Wall Street Journal, December 12, 2016
Living Off the Fat of Washington
If Trump is going to ‘drain the swamp,’ he might start with wasteful ag subsidies.
By James Bovard
President-elect Donald Trump’s vow to “drain the swamp” in Washington could begin with the Agriculture Department. Federal aid to farmers is forecast by the Congressional Budget Office to soar to $19 billion in 2017. Farmers will receive twice as much of their income from handouts (25%) this year as they did in 2013, according to the USDA. Whoever Mr. Trump names as his agriculture secretary should target wasteful farm programs for spending cuts.
Here are a few of the most egregious examples:
• Cotton. Incredibly, the U.S. government has paid $750 million to subsidize Brazilian cotton production since 2010. This is the result of a 2002 World Trade Organization complaint brought by the Brazilian government claiming that the U.S. unfairly subsidized cotton producers and depressed world cotton prices. The WTO justifiably ruled against the United States. To deter Brazil from imposing penalty tariffs on U.S. exports, the U.S. paid a king’s ransom to Brazil so it could perpetuate handouts to American farmers.
The federal cotton program was revised in 2014, but farmers continue reaping roughly $1.5 billion a year in aid—more than 40% of the market value of U.S. cotton production, according to a 2015 study by the International Center for Trade and Sustainable Development. The same study estimated that the U.S. program suppresses world cotton prices by up to 7%, costing foreign cotton growers up to $3 billion a year.
• Sugar. The U.S. maintains a regime of import quotas and price supports that drive U.S. sugar prices to double or triple the world price. Since 1997 Washington’s sugar policy has zapped more than 120,000 U.S. jobs in food manufacturing, according to a 2013 study by Agralytica. More than 10 jobs have been lost in manufacturing for every remaining sugar grower in the U.S.
• Peanuts. In 2002 Congress abolished the quota system that required farmers to possess a federal license to grow peanuts. Yet rather than trust free markets, Congress created a new price-support program. In 2014 Congress sharply increased peanut subsidies. Federal peanut outlays are forecast by the USDA to increase eightfold between 2015 and 2017, reaching almost $1 billion a year. As a result, the USDA is drowning in a sea of surplus peanuts that farmers dump on the government.
• Insurance. The five-year farm bill Congress enacted in 2014 replaced some direct payments to farmers with an array of so-called insurance programs. But this isn’t the type of insurance homeowners buy to protect against unforeseen, catastrophic risks. Instead, “insurance” was simply a name to continue the sludge of handouts under a new guise, providing farmers with higher prices than markets provided. The CBO estimates that crop insurance subsidies will cost taxpayers $7.5 billion next year.
• Marketing. Farm subsidies are slopped out for anything vaguely related to agriculture. The USDA’s Market Access Program, or MAP, distributes $176 million each year to underwrite foreign advertisements and promotions for favored U.S. businesses, including pet-food producers and winemakers. The program is such an obvious boondoggle that even the Obama administration sought to cut it, stating in 2010 that its “economic impact is unclear and it does not serve a clear need.”
While generous government subsidies are defended by invoking the “family farmer,” big farmers snare the vast majority of federal handouts. According to a report released this year by the Environmental Working Group, a Washington-based nonprofit research organization, “the top 1 percent of farm subsidy recipients received 26 percent of subsidy payments between 1995 and 2014.” The group’s analysis of government farm-subsidy data also found that the “top 20 percent of subsidy recipients received 91 percent of all subsidy payments.” Fifty members of the Forbes 400 list of wealthiest Americans have received farm subsidies, according to the group, including David Rockefeller Sr. and Charles Schwab.
Even without federal subsidies, the average U.S. farmer would be far more affluent than other Americans. According to the USDA, in 2015 the median farm household had a net worth of $827,307. That includes a great many residential, gentlemen and hobby farmers. The largest class of farmers—those who produce most farm products and harvest the largest share of the subsidies—have a median net worth of $2,586,000. By contrast, the median net worth for American households in 2013 was $81,200, according to the Federal Reserve.
