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Kernel Watch: 9 Farm Subsidy Myths

Thursday, August 18, 2011

Lobbyists are swarming the offices of the Congressional super committee in an attempt to protect their pieces of the federal budget pie. The farm subsidy lobby is part of the pack.  A list of common misconceptions deployed by subsidy defenders scrambling to keep the spigot open:

Myth 1: All farmers get subsidies:

We do participate in the government programs, like probably 95 percent of farmers do.”

Congresswoman Vicky Hartzler (R-Missouri), recipient of $469,292 in subsidies.

Nearly two-thirds of America's farms don’t receive subsidies, according to the US Department of Agriculture. Since only five crops – corn, cotton, rice, wheat and soybeans -- receive 90 percent of subsidies, that means most farmers, including those that grow fruit, vegetables and nuts, receive none.

Myth 2: Farm subsidies help small family farmers and rural communities:

Data from USDA clearly show that the top 10 percent of subsidized farms – the largest plantation-scale operations – took in three-quarters of all farm subsidies since 1995.

Small farms get little support.

The Center of Rural Affairs in Lyons, Neb., has been making the case for years that the inequity of payments to the largest operations has been brutal for rural America. In a post from 2007 they said:

Unlimited farm program payments are fueling consolidation by driving up land costs and driving smaller farm operations out of business. Small main street businesses that once served those farms are disappearing as a result.

As those businesses disappear there are fewer jobs and the jobs that are available often pay low wages. Current rural policy is forcing the next generation of rural residents to settle for lower incomes, fewer assets and a diminished quality of life.

Moreover, you don’t even have to be a farmer to get farm subsidies. You just have to own the land. That’s why the government sent $394 million in farm subsidy payments in 2010 to farmland investors in U.S. cities with populations of 100,000 or more.

Myth 3 - Farm subsidies make food cheap except when they don’t:

“America has the safest, cheapest, most affordable food supply in the world thanks to a farm policy that has come in $25 billion under budget. Why would we eliminate the policies that made this success story possible?”

Former Arkansas Congressman Marion Berry (D-Arkansas)

The Denver Post ran a story this weekend about the cost of food, continuing one of the themes from Food Inc. and others, arguing that healthier food costs more than unhealthy food, and that’s why so many poorer people cannot afford to eat healthy and therefore become obese. One of the reasons, the story argues, is farm subsidies from the federal government.

We’ve heard this before, and it’s desperately a myth in need of correction.

National Corn Growers Association

As you can see, no one is more confused about how to talk about the impact of subsidies on the cost of food than subsidy defenders. What is clear is that federal nutritional guidelines advise us to eat five to nine servings of fruits and vegetables a day. But federal support does not follow its own advice. Instead of providing support to those crops, subsidies remove the risk from agribusinesses that are churning out the raw materials for our unhealthy industrialized corn and soy-based diet.

Myth 4 - Farm subsidies are a national security issue

“I always stress to my peers in Congress that if cuts are to be made, agriculture shouldn’t have to take more than its fair share of the cuts.”

“We must be able to feed ourselves in this country. This is an issue of national security.”

Congresswoman Kristi Noem (R-South Dakota), recipient of $443, 748  in subsidies.

First, since growers of fruits and vegetables – you know, food – receive no federal support, mysteriously when I go into the grocery store I still see California strawberries, Georgia peaches and New Mexico peppers. But Cato Institute Trade Policy Analyst Sallie James says it best, in an analysis posted Nov. 10 on the group’s website:

Can we please abandon once and for all this nonsense idea that we need farm subsidies to have food security? Appeals to "national defense" are disingenuous and cynical. They are also belied (rather obviously) by the fact that we see abundant supplies of fruit, vegetables and other horticultural goods even though those products attract no subsidies directly. The best way to ensure a food security is to ensure open markets, so food can flow from where it is abundant to where it is scarce. Self-sufficiency is a misguided policy, as the experience of North Korea can attest.

EWG’s Craig Cox offered further perspective in the New York Times last Nov. 21:

America’s obesity epidemic and the severe water pollution from intensive grain farming in the Mississippi River basin are far greater threats to national security than giving big farms a subsidy haircut.  The bulk of subsidy payments go to the largest farm operations and put smaller family farms at a serious disadvantage. This inequity works against a more diverse and resilient food production system that would guard against wild swings in weather or global markets.

Myth 5 - Eliminating some subsidies would be bad for the environment:

“The end of direct payments would have a significant impact, a negative impact, on the compliance incentive,” USDA economist Roger Claassen

The most indefensible form of subsidies are direct payments that go out regardless of yield or market price.  When farm income and crop prices are at all time highs, there are better uses for taxpayer money than these supports.   Conservation compliance – the provision in farm bill law that requires farm subsidy recipients to enact environmentally friendly practices in exchange for subsidy payments – is only fair and produced big improvements in conservation when it was fully enforced. But it isn’t being enforced rigorously.  If it were, then soil erosion and water pollution in Iowa would be far less severe than they are.

Instead of keeping indefensible direct payments in order to “save” conservation compliance, the real solution is to attach conservation requirements to the new cash cow in farm subsidies, crop and revenue insurance. The subsidies taxpayers plow into these insurance programs have exploded over the last five years and now exceed the amount taxpayers spend on direct payments. This is a good idea that is taking hold with traditional production ag interests.

