Farm groups and Farm Belt politicians have vigorously complained about the effects of the Trump administration’s proposed $4.8 billion in annual cuts to the $23 billion in subsidies currently given to farmers. They argue the cuts will hurt agricultural production, raise food prices and make ordinary households worse off. The reality, perhaps surprisingly, is that there would be little impact. Only 2% of all farm households fall below the federal poverty line, according to the Agriculture Department, and none of these small farms would be affected by the cuts. Given the support of Farm Belt voters for Donald Trump, the cuts, at least in some form, have a real chance of becoming law. Concern about farm subsidies crosses party lines, and critics came close to passing cuts in the 2014 farm bill. This time, the biggest proposed savings would come through a two-part cut that would shrink the $8.5-billion-a-year crop insurance subsidy program by a third. The Trump administration wants a cap of $40,000 per individual farm for government subsidies used to buy crop insurance premiums. These cuts would only affect farms with market sales for crops in excess of $750,000. Currently the government pays an average of 62% of all premiums for crop insurance coverage, with no limits on how big an individual farm subsidy can be. In 2011, according to the nonpartisan Government Accountability Office, more than 20 farms received over $1 million in such subsidies, and most crop insurance subsidies flowed to very large corporate farms. The White House’s Office of Management and Budget estimates that the $40,000 cap would reduce annual government spending by $1.7 billion, or about 15% of current crop-insurance subsidies. The second cut ends the current subsidies for a “Cadillac” insurance policy known as the Harvest Price Option. The HPO guarantees that farmers with crop losses be paid at the higher harvest price. That is often much higher than farmers expected when they planted the crop. Canceling subsidies for this platinum-plated policy is estimated to save $1.1 billion a year, or another 13%. All these subsidies disproportionately benefit big farms. In addition, farm households reporting adjusted gross incomes over $500,000 to the IRS would become ineligible for several subsidy programs. Those programs include the new price and revenue subsidy programs for crops like corn and wheat introduced by the 2014 farm bill as well as any crop insurance subsidies. OMB estimates this initiative will reduce annual subsidy outlays on the shallow loss and crop insurance programs by an additional $1 billion. Finally, it would set new or higher fees for services provided by the federal government (mainly to livestock producers) as well as make minor changes in some conservation programs that together are estimated to save about $1 billion a year. To understand why the above cuts in subsidies are unlikely to have any effect on agricultural production, some context is needed. Currently, U.S. farmers earn about $400 billion a year from sales of their crops, fruits, vegetables and livestock products, and get an additional $23 billion in government subsidies. A $4 billion or $5 billion reduction in those subsidies represents only a 1% decline in farm revenue, and is therefore unlikely to have any substantial effect on agricultural production. Given that the Trump budget cuts would have very modest effects on crop and livestock production, their effects on the prices of agricultural commodities are also likely to be very small. In fact, U.S. farmers sell most of their crops in markets where prices are largely determined by global supply and demand. For example, in most years, the U.S. produces about 30% of the world’s corn supply and 8% of world wheat production. However, in both cases, very small changes in U.S. output would have even smaller proportional impacts on world production, on the prices processors pay, and on what food farmers receive for their crops. Further, even if the Trump budget cuts were to increase market prices for crops and livestock, the effects on prices paid by consumers for their groceries would be modest. The reason: most of the costs of putting food on supermarket shelves come from transportation, processing, and marketing expenditures. For example, payments to farmers for wheat account only for about 6% of the cost of a loaf of bread. Even relatively large increases in wheat prices would translate into modest increases in the price of a loaf of bread. So hypothetically, even if the Trump agricultural subsidy cuts were to increase agricultural commodity prices (which they wouldn’t), the effects on the food bills of U.S. consumers would be very modest. What would the Trump budget cuts achieve? They would save taxpayers about $48 billion over the next 10 years and reduce U.S. farm-sector revenue by about 1%, scarcely an event that would cause the sector to collapse. It would have negligible effects on food prices and food security. Moreover, the impacts of the proposed cuts would be concentrated among the largest corporate farm operations and would have no impacts on the rural working poor and low-income farmers. Source - https://www.aei.org