.   The fact is that there are large number of studies that, by merging various data sets, have investigated what SNAP recipients eat, how their purchases differ from non-SNAP recipients, and whether SNAP participation causes things like obesity.  

True, we may not have scanner-type data from grocery stories tied to EBT cards, but that is a far stretch from claiming we know nothing or act "blindly".