Defining a True Safety Net for Struggling Farmers

Posted by David DeGennaro in Reports, Subsidies on October 11, 2010 | 10 responses

By David DeGennaro, Environmental Working Group Legislative Analyst

With Congress in recess, talks on reshaping the federal Farm Bill, due for action in 2012, have been set aside while nervous lawmakers focus on the November elections.

But that hasn’t eased the new scrutiny being given to America’s free-spending and complex labyrinth of farm programs in the aftermath of the US Department of Agriculture’s decision to fund a dubious farm disaster aid program sought by embattled Sen. Blanche Lincoln. It received USDA’s support at the demand of outgoing White House Chief of Staff Rahm Emanuel in what looks suspiciously like a bid to save the Arkansas Democrat’s Senate seat.

Farm disaster spending is nothing new, but the particular program envisioned by Sen. Lincoln is particularly galling because it sets the bar so low for agribusiness to qualify for assistance.  A farm operation need only assert it sustained a 5 percent crop loss in 2009 to qualify for a government check.  This trivial loss is being described as part of the “safety net” that keeps farmers in business, producing the food and fiber we need.

At the Environmental Working Group, we think this claim warrants a fresh examination of just what the farm safety net actually looks like, as opposed to the rosy rhetoric around it.

For those who view the nation’s simultaneous obesity and hunger epidemics as proof positive of a broken food and farm system, engaging in the debate over farm policy reform is a top priority. As the saying goes, “If you’re not at the table, you’re on the menu.”

The defenders of farm subsidy programs always balk at trimming the billions of dollars of payments that go to large, profitable, plantation-scale farm businesses, so it’s fair to look at how this supposed “safety net” for farmers really works.

If you, for example, were lucky enough to be making $210,000 a year, you’d probably be overjoyed to get a $30,000 bonus on top of that – just for punching in.

In 2008, $210,000 just happened to be the average household income of farms that received at least $30,000 in government payments that year.

That’s the deal given to America’s most affluent commodity farmers, the lucky folks who get a government handout year after year thanks to the multi-layered federal system of farm subsidy payments. Its defenders argue that this “safety net” protects the safe and abundant food supply that the United States enjoys.

Safety net?

In a circus, the safety net is strung far below the high-wire performers in case they lose their balance and plunge to earth. A fall is scary to watch, but in most cases the tightrope walker comes away unscathed.

In the case of American farmers, it’s as if the safety net were strung a mere six inches below the tightrope. For wealthy, often corporate-owned farms, it amounts to lifetime, planting-to-harvest protection, and it pays off just as handsomely whether you’re losing money – or, as is more often the case, doing just fine.

It’s a great deal for wealthy farmers who grow commodities like corn and cotton; not so for taxpayers who paid $17 billion in 2008 to put up that net.

In general, the big winners are large and profitable commercial farms. These big concerns collected 62 percent of all payments in 2008, while at the other end of the scale, less than a third of the nation’s small farmers received any payments at all. The small guys who do get something aren’t getting rich. In 2008 the average payout for small farmers was just $4,430.

Looking at the wider picture, it’s not as if farmers overall have been suffering in recent years. The median income for farm households of all sizes in 2008 was nearly $51,000, only slightly higher than the median for all US households — but $10,000 more than their non-farming, rural neighbors

Meanwhile, a couple earning $1.5 million from their farm can easily get direct payments as high as $80,000 every year, indefinitely. That’s a lot of “safety” for someone who arguably doesn’t need it.

  • gary ommen

    there should not be a farm program. There isn’t a safety net for other small business. why should there be a safety net for farmers.

  • Jason

    I’m so glad you are on top of this. However, I see your complaint but not a recommendation for how to fix it. Maybe I missed something?

  • HoboLoco

    The large amount of assets and risks involved in farming are unique to farming. The U.S. government supports its farmers for reasons of food security and the fact that it is strong sector, having a trade surplus, which can’t be said for many U.S. industries.