Farm subsidies will provide one of the clearest tests of whether Mr. Trump seeks fundamental change in Washington. It is time to stop pretending that agriculture is exempt from the laws of supply and demand. The only way to fix federal farm programs is to abolish them.
Mr. Bovard is the author of “Attention Deficit Democracy” (Palgrave Macmillan, 2006).
This article distorts the reality of small, family operated farming operations. The use of net worth, rather than median annual income, grossly misrepresents the lifestyles of farmers and the value of farming subsidies. According to the USDA, median annual income was about $80,000 for farm households. The value of equipment and land used for farming operations inflates net worth and makes it an inappropriate indicator to support the author’s argument.
https://www.ers.usda.gov/topics/farm-economy/farm-household-well-being/farm-household-income-forecast/
The median income numbers are distorted by a vast number of hobby, gentlemen, and “tax” farmers who earn almost nothing from being a farmer. The full-time farmers who harvest most of the subsidies are far more affluent than most Americans.
If median income is distorted, then you must admit net worth is an equal if not worse distortion. Owning land and equipment that costs hundreds of thousands of dollars disproportionately increases net worth. Farming subsidies provide valuable benefits to small and medium sized operations, helping insulate the now capital reliant industry from volatile supply markets. As the daughter of a 5th generation Montanan and a future dry land wheat farmer, I would encourage you to spend some time investigating the impacts on those who truly suffer when programs like these are cut. Not big corporations, but people like my family and my future. The farm crisis of the 80s decreased the number of farms in the US by 2/3- when small and medium sized enterprises default on operating and equipment loans due to market surplus and low prices, they are absorbed by a larger conglomerate. Never before in history have farm operating costs been so excessive, and it makes the consequences of low prices more severe. Not all subsidies are perfect in design or execution, but calling for the complete elimination of them will create more negative externalities than currently exist in the status quo. Oil and gas subsidies are far more deleterious to the environment and the government’s bottom line than their farming counterparts.
Farm subsidies have helped large operators “cannibalize” small farmers, as one top USDA economist observed in the 1960s (if memory serves). Are the Environmental Working Group #s on the distribution of farm subsidies completely wrong? If they are accurate, I don’t see how people can say that farm subsidies are vital when most farmers receive only a pittance.
The EWG does not explain how they conducted their analyses on the concentration database or explain what their definition of commodity payment includes/excludes. Overall, their research has been questioned by the scientific community ranging from their skin care articles to their academic integrity. Large operators will continue to exist in the industry- eliminating subsidies won’t change that and will only make small and medium sized enterprises more vulnerable to market fluctuation. The assertion that the average farmer is “far more affluent than the average American” is a hyperbolic statement not supported by your research, or reality. I make a living that supports my family, but I also live in the same homestead my great grandfather built in 1913. Every neighbor and land owner in a 150 mile radius is the same. Come out to the Golden Triangle and spend 3 weeks with my family during harvest- visit a farm that is adapting to the new technology in our industry and producing more on less land than at any other point in history- thanks in part to progressive government farm policy and subsidies.
What percent of your family farm’s gross revenue comes from federal aid?
Decades of congressmen fixated on getting re-elected by making the big farmer
safety nets bigger and better have produced a government safety net
that is effectively a profit guarantee for many farmers.
Routinely this safety net has been designed to cover a return for land
costs. Many farmers do not have any substantial annual
land costs other than real estate taxes if their land is owned
debt free, so any coverage received by these safety nets for
land costs is an effective profit guarantee for these land
owners. The recent surge in commodity prices granted massive
profit guarantees for most farmers since the doubling of commodity
prices effectively doubled the coverage guaranteed by these safety
nets. Obviously those with the most acres covered with the
doubling of these safety nets were granted a huge financial
competitive advantage by these big government safety nets over
smaller farmers.
The federal government has no business providing profit guarantees to
businesses and certainly not providing the most profit guarantees
to those with the greatest wealth and the greatest profits..
Where are you farming? What surge in commodity prices? Winter wheat is selling below operating costs and has been all year. In the Golden Triangle we’re selling for less than $4 a bushel and looking at $240+ worth of input costs per acre. And the annual land costs ARE substantial- you must be a very small operation if you have no debt and pay minimal property taxes. 300 acres in Chouteau County goes for about $700,000- very few farmers have that sort of cash flow on hand. Owning 12,000 acres means we owe the state of Montana and the county almost a quarter of our yearly revenue in taxes.
