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Chapter 1. "Freedom to Farm": A Closer Look

Freedom to Farm: Chapter 1. "Freedom to Farm": A Closer Look

February 1, 1996

"Obscene." That is the word often used by insiders -- policymakers, agriculture committee staff, farm journalists, farmers themselves -- to describe the subsidy payments offered under "Freedom to Farm."

Insiders know that "Freedom to Farm" is not a budget cut. It's an incredibly lucrative, 7-year subsidy handout for farmers, especially big farmers. And insiders know the proposal is not the end of farm welfare, because a huge chunk of money remains in the budget after the 7-year period, available for divvying up among subsidy recipients. (We offer a reality test to observers of national politics who may think otherwise. How does the following statement strike you as you read it out loud: "Bob Dole and Pat Roberts are pushing to slash farm subsidies and end farm programs, and nearly every major farm group in the country supports them.") And insiders know that the bill hardly gets the government out of dictating what farmers can or cannot plant. "Freedom to Farm" contains nearly as many restrictions on who-can-plant-how-much-of-what-where as current law, the model for which sometimes seems to have been the old Soviet 5-year plans. Well, at least they're old in the former Soviet Union.

This chapter debunks the main, supposed merits of "Freedom to Farm" as a reform proposal.

"Freedom to Farm" Doesn't Cut Farm Subsidies--It Increases Them

Perhaps the most misunderstood aspect of "Freedom to Farm" is its impact on Federal farm subsidy levels. At the beginning of the 104th Congress, many legislators, Republicans in particular, promised to severely slash if not eliminate Federal farm subsidies. Does "Freedom to Farm" do that?

It's not even close.

On the eve of the House debate on the bill, however, it is clear that "Freedom to Farm" is going to cost taxpayers much, much more than they would pay if existing programs, extravagant though they are, were simply renewed.

"Freedom to Farm" isn't business as usual. Business has never been so good for agriwelfare recipients or so bad for taxpayers.

According to the Department of Agriculture's most recent projections (issued on Wednesday, February 23 at the Department's annual Outlook Conference), extension of current Federal farm subsidy programs would result in payments of $12.2 billion over the next 7 years. By comparison, the "Freedom to Farm Act" requires taxpayers to spend $35.6 billion over the next 7 years regardless of market conditions or crop prices. In other words, this so-called "reform" will cost taxpayers $23 billion more over the next 7 years than they would have to spend if Congress simply extended current law (Figure 1).

Based on a history of underestimates by both USDA and the Congressional Budget Office (CBO), USDA's projections are probably too low, not necessarily for 1996 through 1998, when crop prices are almost certain to remain high, but possibly for the years 1999-2002. In the case of the 1990 Farm Bill, for example, taxpayer costs over the 5 years turned out to be one-third higher than estimated at the time of enactment. CBO will not issue its next "baseline" projection for agriculture until March, but its November baseline estimates were significantly lower than the initial CBO baseline in 1995. However, even assuming a 50 percent underestimate on the part of USDA, the department's new baseline for extension of current programs would still be only about half the taxpayer costs that are guaranteed to be incurred under "Freedom to Farm" ($18.3 billion compared to $35.6 billion).

In budgetary terms, billions of taxpayer dollars could be shifted from "Freedom to Farm" payments and invested in job development, conservation and environmental protection in rural America, could be devoted to deficit reduction, or could be apportioned to some combination of the two. Enough funds would remain for a safety net, giving farmers subsidy payments roughly equivalent to those they would receive under current law.

As the House nears final action on the Farm Bill virtually all analysts agree that tightening global grain stocks, and resultant strong market prices, will make "Freedom to Farm" more costly than the status quo. The sudden high cost of the major subsidy "reform" proposal has had some fairly hilarious effects on the farm policy debate. For most of the past year, Democratic supporters of farm subsidies and the Clinton Administration have argued against Republican farm proposals, including "Freedom to Farm," on grounds that farm subsidies would be cut too deeply. Now it turns out that much deeper cuts would result from the status quo they've been defending. Last fall, a few farm groups supported the Democrats in opposing "Freedom to Farm" (rice and cotton interests most vocally). But having put pencil to paper and totaled up the cash bonanza, virtually all farm groups now support Freedom to Farm.

Republican proponents of "Freedom to Farm" have consistently defended the proposal to their farm constituents -- though not to urban journalists -- on grounds that it will actually result in greater expenditures than extension of current programs. In fact, House Agriculture Committee Chairman Pat Roberts has gone so far as to argue that "Freedom to Farm" is the best way to guarantee that government payments will be made at all for many crops in 1996. (Another factor that would reduce government subsidies under current programs compared to "Freedom to Farm," specifically in Kansas, is a poor 1995 wheat crop and prospects for low yields again in 1996 due to unusually dry conditions.)

