Sen. Richard Lugar, R.I.P.

Former senator Richard Lugar died yesterday at age 87.   He was from Indiana and he understood farm policy far better than most members of Congress.  I briefly met him a time or two; he and I were both speakers at a farm credit conference in Nashville in the early 1990s. (My other memory of that conference: a single puff on a cigar was sufficient to trigger the smoke alarms in the smoking rooms in the hotel.) Lugar seemed like a decent fellow without the swagger and venality that trademarks so many congressmen.

In 1990,  the George. H.W. Bush administration held budget talks at the White House.  Politicians and aides sought suggestions on reducing the federal deficit (sounds like a notion from an antediluvian age but it was only last century). One of his top aides told me that Lugar held up a copy of my 1989 book, The Farm Fiasco, during one session and cited its recommendations for slashing farm spending. There was no evidence the gesture made any converts. Instead, Bush broke his “no new taxes” pledge and paved the way for the election of Bill Clinton as president in 1992.

Lugar was a responsible man so he didn’t embrace my call to abolish farm subsidies across the board. But he did call for effectively ending export subsidies, peanut subsidies, the sugar program, and other four-star boondoggles.   He was also outspoken criticizing disastrous farm credit subsidies which produced bumper crops of bankruptcies in rural America.

In The Bush Betrayal (2004), I quoted Lugar’s condemnation of the 2002 farm bill (which provided subsidies for the next 5 years). Lugar declared that the bill creates “a huge transfer payment from a majority of Americans to very few” and also warned that the lavish new subsidies would result “almost inevitably” in “vast oversupply and lower prices.”

Here are a few ag policy articles in which I quoted Lugar.

The Wall Street Journal

Tuesday, May 21, 1996
Farm Loans: Only Bad Risks Need Apply
By James Bovard

For the last 57 days, federal agents and a group consisting largely of disgruntled farmers have
been in a standoff outside Jordan, Mont. While the stranger aspects of the self-proclaimed
Freemen’s ideology have been widely reported, little attention has been paid to the role of the
Agriculture Department in paving the way to this confrontation. Regrettably, federal farm subsidy
policies have been even loonier than the Freemen themselves.

Ralph Clark, an illiterate grade-school dropout, is the mastermind of the Freemen. He and his
partners have received more than $650,000 in farm subsidy payments since 1985, according to the
Environmental Working Group, a Washington advocacy organization. In addition, Mr. Clark has
personally received almost $2 million in federal farm loans since the late 1970s. Most generously,
the federal government kept sending him annual payments of almost $50,000 to reward him for
not growing on the land he bought with government loans — long after he effectively defaulted on
those loans.

Why did Mr. Clark receive so many government loans? Because he was uncreditworthy.
According to the Farmers Home Administration, this alone entitled him to a windfall. And, since
he kept losing money time and again, that proved that he needed — and deserved — new loans.

In fact, Mr. Clark symbolizes the type of farmer favored by the Farmers Home Administration: big
— with a 7,000-acre government-paid spread — and incompetent. Mr. Clark was a poster boy for
farm aid lobbyists in the 1980s, portrayed sympathetically in Life magazine, with Geraldo Rivera
on ABC’s “20/20” and elsewhere. But, since then, his racism and raving anti-Semitism have
become overt, and his appeal with the Willie Nelson crowd has suffered.

For many farmers, the road to hell has been paved with cheap government credit. “If you want to
increase efficiency of a farm enterprise, give them a low-interest loan and they’ll be an efficient
farmer,” Rep. Steve Gunderson (R., Wis.) declared in 1986. FmHA has encouraged many
struggling farmers to continue farming until they destroy themselves financially. According to the
agency’s own records, by far the most frequent cause of bankruptcy among its borrowers is “poor
farming practices.” The General Accounting Office estimated that a quarter of FmHA
bankruptcies occurred because the farmers received too much subsidized credit. “In some cases,
continued FmHA assistance has actually worsened the financial condition of farmers who have
entered the program,” the GAO noted in 1992.

Since 1989, the FmHA has been hit by more than $12 billion in loan defaults and other losses. In
1994, the Clinton administration forgave $138 million in losses from 74 farm borrowers — almost
$2 million per farmer. In many cases, federal officials made scant effort to collect on the loans, or
to compel borrowers to surrender other assets to cover the government’s financial bloodbath. The
GAO reported in 1995 that FmHA in recent years gave $500 million in new loans to farmers who
previously defaulted on government loans. The GAO estimated in 1992 that almost three-quarters
of FmHA’s $20 billion in outstanding farm loans could default.

