The 2013 Farm Bill…Coming to the Senate Very Soon: Part 1
On Monday, May 20th, the US Senate is set to take up consideration of the 2013 Farm Bill- an action taken every five years which exemplifies the worst of congressional pork and hypocrisy. This is the area where conservative legislators suspend their belief in free markets, their opposition to phony capitalism, their attacks on the Obama “green energy” initiative, and their steadfast opposition to government spending gone awry. All this is done in the name of protecting the United States’ agricultural sector and “the family farmer.” In reality, the farm bills, which are yet another Democratic/progressive/liberal relic of the New Deal, are nothing more than a vehicle to perpetuate government interference in a sector of the economy which, quite frankly, needs little help. While some may argue that it is precisely these policies enshrined in these farm bills that has fostered and expanded the American agricultural sector over the years, those claims are rather dubious. There are two things the United States creates in abundance and with efficiency- food and arms.
Called a “farm bill,” it is allegedly a government agricultural policy. But in the last farm bill passed in 2008, greater than 80% of the spending in the bill was dedicated to the federal food stamp program. Additionally, there is funding for other programs that have nothing to do directly with farms. For example, there are sections dedicated to forestry, energy and rural development. All these areas can be handled by departments other than the Department of Agriculture. When originally conceived in 1933, there is no doubt that the average American farm was seriously affected by the Great Depression. The solution was to increase commodity prices by restricting production of the affected crops- things like wheat, corn, soy beans, and even tobacco. This increased the price of these commodities with the increased profits- obtained through government stealth price controls- passed on to farmers. However, they were further paid by the government to restrict production and those payments were funded by a tax on food processors which the Supreme Court later ruled unconstitutional. The taxpayers have been on the hook ever since.
The 2008 bill was some 1,800 pages of pay-outs to special interests- agricultural and green energy interests- which was projected to spend almost $1 trillion over 10 years. In 2012, Congress failed to rewrite the law as they have done every five years since 1933. The reason was the usual fight over spending. However, as part of the budget deal, they granted a one-year extension of the current law through the 2013 crop year and that is where we are today. In essence, the farm bill in effect today is a one-year extension of the current law set to expire at the end of September. The biggest “event” of that extension had nothing to do with agricultural policy but a relaxing of the eligibility requirements for food stamps. This may help explain why the number of Americans on food stamps are at an all-time high.
So, how did a social welfare program like food stamps make its way into an agricultural bill? The reasons are simple and an example of the dynamics between rural state legislators and legislators with large cities where recipients of the food stamp program tend to live. Basically, neither bloc would likely get what they wanted in stand alone legislation. Large states with urban centers would likely block spending on agricultural subsidies, price supports, and crop insurance because these things are of little interest to their constituents. Likewise, these programs are very important to the constituents of rural, agricultural states like Iowa, Kansas and Nebraska, but they have, relatively speaking, few constituents who care about food stamps. By marrying the two in legislation, both sides basically get what they want- the urban legislator agrees to the agricultural subsidies if the rural legislator agrees to the food stamp program. Hence, the farm bill since food stamps came along is nothing more than a huge forced means of political compromise among the two voting blocs in Congress.
As mentioned earlier, giving proponents the benefit of the doubt, there likely was a need for these bills when first enacted in the 1930s. In fact, because Congress sets a five-year limit on them, they recognized the reality that these measures were intended to be temporary and in response to the Great Depression. But like any welfare program- and this was agricultural welfare- once given an entitlement, it is almost impossible to end that entitlement. Today’s farmer in no way faces the problems of the average farm in 1935.
Over the years, the average yield per acre of farm land has risen dramatically. Improvements in conservation, crop rotation, genetic engineering of plants and seeds, pesticide and herbicide use and overall technology has created this increase. Today, yield per acre stands at an all-time high. In 2013, net farm income- income after expenses- is projected to be a whopping $128.2 billion, its highest total since 1973 in constant dollars. Due to a weak dollar and high global demand for food, commodity prices are also high. Current farm debt totals are less than 10% of all assets- again its best figure since 1973. In the period from 1986 through 2007, the number of farms assuming any debt has decreased a huge 60%. All of this points to incredible efficiency in the production of food in the United States. In 1935, there were some 6.8 million farms whereas today, there are 2.2 million, yet the amount of land dedicated to farming has decreased only 13% over that time span. There are fewer, but larger and more efficient farms. To the government, a “large” farm is any one with income over $250,000 a year. About 12% of all farms are in that category, yet they produce 84% of all output. Although there are many small farms, their contribution to the American food chain amounts to a mere 16%. Larger farms are generally stronger and can afford more sophisticated machinery and seeds and plants. Yet, despite previous efforts at reforms, the bulk of payments under the farm bill still go to these large farms. Thus, the myth of the dying breed of the family farmer needing government help is exactly that- a myth. Family farms are simply a thing of the past. Willie Nelson, John Mellencamp and Neil Young can trot the few examples on stage and Congress can parade grandma before the cameras, but they are the rare exception to the rule when it comes to agriculture in the United States in 2013.