The promise of big cash subsidies on top of robust returns from the market makes for an awkward argument for the many anti-subsidy Republicans in Congress, including the House leadership itself. House Budget Committee Chairman John Kasich, Majority Leader Dick Armey, even Speaker Gingrich are avowed "reformers" who claim to want reduced government involvement and spending in agriculture. However, not since President Reagan signed the budget-busting 1985 Farm Bill have budget-slashing, free-market Republicans constructed such a costly, big government approach to farm policy.

But the policy solution is as clear as the politics are muddled. Congress should retain the overall Freedom to Farm caps and phase-down schedule, with firm termination of the programs after 7 years. But the Freedom to Farm payments should be reduced sharply, particularly over the next 3 years, and the funds devoted to other needs in rural America.

"Freedom To Farm" does not end farm entitlements

From a budgetary standpoint, the most important reform in "Freedom to Farm" is that it caps total direct payments to farmers at fixed levels for each of the next 7 years. As noted above, those caps offer little consolation to taxpayers, considering that the amounts are far, far above what we would have to pay under current programs. Still, those who desperately want to think of "Freedom to Farm" as reform argue that the spending caps, and year-by-year reductions in spending, constitute a "phase-out" or end in farm program spending. More than a few journalists bought this reasoning when "Freedom to Farm" was unveiled.

But the Congressional Budget Office does not score "Freedom to Farm" as thought it were the "end" of farm subsidies. At the end of 7 years, CBO officially assumes (i.e., projects) continued spending at a rate of $4 billion per year in the farm subsidy accounts. That spending is assumed even without permanent law to authorize the payments (permanent law was retained in the Senate farm bill that will go to Conference with the House version). And the CBO baseline beyond 2002 equals the "phased-down" amount in the "Freedom to Farm" spending schedule for the last two years of the bill ($4 billion). Legislators from farm districts and states will find it awfully difficult to turn over $4 billion to deficit reduction or any other nonfarm purpose in 2003 and beyond.

A final point: "Freedom to Farm" leaves the peanut, sugar and dairy programs intact, perpetuating the multi-billion dollar tax that those programs impose on American consumers.

Farmers will not be "free" to plant for the market instead of the government

Farmers will actually face many restrictions on what they can plant under "Freedom to Farm." On 85 percent of their acreage they are prohibited from growing any fruits or vegetables. If farmers grow alfalfa (an important crop for enriching soil and feeding livestock) on more than 15 percent of their "Freedom to Farm" acres, they forfeit their government payments on every acre they grow it on. Farmers will be able to grow hay for livestock, or graze livestock on "Freedom to Farm" acres, but only under basically the same restrictions that now apply.

What is likely to happen under "Freedom to Farm" is a shift of a few million acres in the planting patterns for corn, soybeans, rice and cotton -- a fraction of the total acreage planted to those crops. Why so little exercise of "freedom"? Because farmers already have considerable flexibility under current laws to accommodate crop rotation among subsidized program crops. And in many places where water is a limiting factor (dryland wheat and cotton areas, primarily), if farmers continue to grow crops at all under "Freedom to Farm," it will be the same crops they grow now.

"Freedom to Farm" does repeal the provisions in current law under which the secretary of agriculture can require farmers to take some of their land out of production in return for subsidy payments. This so-called "set-aside" authority has been used in past programs less to balance supply with demand, than to reduce the crop production (i.e., acreage) on which USDA has to make subsidy payments. That is to say, set-asides save taxpayers money in the framework of conventional programs; eliminating set-aside authority in that context would have increased program costs dramatically during the past decade. The annual outlay caps and fixed payments to farmers under "Freedom to Farm" render set-asides unnecessary as a cost control tool. Elimination of set-aside authority should thus be viewed primarily as a full-production insurance policy that will benefit grain companies and suppliers of farm inputs like pesticides and fertilizers.

About EWG's Estimates of "Freedom to Farm" Payments

Environmental Working Group's estimates of "Freedom to Farm" subsidy payments are the result of an original analysis of computerized data files obtained by EWG from the U.S. Department of Agriculture through a series of requests filed under the Federal Freedom of Information Act. EWG's USDA subsidy database consists of a record of every check written to every recipient, for every Agricultural Stabilization and Conservation Service (ASCS, now known as the Consolidated Farm Service Agency, or CFSA) program, in every year from 1985 through 1994 -- totaling more than 110 million checks over ten years. The database, which is about 50 gigabytes in size (including our Freedom to Farm estimates), was used to prepare previous EWG reports (City Slickers, Fox in the Henhouse, and The Cash Croppers).

