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Farm Policy for the Rest of Us

Farm Policy for the Rest of Us

Wednesday, June 6, 2007

Kenneth A. Cook

Speech to The American Bankers Association
Agricultural Bankers Annual Meeting Minneapolis, Minnesota
November 16, 2004


"Most people not on the receiving end of farm program payments would question the broad public purpose being served by them. But Congress keeps passing farm bills, so the legislation must be designed to meet some objective."

--Bruce Babcock
"Creation of a WTO-Friendly Farm Safety Net"
Iowa Ag Review, Fall 2004


From time to time reporters who cover agriculture, or farmers and ranchers who've heard about us, ask if I'd describe the Environmental Working Group as a...well, you know, liberal outfit.

I tell them that's a good question. And I ask them back if it doesn't come down to where we stand on the role of government. Of course, they say that's exactly how you tell a liberal from a conservative.

So I run through a little checklist.

First, you know you're a liberal if you find yourself short of income by 30 percent, or 40 percent, or even more, year after year--actually, decade after decade--and to make things whole, you go to the Government.

Or if you find yourself needing disaster aid for crops four, five, six, even ten years out of ten, you go to the Government.

Is it disaster aid for livestock? Go to the Government.

Research on crops? Go to the Government.

Research on animals? Go to the Government.

Research on equipment? Go to the Government.

Research on pests? Go to the Government.

Eradicate those Boll Weevils? Go to the Government.

Fire ant problem? Go to the Government.

Karnal Bunt? Go to the Government

Export subsidies? Go to the Government.

Export marketing? Go to the Government.

Food for Peace? Go to the Government.

Folks the refrain here is "Go to the Government." Feel free to join right in.

Crop insurance too high? Apple prices too low? Go to the Government.

Wool and mohair subsidy? Go to the Government.

Milk too cheap? Go to the Government.

Cotton too expensive? Step 2 to Government.

Soil conservation? Factory farm pollution? Below-cost timber or logging roads? Irrigation subsidy? Go to the Government.

Farm lender of last resort? Go to the Government.

Guarantees on farm loans? Go to the Government.

Electricity and telephones? Go to the Government.

How about if you need your very own cadre of thousands of highly trained, well-paid economists who work solely on agriculture? Go to the Government.

Well, we don't have nearly enough time to go through the full diagnostic exercise here today.

Suffice it to say that, eventually, I reach the end of the checklist, and I'm obliged to conclude: Yes sir--or yes ma'am--when it comes to Government, I'd have to say we're liberals at EWG.

We're just not extreme liberals, like you find on the House Agriculture Committee and in most farm organizations.

But just because EWG is well to their right on the role of government in agriculture, that doesn't mean we can't find middle ground. And work together.


In July of 2002, a couple of months after the Farm Bill was signed into law, Kenneth Hood, then chairman of the National Cotton Council, devoted much of his fascinating 'chairman's report' to what he proclaimed to be the Cotton Council's top issue--the fight against payment limits on big cotton growers.

"At the core of our dilemma," Mr. Hood said, "is finding a way to make the public feel good about six and seven figure payments to farmers..."

I couldn't agree more. That was the core of the dilemma facing the agribusiness end of commodity crop agriculture back in 2002.

And I have detected no signs that the public has since begun to 'feel good' about those six and seven figure payments to farmers.

If anything, I believe the public feels a good deal worse about our top-heavy, unfair farm subsidy system than they did just two years ago.

And the problems with farm policy go much deeper than the issue of payment limits for the biggest commodity operations. Those deeper problems will be my main focus today.

First, I'll consider recent, major shifts in the politics of farm policy and the causes of those shifts. Those shifts will make the next farm subsidy bill debate one of the liveliest in history.

Second, I'll examine how the new and unsettled politics of farm subsidies fit against their remaining rationale, once we peel away the myths and the rhetoric that have been used to sell government subsidies to the taxpaying public for nearly three quarters of a century.

That remaining rationale arises from our export dependency for subsidized crops. The subsidies are the buffer--particularly for the biggest producers.

Finally, I'll describe what I believe will be the new policy framework that flows from these new politics. Policy, of course, always flows from politics.

Plenty of people have made a good living predicting that change will be on the margins in each farm bill cycle.

I'll predict major change in the direction of farm subsidies, beginning with this next subsidy bill, as a result of the new politics and the new policy framework.

And then we'll test the politics of that new framework together, right here, with three imaginary customers I've invited to meet with you. They're already waiting, back home in your office.


To return, briefly, to Mr. Hood: Two things struck me about his remarks. The first was just how out of touch he seemed to be, and many in the agriculture subsidy world seem to be, with the kinds of things that the American public might 'feel good about.'