  • Monica

    One can buy private insurance to protect income losses due to virtually anything. But this program transfers the cost of risk to the taxpayer and allows all the profits to stay with the farmer (which the government then taxes to keep the program going). But the answer is simple: Shut down the government program and let farmers buy their own insurance in the private marketplace or self-insure (if they are rich enough). It’s the classic capitalist market. But where would all these government employees go? Maybe they’d have to farm for a living!

  • Terry

    The amount of subsidy money going my neighbors is shocking. I do not understand the need for the assistance going out to the farm community. We need to allow the market to drive prices not the government.

  • Leo

    I’m a former Ohio dairy farmer and included on our subsidies list. Crop insurance and conservation programs may have a place but all crop subsidies should be eliminated. The current system skwers livestock production towards the overuse of annual crops vs. forage and tree crops at great expense to the innovative farmer and the environment. New Zealand did it some years ago and are now the world low cost producer in milk products, lamb, etc. etc. despite their great distance from their export markets.
    If we were going to subsidize farmers it should be for building soil, stopping erosion, and sequestering carbon not for practices that deplete soil, cause erosion, and are carbon neutral or negative.

  • splined

    Federal crop insurance is a financial investment guarantee that nearly eliminates the need for farmers to budget for weather and marketing risks. Farmers are thereby enabled the ability to bid margins of profitability to very small levels. These small margins of profitability are very workable for large operations and are very effective in putting smaller farmers out of business. In other words when you do not have to budget for risks you are able to pay a whole lot more for land than you otherwise would. I would like to see all farmers receive the same equal government payment of $0. as well as receive the same equal federal crop policy and subsidy of #O. How is it possible for an individual with nominal assets able to compete with bto’s with multimillion dollar profitability guarantees and subsidies. It is not and that is why most small farmers are being eliminated complements of our politician’s USDA.

  • MBA

    Some get the idea but most don’t. If you get it, the assumption is that you are well read and understand Economics. Most do not and many economists have to “work” for a living and can be bought. Agri-subsidies in the US are the lowest of its competitive countries. They exist for many reasons, look at the history of why the exist. They were and still are intended to prevent FULL ECONOMIES OF SCALE from developing in Agriculture. How many fuel suppliers provide the diesel and gasoline to the US? About 5. How many were there 30-40 years ago? About 30, at least. You don’t want your food supply to become consolidated. Yes, it would have happened. Would the government then step in and break up a monoploy such as the possibility I am describing? If it was that important, why has the governement continually allowed more and more mergers and more off shoaring of our required labor demands? On the surface, subsidies make someone jealous. The fact, its intended to keep your food cheaper than the true cost to produce. Even when commodites are trading higher, you still have food cheaper than the true total cost. The price of OIL is what makes your food become higher, not ethanol. If you are a consumer, a true consumer you’re not entitled. If you are a producer and think about that word, it encompasses manufactering and anything that actually “produces something” you will discover that subsidies exist elsewhere other than agriculturein the form of a noted subsidiy and also in the form of tax credits or write offs for various things for both producers and consumers. Its all relative but there is not going to be such a thing as a “free economy” its impossible. Your enemy is the utilitarain corporation. That generates websites such as this to wage war against its competition. You don’t think that the NPRA and the APA “pay” the staff directly or indirectly for this wash?

  • Don Carr

    Contradiction 1 – if EWG is anti corporatism why would we then take $$ from the NPRA? On that note, the canard that anti-ethanol activists are somehow in the pocket of oil is laughable — how many of those farmers growing corn for ethanol in say Iowa use biodiesel in their tractors and machinery? Are there tractors being produced today that can run on 100% biodeisel? If not that seems to be an easy way for manufacturers to do their part.

  • splined

    Safety nets without limitations continually target the largest farms with investment and profit guarantees of the largest financial value. This government action grants these operations a financial competitive edge allowing these operations to consistently outbid smaller farms for land resources. This snowballing federal action of continually granting the largest farms with greater and greater investment and profit guarantees has played a major role in the huge increase in farm real estate values. Is there any other business where the government offers revenue insurance and profit insurance? The federal government is so busy helping the largest farmers pay more and more for land that they have destroyed nearly all opportunities for any young farmers to start in the business.