Myth 6 – Programs that pay farmers not to farm should be at the front of the line for cuts

This myth persists because it reinforces the notion that much of the farm subsidy money is wasted, and because it used to be true. The Conservation Reserve Program was conceived as a supply management tool for American grain production. Feds could take land out of production and manipulate crop prices.

Over time, though, this program has evolved into a critical environmental initiative and a highly successful private/public partnership. Much of the land in the Conservation Reserve Program is marginal, highly erodible and not suited for intensive cropping. By letting it go fallow, taxpayers get protection from soil erosion and water pollution.

The Conservation Reserve Program has a direct economic impact. In South Dakota, for example, it is credited with preserving habitat that supports the $300 million-a-year pheasant hunting industry.

Myth 7 -- Banks won’t loan without farm subsidies:

Modern commodity farm operations face daunting costs. Fuel, seed, and fertilizer are expensive. But there are big fruit and vegetable operations that face the same financial challenges and must secure operating loans from banks without Uncle Sam’s help.

But a more empirical busting of this myth rests on the fact that farms are, by and large, profitable businesses – especially today. Agricultural economist Dr. Barry Goodwin summarized nicely the available data (PDF) on farm income in a series of reports for the American Enterprise Institute. As it turns out, farms not only are in an era of record profits, but they also have been good investments for banks. One measure banks use to determine whether to grant a loan is the entity’s debt-to-asset ratio, meaning how much debt it has compared to how much wealth (i.e. ability to repay the loan) it has. This ratio is currently low by historical standards but is consistently well below the ratio for non-farm businesses. That’s right, Main Street businesses need loans too and are able to carry larger loan balances than farm businesses.

Furthermore, when looking at rates of returns on farm assets, Goodwin points out that farms have had strongly positive rates of return over the last 50 years (the farm crisis of the 1980s being the only exception), meaning that farms are a consistently good investment for bankers. Banks will go where the money is, even if it means they have to ask different questions on their application forms.

I’d think lenders in the Corn Belt would be much more worried about loaning to farms without effective conservation practices in place. Keeping soil healthy and water clean are keys to the long-term financial viability of a farm business.

Myth 8 – US farmers need subsidies in order to ‘Feed the World’:

Several senators pushed Vilsack to fight for agricultural programs in budget battles with his fellow Cabinet members.  “We need a spokesman. We need a champion. We need an educator,” said Sen. Pat Roberts (R-Kan.), asking Vilsack to remind Obama that “these folks are those that provide the food and fiber that feeds the world.”

The Hill, January 14th, 2009

If we truly were feeding the world, then why are we diverting 40 percent of our corn crop to produce ethanol instead of food? More to the point, why are 1 billion residents of planet Earth going hungry every year after we’ve poured $262 billion into farm subsidies since 1995?

Farm and Food File columnist Alan Guebert is essential reading on this topic (and on farm policy in general).  He writes in the piece titled “Let’s Feed Ourselves”:

Squeeze almost any official of almost any agbiz or farm group and the words "Feed the world" will cross their lips. The phrase is this century's "Manifest Destiny," a near-imperative, a cornerstone of our export-directed ag policy.

But this ambition, according to the number-crunching crew in Daryll Ray's ag shop at the University of Tennessee, has been more of a mission statement than a mission accomplished.

Thirty years and five export-directed Farm Bills and still the "numbers indicate," writes Ray, that American farmers serve the world in the "much more modest role of residual supplier" than global grocer.

This worldly focus, however, has food and nutrition consequences at home, suggests Angie Tagtow, an Iowa-based registered dietician and public health researcher.

Taken across the nation, Tagtow explains, the 30-year shift to commodities means "We're not growing enough ‘healthy' food to meet minimum federal guidelines for a healthy diet."

Maybe that’s why the United States still imports roughly $80 billion worth of agricultural products (compared to $115 billion in ag exports), a large portion of which are healthy fruits and vegetables we can’t or won’t grow here in America. In fact, the share of domestic consumption provided by growers overseas is increasing (PDF), meaning that other countries are doing a fair bit of feeding Americans as well.

Myth 9 – farm program cuts are unnecessary since they are a minuscule part of the US budget:

Farm policy, for example, accounts for about one quarter of 1% of the total budget, it has consistently come in under budget, and it has been cut 3 times in the last 6 years.  Yet, what impact on the deficit has there been or will there be from such cuts when the big ticket items in the rest of the federal government do not share in cuts and, in fact, continue to grow?

Former House Agriculture Committee Member Larry Combest (R-Texas)

The cuts that keep getting mentioned by subsidy defenders were tax dollars going to crop insurance companies – companies making record profits. Farmers were not impacted whatsoever by those cuts.

The USDA projects farm income to rise by 22 percent in the next year, following a decade that produced the five highest years ever for farm income. Household income on farms has exceeded the average household income for all Americans – and by an even greater margin, of all rural households – every year since 1996.

Since the commodity crop sector is financially white-hot, spending money when you don’t have to IS the definition of waste.


Kernel Watch is a time-to-time AgMag series looking at the follies, excesses and outright distortions spouted by agribusiness and its PR and lobby arms.


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