He saw no problem with big cotton operations hauling in hundreds of thousands, even millions of dollars of taxpayers' money, year after year with no end in sight.

No, the problem as Mr. Hood saw it, was that for the first time, the public knew about those payments in embarrassing detail.

Worse yet, from the standpoint of the Cotton Council, the Rice Growers and the Farm Bureau, political leaders in both parties, including many senior farm policy makers, were moved to act by this very same information.

It was only behind the closed doors of the 2002 Farm Subsidy Bill conference committee that the big growers' problems disappear.

A working majority of Democrats and Republicans agreed, dishonorably in my view, to go against the positions of the House and Senate. They removed the payment limits and reduced conservation spending below a fair compromise between the two positions.

That enabled them to allocate more money to commodity programs.

It continued the flow of taxpayers' money, unimpeded, to the nation's largest producers--10 percent of whom collect over 70 percent of the subsidies.

Mr. Hood, like many in agriculture, blamed the close call on the payment limits, the intense debate over farm subsidies in general, on me, and my colleagues.

It was a proud moment for everyone at the Environmental Working Group who worked to produce and publicize the Farm Subsidy website. And cynical as I am about farm subsidy politics, we agree with many in the farm lobby. Our website did affect the debate.

The single biggest factor shaping the 2002 Farm Bill debate, far exceeding our plans and expectations, was the EWG subsidy website.

Which prompts me to ask: How many of you have surfed our farm subsidy data?

It's great to put some faces on all those IP addresses.

How many of you have found it of service in your business? How many of you believe a good service--like a well-stocked ATM machine--is worth a fee? How many of you have a checking account, a major credit card, and can take a hint?

You've got lots of company on our website.

In the first year it was in operation, the Farm Subsidy Database drew more than 60 million searches from millions of visitors. By the second year the searches far surpassed 100 million, and we lost interest in counting. The traffic has remained incredibly strong, particularly when we post updates.

For example, last spring, when we released the names of 436,000 prospective tobacco buyout recipients, and the estimated amount they would receive from taxpayers--including over 400 who stood to collect a million dollars or more--we experienced another shut-down of our T-1 line.

Eventually, that tobacco buyout analysis and the uproar it created in the media also shut down the outrageous proposal by House leaders that taxpayers would pick up the buyout tab--and shifted the burden to tobacco companies, where it belonged.

Please make a note of that precedent. It might come in handy later.

We've since dedicated a separate T-1 to the subsidy website.

And we'll need it on the morning of Tuesday, Nov. 30th.

That's when the latest update, of subsidy payments for 2003, goes online. That will make nine years' worth of payments, 1995 through 2003.

There are a lot of surprises in this update.

Here's a glimpse.

For the money taxpayers have spent on commodity and disaster subsidies between 1995 and 2003--not counting conservation payments--we could have bought 25 percent or more of the farms--land, barns, farmhouses and all--in 302 counties.

And that, mind you, is for just nine years' worth of subsidies. How many nine-year farm purchase notes have you issued lately?

We could have bought over 60 percent of the farms in 13 counties.

We could have bought half or more of the farms in 47.

The counties are scattered across Texas, Louisiana, Mississippi, Arkansas, North Dakota. Most--though not all--are what I call the 'red ink' states. They get more federal money than they pay in taxes. For most of them, farm subsidies are a major contributor to the red ink.


Why did the database have such an impact?

Any number of farm policy experts and commodity lobbyists dismissed it at the outset as adding nothing important, nothing new, to the farm policy debate. And I admire their message discipline. They said it over and over in literally thousands of articles about the EWG Farm Subsidy website.

I think the impact went beyond the unprecedented stream of news stories it generated. I think that despite its limitation, our website helped strip away myths and rhetoric.

It demolished the symbolism of farm subsidies as the salvation of family farms.

It repainted Grant Woods' American Gothic as a political cartoon.

You just can't hand a pitchfork to a collection of millionaires and Fortune 500 companies and State prisons and universities and other unlikely recipients, or drape them in a dress or overalls, and pass them off as family farmers.

You can't say farm subsidies are saving the family farm when most farmers get no subsidies. They grow the wrong crops or raise the wrong livestock. And those who get nothing really noticed that when they saw who did get subsidies, and how much.

The vast majority of the farmers who did get subsidies got a few hundred or a few thousand bucks a year. They noticed that, and what their neighbors got, too.

And all of the farmers who are turned away from conservation programs year after year for lack of funds noticed how subsidies didn't work for them.

One of the most interesting dynamics we noticed as the website uproar grew in late 2001 and early 2002 was the schizophrenic defense tactics of the farm subsidy fraternity.