Uncle Sam has long believed that uncreditworthy farmers deserve capital on much better terms
than their more competent, experienced neighbors. One current federal program reduces the
interest rate for uncreditworthy borrowers by four percentage points; this gives them a huge
advantage over unsubsidized farmers. Besides, FmHA loans have long been treated as gifts. “I
believe that the USDA has created a system that actually provides an incentive to not repay the
loans it makes,” Rep. Bob Wise, (D., W.Va.) complained in 1992.

In 1994, Sen. Richard Lugar (R., Ind.) challenged Clinton administration officials over the
profusion of million-dollar-plus loans to FmHA borrowers. Though the administration promised
speedy reform, the problem has worsened: In the most recent survey, almost 40% of farmers with
direct FmHA loans were delinquent — a delinquency rate more than 10 times higher than that of
the average private bank.

Thanks to Sen. Lugar’s efforts, some of the worst absurdities of farm lending have been curbed;
unfortunately, the government will remain heavily involved in providing loans to uncreditworthy
farmers. Under the recently passed farm bill, the Agriculture Department is authorized to make
more than $20 billion in direct and guaranteed loans to farmers in the next six years; further multi-
billion-dollar losses are likely. While congressmen brag about how farm programs are being
phased out, subsidized lending to farmers is actually scheduled to increase between now and
2002. And Midwest Senate Democrats are on the warpath, pushing a bill to defend every farmer’s
sacred right to further loans after defaulting on the government.

But the Clinton administration has learned from the recent farm lending debacle. The name of the
Farmers Home Administration was changed in 1994 to the Consolidated Farm Service Agency.
The Clintonites thereby upheld a hallowed tradition: FmHA’s predecessor agency, the
Resettlement Agency, generated so much bad press that in 1946 it was rechristened the FmHA.
And now, after FmHA has worn out a legion of auditors, its name has also been retired to the
Agricultural Boondoggle Hall of Fame.

Hopefully the Freeman standoff will end peacefully and that a federal jury will pass judgment on
Mr. Clark and his cronies. Unfortunately, taxpayers will never get a chance to pass judgment
directly on the congressmen and bureaucrats who masterminded the deluge of bad farm loans —
thereby proving once again that, in Washington, it is safer to squander tens of billions rather than
to steal a few million.

Mr. Bovard writes often on farm issues.

********************

The Wall Street Journal
Monday, July 29, 1985
We Shell Out a Peck for This Nutty Program
By James Bovard

Amazingly, consumers may soon get a break on the 1985 farm
bill. When the Senate considers the agricultural bill this
week, Sen. Richard Lugar (R., Ind.) intends to offer an
amendment to terminate the current peanut program. If Sen.
Lugar’s amendment passes, the farm lobby’s phalanx will be
broken, and other farm programs might be defeated.

Sen. Lugar is targeting perhaps the most obnoxious farm
program around. It slashes productivity, boosts costs,
inflates prices, and sacrifices some farmers to other
farmers. If consumers are ever to make a stand in the farm
bill fight, the peanut program is a good place to begin.

Farmers cannot grow peanuts for their fellow citizens
without a federal license. Thirty-six years ago, to reduce
budget outlays under a generous price-support program,
Congress closed off the peanut industry, distributing
licenses to grow peanuts to existing farmers and prohibiting
anyone else from entering the business. Feudalism still
reigns, and the farmer who violates the peanut proscription
is subject to heavy fines and ensnarement in the Agriculture
Department bureaucracy.

The peanut program is particularly perverse because
Congress has piled on one restriction after another over the
years. In 1977, Congress, in an attempt to reduce budget
outlays caused by peanut surpluses, began restricting the
amount of peanuts to be sold in the U.S. The domestic peanut
supply has been nearly halved since 1975. This has created an
artificial shortage and shifted the cost of the peanut
program from the government to consumers.

The peanut program is replete with the usual ag policy
flim-flams. By law, peanut support prices must be based on
cost of production (COP). The Agriculture Department gets
this “fair price” by averaging costs of the most productive
and least competent farmers. The implicit premise is that no
matter how badly a farmer bungles his business, he is
entitled to be reimbursed (in part) for his efforts.

In 1980, peanuts were hit by drought, which sharply
reduced yields and thereby temporarily boosted per-pound
production costs. Congress based its 1981 COP calculation on
the 1980 drought year — which conveniently justified a 21%
hike in price supports, from $440 to $555 a ton.