There are several parts of the agricultural aspect of the bill. Direct payments to farmers of certain crops like wheat, corn and even peanuts are guaranteed whether they plant a single seed or not. Then there are the “counter cyclical payments” which occur when the price of a commodity drops below a level set by the law. Even if the farmer receives payments at or above this price, they are eligible for the subsidy. For example, Farmer John plants corn and the subsidy target is $1.00 a bushel. Nationally, the price on the commodity exchanges is 89 cents per bushel. Farmer John is now eligible for a payment at 11 cents per bushel up to a maximum, even if Farmer John has sold his corn for $1.10 per bushel. But, if Farmer John happens to live in a rural county designated by the Secretary of Agriculture, he is entitled to a subsidy under the ACRE program (I just love government acronyms). Then there is the government subsidization of crop insurance which taxpayers fund. This only increases farmer risk-taking because they have little to fear from that risk- they are covered by the taxpayers if the crop goes south. The agricultural loan program often serves to prop up inefficient farms. Finally, if all else fails, there is disaster assistance programs where if a farmer’s production falls to 50% or less due to a weather-related event, the government pays that entity up to $100,000 per event. The perversity of this was illustrated a few years back when farmers in Texas claimed and received help from the space shuttle tragedy. Farmers in Washington state received aid for a drought that occurred five years previous while other farms received disaster aid from a ten-year old earthquake event in California.
These programs alone cost the taxpayer a huge amount of money. Throw in food stamps and we are up to the 10-year $1 trillion level of spending. And while there are complaints against alleged insider trading by legislators in the stock market, members of Congress are eligible for farm subsidies, as are their families. By law, recipients and amounts are private, so there is no transparency on where these payments go. Many members of both the House and Senate Agricultural committees are farmers. Hence, you connect the dots yourselves.
These subsidies, like most, are often portrayed as a “safety net,” but they actually create gross distortions in the agricultural market and are a breeding ground for fraud. There is the case of the Georgia farmer who simply subdivided his farm so that some of the income diverted to the portion that they then put in the name of their 5-year-old child. In effect, he collected two checks from the government for the same plot of land. And the larger farms run by large firms also engage in this practice known as “insurance farming.” Left holding the ticket are the taxpayers who pay not only in their tax bill, but in the grocery store. It is estimated that the cost to the average American family is about $400 a year in their grocery bill from costs artificially inflated by government policies.
Given the fact that commodity prices are high due to global demand and a weak dollar, it would appear that the time is now ripe for a massive reform of agricultural policy in this country. One of the biggest impediments to American foodstuffs being exported to Europe is American farm subsidies which the EU views, probably correctly, as an unfair trade practice. There are huge markets waiting for American exports with Africa being one of the biggest yet to be exploited. It is estimated that if subsidies were cut to the cotton farming industry in the United States, cheaper cotton from Africa could be imported thus lowering the cost of textiles and costs to consumers. While the American cotton farmer may “suffer” in the short term, through crop diversification, those losses could be mitigated or even rendered null. It is estimated that a $1 billion increase in African cotton imports would feed every child in Africa for a year. The American consumer benefits, the US farmer benefits, the African farmer benefits, the African child benefits, and the US budget benefits because less is spent on a costly crop subsidy and in food assistance to Africa through the State Department’s programs.
There is a real world example of what happens when a country goes cold turkey when it comes to agricultural subsidies and that will be the subject of part 2 of this series- the solutions. The point now is that everyone realizes the problem. If this country is ever to get serious about budget cuts and debt reduction, then this is one area that cries out not for reform, but for abolition. Past attempts at reforms were not reforms at all but became a new means by which to game the system. It is as if the agricultural industry was one step ahead of Congress and that is not surprising given the intense and effective lobbying efforts of that industry. Throw in a few tear-inducing pictures of “grandma on the front porch with a Bible in her hand-” (thank you, John Mellencamp, for that visual and line)- and you have the makings for the status quo.