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Thursday, December 20, 2018

Government Goes from Banning Hemp Farming to Subsidizing It

Hemp will be another example of big pork for big farms.

Photo courtesy of Phil Gayton on Flickr.

Sometimes truth really is stranger than fiction.

Who would have thought five or 10 years ago that the House and Senate agricultural committees would use a farm bill to amend the Controlled Substances Act and remove hemp—part of the cannabis family and a distant cousin to marijuana—from its class 5 category and reclassify it as a lesser class 1 controlled substance, with the full support of a strongly conservative Senate majority leader?

And who would have guessed that congressional agricultural committees would then immediately mandate that hemp—and therefore cannabidiol, or CBD—become eligible for coverage and subsidies under the federal crop insurance program?

By signing the 2018 farm bill (which he is expected to do), President Trump would give all hemp farmers immediate access to one of the government’s most lucrative, and arguably wasteful, subsidy initiatives: the federal crop insurance program.

This is Your Agriculture on Welfare

Congress continues to support crop insurance through the efforts of farm-state legislators seeking votes and campaign contributions. But the subsidy program distorts incentives, encourages farmers to adopt riskier production practices, is a welfare program mainly for large agribusinesses, and has complex and often damaging consequences for both the environment and trade relations.

Among the plethora of federal programs that subsidize farm businesses, crop insurance already deserves top or at least second place on any list of programs for program termination or major reform. The last thing we should be doing is expanding it, regardless of how any of us might feel about hemp.

Over the new farm bill’s five-year life, the CBO estimates that annual subsidies totaling between $7.5 and $8.5 billion will flow to crop producers and the insurance industry.

The federal crop insurance program currently shovels 40% of all federal farm subsidy payments to farm businesses and private crop insurance companies through which the government delivers the program. Over the new farm bill’s five-year life, the Congressional Budget Office estimates that annual subsidies totaling between $7.5 and $8.5 billion will flow to crop producers and the insurance industry.

The program is also highly targeted; close to 70% of these subsidies go to producers of corn, soybeans, and wheat. Add cotton, peanuts, and rice, and those six crops receive over 90%. For the most part, healthy foods (think fruits and vegetables) are an afterthought.

Show Me the Money 

So who gets the crop insurance money? About 70% of all crop insurance subsidies go to the largest 10% of farm businesses. Those businesses receive more subsidies because they farm more acres. They also get more money from the program on a per-acre basis, about three times more per acre than small and medium-size farms.

And, of course, there are no caps on how much a farm business can receive in crop insurance subsidies. Some large farm businesses, whose owners possess tens of millions of dollars in assets, get over a million dollars a year from the program. Hemp will be another example of big pork for big farms. On the other hand, the smallest and most vulnerable of farm businesses receive almost nothing from a program sold to the public as a “save the family farm” initiative.

Hemp, too, will be another example of big pork for big farms. If the hemp crop business were to explode and farms were to plant millions of acres of the new crop, taxpayer costs would be substantial, although in truth that may be a big “if.” Either way, the crop insurance subsidies will provide incentives for farmers to move land into hemp production, and the lower prices will benefit downstream businesses who use hemp. That includes both rope makers and dope makers.

Good to know that regardless of their personal preferences and beliefs, U.S. taxpayers will now be directly supporting companies that would benefit from hemp production like Wana Brands that make products using marijuana as well as CBD, or New Age Beverages Corp. that makes CBD-infused drinks.

Just another of life’s little crony capitalist ironies!

This article was reprinted with permission from AEI.

  • Vincent H. Smith is Professor of Economics in the Department of Agricultural Economics and Economics at Montana State University and co-director of MSU’s Agricultural Marketing Policy Center.