The COP figure is also a joke because the peanut program
itself adds as much as 50% to a farmer’s cost of production.
Approximately half of all growers rent licenses to grow
(called quota allotments) from outsiders, paying a tribute of
up to $120 a ton for the right to grow goobers. The cost of
renting allotments is added to the COP formula, which results
in higher price supports, which drives up the rents for the
privilege to grow peanuts, which results in higher COP . . .
ad infinitum.

The quota system is also responsible for exhausting the
soil and driving down peanut yields in many places. Quota
allotments cannot be rented outside of the county they were
originally allocated to in 1949. Peanut yields in parts of
Texas have long been declining. While many acres with yields
below 1,000 pounds have quotas, over a million acres with
potential yields of 2,500 pounds or more are banned from
producing for the domestic market.

The restrictions on renting quotas outside the original
county have turned a program to protect peanut farmers into a
program to protect local tax bases.

The one good thing about the peanut program is also the
element that proves that the whole shebang is unnecessary. As
of 1981, any farmer could grow peanuts for export (called
Additional Peanuts) — but with no real price guarantees from
Uncle Sam. Peanut export sales are now far above mid-1970s
levels. Georgia farmers are growing peanuts for export at
$325 a ton — at the same time that Congress insists on
paying farmers $555 a ton to produce for domestic
consumption. Foreigners can buy U.S. peanuts much more
cheaply than Americans can.

Though it is good that more farmers have finally been
allowed to grow peanuts, the two-tier system sacrifices the
newcomers to the old guard. By strictly limiting the domestic
quota, the Agriculture Department reduces U.S. peanut
consumption and thereby dumps a few hundred million tons of
extra peanuts on the world market. This depresses prices
received by American farmers growing peanuts for export.

The two-tier system is absurd. Peanut butter made from
quota peanuts can be exported to Canada and Mexico, but
peanut butter made from additional peanuts cannot. (The
Agriculture Department fears the cheaper peanut butter made
from additional peanuts could be re-imported.) The additional
peanuts themselves can be exported to Canada, and American
peanut butter manufacturers are paranoid that Canadian
companies might be using cheap peanuts to make peanut butter
and then sending it back across the border. According to
congressional testimony, peanut-exporting companies are
required to closely supervise their peanuts until they cross
the border, which adds about $20 a ton to handling costs.

Congress gives peanut growers a far better deal than other
farmers receive. An American Peanut Product Manufacturers
Institute study estimated that peanut price supports “have
been set 80% above USDA-defined production costs . . . when
land costs are excluded, and 60% above when the inflated
costs of land are included.” The Institute differs with the
Agriculture Department’s method of calculating peanut
production costs. APPMI estimates that net returns to peanut
farmers are four to 10 times higher than returns from
competing crops.

Consumers are, as usual, the victims of this farm program.
The Agriculture Department estimates that the peanut program
boosts peanut butter prices 13.5%. Public Voice for Food and
Health Policy, a Washington consumer group, estimates that
the peanut program mulcts consumers for $250 million to $300
million a year.

There is hope for reform. The peanut program was almost
knocked off in 1981. That year, Rep. Stan Lundine (D., N.Y.)
proposed terminating the program, and the House approved
250-159. Sen. Lugar proposed phasing it out, and the Senate
initially approved, 56-42. (The Senate later reversed itself,
51-47, and Rep. Lundine’s bill vanished in conference.) Now
both Rep. Lundine and Sen. Lugar will try again. APPMI, other
peanut-product manufacturers, and Public Voice are vigorously
lobbying to persuade Congress to end the goober madness. The
peanut program’s opposition is stronger and better organized
this year and appears to have a good chance of success. And
if the peanut program can be knocked down, a domino effect
could occur with the rapid demise of the honey, wool and
sugar programs.

The peanut program artfully combines the worst traits of
feudalism and central economic planning. Congress has a
chance to end this program that makes a mockery of
efficiency, fairness and property rights.

—Mr. Bovard writes frequently on farm and other U.S.
programs.

+++

Lugar called out the hypocrisy of U.S. complaints on foreign wheat subsidies –

The Washington Times

January 26, 1994, Wednesday, Final Edition

HEADLINE: U.S. pasta-makers strain trade goals

BYLINE: James Bovard

BODY:
American farmers earlier this month blockaded a grain elevator in Shelby,
Mont. The reason for the blockade: The elevator was purchasing wheat from
Canada, which the American farmers considered the equivalent of an act of
treason.

The farmers, flaunting signs demanding, “Stop the Canadian Grain,” hope to
stampede the Clinton administration into action. But, if the Clinton
administration kowtows to the farmers’ demands, this will signal a betrayal of
all the Clinton, Bush, and Reagan administrations sought to achieve in
liberalizing agricultural trade.

