Wednesday, January 14, 2015

USDA Spending History

USDA spending has changed dramatically over the last 50 years in terms of the USDA's share of the total US government budget and in terms of the composition of USDA spending. A conversation with a farmer or really anyone who pays attention to what comes out of D.C. in terms of agricultural spending will give you the general gist of things: The USDA share of the federal budget has shrunk over time and likely will continue to do so. Other interests outside of production agriculture have increased their share of the USDA spending pie. Aided by data, we can take a more detailed look at these spending trends and make some informed guesses as to where they will lead in the future.

Data on US federal outlays, spending on farm stabilization policy, and the supplemental nutrition assistance program (SNAP) are taken from the White House Office of Management and Budget Website (tables 3.2 and 4.1 here).

The USDA's share of the total federal budget has declined dramatically since 1962. The overall trend is a decrease of 0.04 percentage points per year over the period (including the projections through 2019). The biggest swing in spending over the period started with a large increase in the late 1970s that persisted through the mid-1980s during the farm debt crisis. More recently changes in the USDA's share of total federal outlays is less clear when viewed through the farm stabilization lens. The overall decreasing trend starting in the 1990s is likely due to "crowding out" of the federal budget by bigger-ticket items such as social security, military, and health and human services spending. A continued decline in the USDA's share of total federal outlays is projected through 2019.

How has USDA support for production agriculture changed over time? The graph below shows the share of USDA spending dedicated to what the OMB calls "Farm Stabilization." In the 1960s, farm stabilization made up 40 to 50% of USDA spending. It has declined to the 10 to 15% range during the early 2010s. The trend from 1962 to 2019 is a 0.65 percentage point decline per year. Of course, dramatic fluctuations have occurred over the period. The 1980s and early 2000s both saw dramatic increases in farm stabilization spending thanks to a farm debt crisis and low commodity prices, respectively. With the recent shift from direct payments to a more insurance-based model of farm support, the overall negative trend in farm stabilization spending is not likely to reverse. This may make some sense given that a larger share of the US food supply comes from an increasingly small number of very large firms, but major changes in farm policy could very well disrupt the livelihoods of those who live on the income from smaller farm operations.

Contrary to farm stabilization spending, nutrition assistance as a share of the USDA budget has grown dramatically over time. The food stamp program began in the early 1960s but didn't begin to make up a significant share of the USDA budget until the early 1970s. Since then it has climbed to some 75% of USDA outlays and is projected to remain fairly stable through 2019. Trend growth has been 1.24 percentage points per year since 1962. The SNAP spending as a share of USDA outlays has grown nearly twice as fast as farm stabilization spending has declined. The only time SNAP spending fell dramatically as a share of USDA spending was during the welfare reforms of the late 1990s. It recovered to the pre-reform peak (70%) and has increased somewhat since then. Of course, this isn't the only way to look at SNAP spending.

The graph below depicts inflation-adjusted per-capita spending on nutrition assistance from 1971 to 2013. It's important to note that the Y-axis isn't in dollars spent per person qualifying for SNAP, but dollars spent on SNAP per person in the US. I don't have ready access to data on SNAP recipients going back farther than 2001. Nonetheless, it's important to adjust in some way for the growth in population. The dip in spending in the late 1990s is still evident, but the interesting part is the enormous run-up around the year 2010. This run up depicts very well the pain caused by the Great Recession. The number of people on SNAP went from 31.7 million in 2008 to 47.8 million people in 2012.

One important point here is that increases in SNAP spending are not purely a function of an increasing population. The population-and-inflation-adjusted spending has climbed significantly over time. Couple that with the fact that poverty has declined dramatically in the US (Though not likely as a result of the "war on poverty." After all, wealth is created for all of society's benefit due to entrepreneurial effort and the working of markets, not by paying bureaucrats to transfer income from one group to another.). Fewer people in serious poverty should mean less spending on poverty programs. This is not likely, though, since spending on federal programs has mostly to do with the preferences of interest groups and voters who are by and large ignorant of the actual effects of policies.

The economic history of the USDA since the 1960s has mostly been a story of declining farm stabilization spending and of increasing nutrition assistance spending. The former can be justified in part by the declining number of farms and increasing average farm size. Larger farms, after all, should be more capable of weathering bad years than smaller ones. The latter is likely a function of shifts in political support and an increasing need for political alliances. Most notably, increasing population by itself doesn't justify the increases in expenditures on nutrition assistance. This is especially true since measures of poverty are either flat or declining over the period.

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