Large Farms To Reap Subsidy Windfall Under Disaster Aid Plan Embraced by White House

August 2010

By Ken Cook and Chris Campbell*

Summary

A controversial White House pledge to spend $1.5 billion to retroactively compensate farmers for 2009 crop losses -- and thereby boost the reelection prospects of Arkansas Democratic Sen. Blanche Lincoln -- will mean a six-figure windfall for hundreds of plantation-scale, highly subsidized rice and cotton farms across the South, a new Environmental Working Group analysis shows. The owners of the biggest prospective recipient, Ratio Farms, of Helena, Ark., whose names are no longer public under Obama administration policy, stand to receive $787,000 in disaster aid under the plan, on top of $874,000 in direct payment subsidies the operation already collected in 2009. Four other large farming operations are in line to get more than a half-million dollars of disaster money each. The largest share of the disaster aid will go to Arkansas -- more than $210 million -- with most of the funds directed to a small minority of the state’s largest, most heavily subsidized farm operations, regardless of how much harm they actually suffered in 2009. EWG projects that 270 Arkansas farms could collect more than $100,000 each in disaster subsidies.

EWG also projects that the major provision of the disaster package, which links proposed compensation to the amount of direct payment subsidies applicants already receive, could cost $1.6 billion, almost 50 percent more than the previously reported estimates of $1.1 billion, because so many farmers are eligible, and eligibility criteria will be easily met.

Background

According to press accounts, Sen. Blanche Lincoln (D-Ark.) agreed to pull her controversial, $1.5 billion farm disaster aid package from legislation intended to help small business after she received assurances from Senate Majority Leader Harry Reid and White House Chief of Staff Rahm Emanuel that the USDA would provide the funds administratively.

While there is some aid for livestock and produce growers, the bulk of the spending in Sen. Lincoln’s plan would result from an additional, one-time payment equal to 90 percent of the amount of the "direct payment" subsidies that, under a formula set by Congress, go automatically each year to producers of rice, cotton, corn and other major crops. Published estimates report that 73 percent of the $1.5 billion cost, or $1.1 billion, is associated with these direct payment-triggered provisions. (Direct payments, a vestige of the controversial "freedom to farm" payments authorized in the 1996 Farm Bill, cost taxpayers more than $5 billion a year. They are paid without regard to crop prices or the recipients’ economic circumstances.)

Under the Lincoln plan, subsidized farmers would qualify for this near doubling of their 2009 direct payment if the USDA has declared their county eligible, and if they can demonstrate that they experienced a 2009 crop loss of as little as 5 percent — far less than the 30 percent loss that historically has been the trigger for ad hoc disaster aid. The payments have no relationship to how much harm a farmer actually suffered, only to the size of his or her farm subsidy check in 2009. Small farmers who lost their entire crop are likely to get less help than big farmers who still brought in 95 percent of their crops. (Sen. Lincoln’s measure is unrelated to the deadly floods that struck Tennessee and Arkansas earlier this year.)

In a press statement announcing the White House agreement, Sen. Lincoln said she had been assured that disaster checks would be on their way to farmers within two weeks.

According to Congress Daily (August 2), the top USDA official in charge of crop subsidies and disaster aid subsequently said that the department "is in process of conversation with the White House to gain a further elaboration" of what was promised to Lincoln by White House Chief of Staff Emanuel and is also "in conversation with Lincoln in order to have a better [understanding] of what her interest was."

Congress Daily also reported, however, that House Agriculture Committee Chairman Collin Peterson (D-Minn.) said that he does not believe USDA has the authority to provide the aid that Lincoln had included in her bill.

"My staff tells me there is no way they can do this administratively. I don’t know what the heck Rahm [Emanuel] was talking about. I’d be surprised if anything comes of it."

Media accounts have repeatedly linked Sen. Lincoln’s efforts to secure the funds, and the White House’s sudden intervention on her behalf, to what polls suggest is her uphill battle for reelection in November.

Methodology

While the disaster aid plan proposed by Sen. Lincoln includes aid to livestock producers and growers of non-subsidized crops, the largest share is pegged to existing crop subsidy recipients. Qualifying farmers would receive disaster aid equal to 90 percent of their 2009 direct payments. Because the formula for determining the amount of direct payments is fixed by act of Congress, and the beneficiaries and the amounts they receive are public information, EWG was able to project which operations are likely to receive disaster aid in the counties USDA has already cleared for the program through its disaster declarations.

EWG’s Farm Subsidy database maintains a record of all direct payment subsidy recipients since the program was established in the 2002 Farm Bill. Payments total roughly $5 billion a year. The most recent year in EWG’s records is 2009.

We identified all direct payment recipients in the counties USDA declared eligible for disaster aid for 2009. We then made the following assumptions in order to project the amounts of these windfall subsidies:

• All eligible recipients would apply for and receive disaster payments. The threshold for qualification is very low (a mere 5 percent crop loss in 2009) and the application process is extremely easy, if not automatic.
• Disaster payments would equal 90 percent of the most recent (2009) year’s direct payment subsidies. We multiplied 2009 direct payments by 0.90 to project the disaster subsidies.

Findings

Total costs will likely be higher than previously estimated. The Congressional Budget Office estimates that the provisions in the disaster aid package that link compensation to direct payment subsidy levels will cost $1.1 billion. Based on EWG’s assumptions, we project that costs will likely be nearly 50 percent higher, at just under $1.6 billion.

Arkansas is #1. Considering only the portion of Sen. Lincoln’s disaster plan that is based on direct payment amounts, Arkansas will receive the most funding — some $210 million — due to the large number of counties declared eligible by USDA and the high direct payment rates associated with rice and cotton farms in the state. The next highest amounts will go to Illinois ($174 million), Texas ($146 million) and Iowa ($128 million). Ten states are projected to account for 76 percent of the direct payment-related disaster funding.

Big windfalls for big farms. Like the direct payment subsidies on which they are based, prospective disaster subsidies will mostly accrue to the largest subsidized farms in the qualifying counties.

The top 10 percent of disaster windfall beneficiaries — some of the largest, most heavily subsidized farms in the country -- will haul in 62 percent of the disaster money.

The concentration of projected disaster payments is also available by state.

Top recipients. EWG identified 870 farm businesses that stand to receive more than $100,000 each, and another 2,377 that will collect between $50,000 and $100,000 each. These are very large farming operations that received direct payments in 2009 and are in counties that USDA has declared eligible for disaster aid.

Because of their high direct payment rates and the prevalence of large-scale operations, Southern rice and cotton farms dominate the list of projected top disaster subsidy recipients.

The top recipient will likely be "Ratio Farms," with a mailing address in Helena, Ark., which would receive an estimated $787,199 in disaster aid. Ratio Farms, like numerous other very large farming operations, did not appear in USDA records or EWG's subsidy database prior to 2009. Under the Bush administration, the names of everyone with an ownership interest in subsidized operations such as Ratio Farms were matters of public record. In a change in policy, the Obama Administration, pleading lack of funding from congressional appropriators, no longer makes public the owners of these operations.

Another large operation, Schenley Farm Partnership of Mer Rouge, La., is projected to be eligible for $710,877. EWG’s projections also show that three other farms are in line to receive more than a half-million dollars from the proposal: Balmoral Farming Partnership, of Newellton, La. ($595,958); Garland Frontier Farms of Garland City, Ark. ($538,740); and Condrey Farms of Lake Providence, La. ($509,923).

*Cook is president and Campbell is vice president of information technology, Environmental Working Group.