The farmers are angry over a surge of durum wheat from north of the border.
Durum wheat is used for pasta products, certain breads and pastries, cereals and
other basic food items. Canadian imports of pasta have increased in recent
years and now account for roughly 25 percent of U.S. consumption. To add
insult to supposed injury, Canadian durum wheat is often higher quality than
American durum because of Canada’s cooler growing climate and Canadian
grain-handling practices.

Sen. Max Baucus of Montana proclaimed, “Canadian [unfair] practices put
Japan to shame.” Nine farm-state senators sent a letter to Agriculture Secretary
Mike Espy, demanding an “immediate initiation … of trade action to restrict
U.S. imports of Canadian wheat.” Agriculture Undersecretary Gene Moos told the
Senate Agriculture Committee Sept. 21 that he had formally recommended that the
president “consider an emergency proclamation establishing quotas on the imports
of Canadian wheat.”

Farm-state senators have picked an unfortunate time to denounce imports,
since U.S. durum wheat prices – more than $4.50 a bushel – are far above
federal target prices (prices picked by congressmen to guarantee most farmers
a generous profit). Yet American farmers are infuriated because the government –
after guaranteeing good prices – does not also give them a domestic monopoly.

While Northern Midwest senators busily denounce Canadian imports, their
states may be hurt more by the sharp cutbacks in wheat production caused by
federal acreage idling programs. U.S. production of durum wheat has nosedived
since 1981, falling from 5.8 million acres annually to just more than 2 million
acres in 1993. The Conservation Reserve Program (CRP), under which government
pays farmers to idle their land for 10 years, is the largest single set-aside
program. Sen. Kent Conrad of North Dakota complained in 1992 that the CRP has
“absolutely wiped out small town after small town as we took land out of
production.”

Even though U.S. farmers are not even growing enough durum to meet U.S.
consumption, the U.S. government is still lavishly subsidizing the export of a
large portion of the U.S. harvest.

The combination of falling U.S. production of durum and artificially
increased demand for durum caused by the export subsidies has driven the U.S.
durum price far above the world price. Naturally, the high prices have been a
signal to foreign producers that the U.S. market needs more durum. Sen.
Richard Lugar judiciously observed: “The credibility of our programs falters
if somehow someone writes a story that the federal government is deliberately
raising domestic [wheat] prices and then suddenly accusing the Canadians of bad
faith.” (Mr. Lugar opposes import quotas on Canadian wheat).

If the U.S. restricts Canadian wheat imports, the U.S. price of durum will
likely spike higher. This would put American pasta makers at an even greater
disadvantage against imports. Foreigners can buy U.S. wheat much cheaper than
can American food manufacturers, thanks to U.S. export subsidies. Industry
experts predict that if Mr. Clinton restricts Canadian wheat imports, some U.S.
pasta-making plants will move to Canada and many jobs will be lost.

American farmers complain that the Canadian wheat exports are unfair because
the Canadian farmers receive government subsidies. But U.S. farmers are also
wallowing in government largess. Since 1991, American wheat farmers have
received almost $7 billion in subsidies, and the Clinton administration
estimates that wheat subsidies will continue at almost $2 billion a year through
1998. In 1991, federal farm policy forced American taxpayers and consumers to
pay wheat farmers subsidies equal to 78 percent of the total value of the wheat
produced in the United States, according to the Organization for Economic
Cooperation and Development.

It is to be hoped that American farmers will be able to resist following the
worst examples of protesting French farmers, such as setting live British sheep
on fire to protest mutton imports. While most of the media coverage of the
farmers’ blockade was sympathetic, no one apparently asked the farmers how much
in federal subsidies they had received. This type of illiterate news coverage
simply encourages the worst abuses of the farm lobby.

Mr. Clinton should not export the U.S. food manufacturing industry by
restricting wheat imports. The U.S. International Trade Commission (ITC), at
Mr. Clinton’s behest, is conducting a formal investigation studying the effects
of the Canadian imports on the costs of U.S. farm subsidy programs. Rather
than taking emergency action, the Clinton administration should wait till the
ITC makes its formal request. Better still, Mr. Clinton should take emergency
action in defense of American taxpayers and abolish all U.S. wheat subsidies.

James Bovard is the author of “The Fair Trade Fraud” (1991) and the
forthcoming “Lost Rights: The Destruction of American Libert” (St. Martin’s
Press, April 1994).