The first impulse was to assert that the subsidies were good for all family farms, regardless of size. It was the big farmers trying to hide behind the small and the unsubsidized. To borrow a phrase from Gov. Schwarzenegger, it was kind of a girlie man strategy, when you think about it.

When that no longer worked, for the reasons I just mentioned, big farm operators and lobbyists began saying what they really thought, to reporters and in online discussions.

They described those who received small subsidies as 'hobby farms,' or 'not serious farmers,' not 'real farmers.'

The very crowd of small and medium-sized farmers that big-time commodity interests had hidden in for decades suddenly didn't deserve more support. Why? Because they just weren't big enough, they weren't aggressive enough, they weren't capitalized and mechanized enough, they weren't savvy enough to grow the right crops and cash in.

And that only made the schisms, the introspection, and the interest in subsidy reform more intense.


That leaves us with the remaining rationale for farm subsidies, the real reason we still have them, and they cost so much.

That is the profound export dependency of the crops we subsidize. We grow far more than we need for domestic purposes. So we depend on exports to market the rest. It can be 20 percent, 30 percent, 40 percent of production or much more, depending on the crop and the year.

But those markets aren't very dependable, and our domestic production is continually increasing.

Which brings me to the new policy framework for debating farm subsidies: it is the context not of saving the family farm, or rural America, or feeding the world--a myth I presume I needn't address in this audience.

The context is globalization. And the proper policy framework, domestically, is trade adjustment assistance.

And internationally, it is the dispute resolution and negotiation processes of the WTO. Brazil's challenges to the U.S. cotton program--in which EWG played an important role--and its separate challenge to the European Union's sugar program, introduce the other major new pressure factor for reform. (Budget crunches, of course, have been with us, and gamed, since time immemorial.)

Over the past few decades, farm policy makers have made a series of political decisions that obligate U.S. taxpayers to insulate some farmers from discontinuities in export markets. We insulate them, that is to say, from a globalized market that the entire subsidy crop sector is largely built around.

Crop export dependency should be thought of as the opposite side of the same globalization coin as import vulnerability. It is a reality of globalization, and we have known about it, and paid dearly for it through crop subsidies, since Earl Butz told farmers to plant fencerow to fencerow in the 1970s.

But instead of talking about this central problem within the narrow confines of farm subsidy program history and rhetoric, we should step back and think of it as another problem of trade adjustment. Specifically, trade adjustment assistance. And we should rethink and redesign farm subsidies accordingly.

Which brings me to those three people waiting in your office back home. All three want a loan, and because time is short, you meet with all three of them at once.

One is a large-scale commodity producer. You know just how large scale because you've gone on our database. You explain to the group how this farmer, and perhaps his wife and other relatives, received hundreds of thousands of subsidy dollars every year for a decade, with basically no limit. You explain how he'll get those subsidies into the future, and how they've boosted his land values and net worth. You explain, in fact, how he'll get tens of thousands every year no matter what happens to prices, income or trade.

The second customer takes this in. He is a small to mid-size farmer, maybe just starting out growing a commodity crop, maybe someone who grows something else. Not much to see on the farm subsidy database. Maybe, you say, the Farmers Home Administration would be a better place to look for help.

Finally, there's a man--or a woman--who has worked hard all his or her life and supported the family at a factory, or a software firm, or a textile mill. He made $50,000 a year until he lost his job to imports.

You tell him that in addition to his unemployment insurance, which will pay a fraction of his salary, he can petition the Labor Dept. (in groups of three or more workers) for trade adjustment assistance. If he qualifies, he can receive training, limited income support amounting to a few thousand dollars on average, a job search allowance, and maybe a relocation allowance.

He's one of hundreds of thousand of workers to apply for trade adjustment assistance. Including, recently, some farmers and aquaculture operations under a new trade adjustment assistance program for agriculture. But we are talking about a small amount of money and modest additional assistance for most workers who lose a job through trade.

Now as a banker, you know which one of these prospective customers you're most likely to do business with. So do they.

But is it fair, is it right, for that big agribusiness operator to get so much trade-related adjustment assistance, for so many years, when those other hard working people get so little?

Does it not make sense, in the interest of fairness to all workers and to taxpayers, to combine trade-triggered commodity subsidy payments with trade adjustment assistance programs for all other workers including the new one added for agriculture, and create a single pot?

Does it make sense to then scale commodity programs back, target them and limit them to working farms, and limit the duration for which a recipient could receive support--like we do with everyone else?

And might other forms of assistance, such as conservation payments, and actuarially sound crop or income insurance expand to fill part of the gap for all farmers, not just the subsidized, dependent few at the top?

Well, you won't be having that meeting anytime soon. But I'm willing to predict you'll be hearing this conversation the next time we take up a farm subsidy bill.

 

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