"Freedom to Farm" does not end farm entitlements. Rather, it sets a guaranteed level of farm program spending, to be divided among all eligible recipients, for each year from 1996 through 2002, as follows:

"Freedom to Farm" spending.

   
Subsidy Payments 1996 1997 1998 1999 2000 2001 2002 Total
($ billions) $5.570 $5.385 $5.800 $5.603 $5.130 $4.130 $4.008 $35.630

Regardless of the number of individuals, corporations, joint ventures and other entities that quality for and receive the subsidies, the total amount of federal spending will not vary from the levels mandated by "Freedom to Farm." Moreover, the bill stipulates a precise percentage of subsidy payments to be allocated by each of 7 crops, as follows:

"Freedom to Farm" payment allocation, by crop.

Wheat Corn Grain Sorghum Barley Oats Upland Cotton Rice
26.26% 46.22% 5.11% 2.16% 0.15% 11.63% 8.47%

The fixed nature of taxpayer expenditures over 7 years, independent of market conditions or the financial needs of farmers, combined with the precise allocation of payments among crops, facilitates estimates of "Freedom to Farm" payments in future years. The only eligibility requirement for "Freedom to Farm" payments is that the recipient has been dependent on farm subsidies in the past. In order to estimate the number of potential "Freedom to Farm" payment recipients, EWG identified all deficiency payment recipients for calendar years 1990 through 1994: we found a total of 1.38 million recipients, including individuals, corporations, general partnerships, joint ventures and other entities. We used these participants as a proxy for the 1991-1995 eligibility criteria set forth in "Freedom to Farm" (payment data for 1995 were not available). EWG assumed that every recipient of at least one deficiency payment during calendar years 1990 through 1994 would choose to receive "Freedom to Farm" payments over the next 7 years. We believe this is an reasonable assumption, considering that, other than past participation, there are no real requirements for the 7 years' worth of payments offered by "Freedom to Farm." What past participant would pass up unencumbered government checks for the next 7 years? If it turns out that fewer of the past recipients apply for "Freedom to Farm" than we assume in the analysis, our estimates of payments per recipient will be too low. For the same reason, the actual regional distribution of payments if "Freedom to Farm" becomes law also may differ somewhat from our estimates.

In order to estimate potential "Freedom to Farm" subsidies by region, EWG estimated the total amount of "Freedom to Farm" payments that would accrue to each of the 1.38 million recipients of deficiency subsidies from 1990 through 1994. We assumed that each recipient's share of total deficiency payments for a given crop for calendar years 1990 through 1994 would be proportional to that recipient's share of total "Freedom to Farm" payments from 1996 through 2002. These assumptions are consistent with the requirements of "Freedom to Farm," which makes payments to each recipient proportionate to that recipient's share of total program production (program base acreage multiplied by program yields) for each crop. Program production was the measure used by USDA to calculate subsidies over the past 5 years; under "Freedom to Farm," it will continue to be the measure of subsidies for the next 7 years.

Based on our estimates of what each recipient will be eligible to receive under "Freedom to Farm," we tabulated total potential payments in every county, state, and congressional district in the country, as well as for the nation as a whole. Separate tabulations were made for each crop and region.

In estimating the number of "Freedom to Farm" subsidy recipients over the next 7 years, EWG did not attempt to estimate the number of Conservation Reserve Program (CRP) participants who may elect to receive "Freedom to Farm" payments when their CRP contracts expire. The primary reason for not making such estimates is the difficulty of predicting how many CRP contracts actually will lapse, since it is reasonable to assume (from Senate action on the Farm Bill and Administration intentions) that a substantial number of CRP contracts will in fact be extended. Similarly, EWG did not estimate the number of recipients who may be eligible for "Freedom to Farm" subsidies, but did not choose to receive deficiency payments over the past 5 years, and therefore did not appear in USDA deficiency program data; nor did EWG estimate the number of individuals who received a deficiency payment over the past 5 years, but subsequently ceased farming and lost eligibility for "Freedom to Farm" payments. For these reasons, EWG estimates of participation rates in a given region may differ from the actual participation rates. EWG's estimates of total spending for the nation are in accord with spending levels stipulated in the bill.