 

Lugar favored ending or at least radically rolling back the sugar program:

States News Service

December 9, 1994, Friday

HEADLINE: SUGAR PROGRAM’S FUTURE UNCERTAIN UNDER REPUBLICAN CONGRESS

BYLINE: By Juliet Eilperin, States News Service

BODY:
Now that they’ve managed to take control of Congress, Republicans are
promising deep cuts in agriculture programs. If they chose to dismantle sugar
price support policy, however, they should prepare for a bruising fight.

The battle that has raged for two centuries will continue in the 104th
Congress, as soft drink and candy manufacturers spar with sugar growers. And
members of Congress rarely mince words when sugar users challenge the status
quo.

When Sweetener Users Association President Tom Hammer argued in 1990 that the
government guarantees a profit for sugar beet growers, Sen. Kent Conrad, D-N.D.,
urged him to join him on a trip back home and make the same claim before the
growers. Taking a page from the Jesse Helms play book, Conrad warned Hammer
that he would be wise to bring along protection: “We probably would have to have
the 82nd Airborne.”

Republicans are less likely to kill the sugar program, congressional staffers
predict, because it does not drain the federal treasury. The program also
enjoys widespread political support: roughly half the states in the U.S. have
sweetener producers, ranging from cane farmers to corn growers.

But critics argue the policy gouges consumers by imposing limits on imports,
contradicting America’s renewed commitment to free trade.

Members hailing from South Florida, where sugar production continues to make
an impact on the local economy, have traditionally fought for the federal
program. In Palm Beach County, the industry directly accounts for the
equivalent of 19,000 full-time jobs, and produces $839 million in raw sugar each
year.
States News Service, December 9, 1994

Under the current program, the government sets a minimum price for sugar,
lending money to processors which they repay with interest in nine months. If
they cannot sell the sugar at that price, the government must buy the remaining
sugar and sell it, but without taking a loss. This scenario has never happened,
primarily because the government sets import quotas to keep U.S. prices stable.

The program will survive, sugar producers say, because it keeps farmers in
business, makes money for the government and helps consumers.

“If you cut the sugar program, you might even hurt the deficit,” said Florida
Sugar Cane League executive vice president Dalton Yancey, noting that under the
program, the federal government collects interest payments and assessment fees
from the industry.

Several economists, however, insist American consumers would be better off
buying sugar at the world price, which is less than half as high as the American
one. In a study commissioned by the Save Our Everglades coalition, University
of Connecticut professor Rigoberto A. Lopez estimated the program had cost
Americans an average of $137 million annually between 1970 and 1974. A U.S.
Department of Agriculture official said the American price for sugar would fall
if the import quotas were lifted, whether or not other countries liberalized.
States News Service, December 9, 1994

Sugar industry executives question these kinds of studies, noting the price
of sugar has risen dramatically in the periods when the U.S. abandoned its sugar
policy, and producers dump sugar on the world market at an artificially low
price.

But economist James Bovard said Americans can afford to take the risk.
“This is the old hobgoblin protectionists always use,” he said. “It’s a
guaranteed loss now versus a slight risk loss in the future.”

Incoming Senate Agriculture Committee Chairman Richard Lugar, R-Ind., seems
to agree. During a press conference Friday, he compared the policy to the
mohair subsidy Congress eliminated last year.

“Why should sugar production be protected and imports restricted if the
result is higher sugar prices for American consumers?” he asked.

Bob Buker, vice president of U.S. Sugar, said Americans would be happy to
compete on the open market, as long as European governments stop subsidizing
their growers.

“We’re not for unilateral disarmament,” Buker said, adding that farmers would
be wiped out of business if the U.S. lifted its quotas in the immediate future.

Furthermore, Buker argued, lowering sugar’s price would only help industrial
users, like the soft drink and candy manufacturers. They would never pass on the
savings to consumers, he predicted, and the U.S. would then end up at the mercy
of foreign producers.

As Buker points out, industrial users and sugar producers — not consumers —
are busy debating the nation’s sugar policy. The two groups contribute heavily
to members of Congress: sugar political action committees gave nearly $160,000
to members of the Florida delegation between Jan. 1, 1991, and June 30, 1994,
according to the Center for Responsive Politics. Food and beverage
manufacturers gave even more money to Congress, and both groups show up to
testify when Congress reconsiders the legislation.

One congressional source in the Florida delegation said the sugar program
would remain intact in the 1995 farm bill because of its merits. The staffer
acknowledged, however, that industrial users and the sugar industry would play
key roles in the fight.

Save Our Everglades co-chair George Barley said the sugar industry’s
extensive political contributions have given it more influence than it
deserves.

“The federal government acts like this is a 4,000 pound gorilla,” Barley
said.

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