So, the state is using its left hand to pick your pocket and its right hand to buy you off.
It’s much more complicated than that. Without the subsidy programs in lean years (like this one, where the price of grain does not cover break even costs) we would be forced to shut down production. Have any of you ever ran a farm? Or actually done any research about how these programs work? Because it appears to me that no matter what I say, or how much evidence I use, it’s always going to be “big government” ruining your idyllic world view.
Do you suppose the reason for the low price of wheat is that so many producers are being subsidized to grow it out of proportion to market demand?
Can you use your land to grow a more profitable product?
It’s not the subsidies that cause over production- it’s the nature of farming. This year everyone around the world had bumper crops thanks to good weather. Farming is unpredictable and your yield is subject to temperatures and storms. That’s is why it is so important to have subsidies in order to insulate farmers from a market that is so volatile. If Russian or Chinese crops are wiped out, you’re looking at $13 a bushel. This year everyone did well, meaning $4 a bushel. There is no way to know what the market will look like from seed to harvest 10 months later. What you can grow is entirely based on what the elevators in your region (radius of about 50 mi) accept. In the golden triangle, this is almost exclusively wheat and barley. Farmers are subject to the elevators prices and demands. Growing a “more profitable crop” means nothing if nobody within practical distance will buy it from you. On top of that, the cost of new equipment, fertilizers, herbicides and pesticides are prohibitive.
I was referring to surge in commodity prices from 2008-2013 that effectively doubled the big government investment/profit guarantees available to farmers. Farmers spending these billions in government investment/profit guarantees are the ones who overwhelmingly set land values throughout the country. If you are unable to turn a profit on your 28 million of real estate perhaps you should increase your operating capital by cashing in on those big land values. If you do not like high land values why would you be in favor of government schemes that drive land. machinery, and crop operating expenses higher?
Give me evidence and program names that have driven land, machine and expenses higher. CRP rental rates in most counties are below cash rental rates. The land might have monetary value, but to find someone who is willing to purchases it is a far more difficult task. Selling land that is essentially only purposeful for farming is not easy- entering this market as a lay person is almost impossible.
Think of the possibility of agriculture turning into an OPEC style organization where big ag controls the price of food through supply restriction. That’s what you get when you sell off land to big corporations and further monopolize the process. Farm subsidies make up less than one half of one percent of the US budget. Maybe try attacking oil and gas subsidies, or wasteful defense spending. You still never answered my question about where you farm, nor do you use your actual name. Give me concrete numbers, program names or I’m going to discount your arguments as coming from someone with no familiarity with the industry.
Hannah, it IS the subsidies that cause the overproduction that leads to the depressed grain prices (during that part of the ever-repeating farming cycle). If not for the subsidies, the marginal farmers (who farm in areas that do not receive adequate rainfall or sunshine most years, or that lack soil fertility) would not be IN the farming business in years when such marginal farming areas DO receive adequate rainfall, sunshine, etc. In such a free market, the marginal farmers would go out of business (they complain they nearly do WITH subsidies in such years), and the remaining farmers would produce more than enough food for the United States (less grain would rot in elevators and on the ground, or be given to other countries as part of welfare programs). Prices may go up–or may go down in such a free market–but prices would certainly go down for those citizens who are forced to pay for their food both at the grocery store, and when they pay taxes to subsidize the farmers’ lifestyles and the food budgets of citizens who pay little or no taxes. Do you not understand that non-farming businesses are required to compete in often volatile and changing markets–without subsidies to “insulate them” from the realties of the free market? In other words, farming is a viable business model in some parts of the country–without subsidies–but is not a viable business model in ALL parts of the country–unless the taxpayer is forced to subsidize farmers in such marginal weather-and-land areas.
You are great at jumping to incorrect conclusions based on no evidence. My farm operation has diversification and has been excess of 1000 acres for many decades. To assume I do not pay substantial real estate taxes as well as state, federal income taxes is ridiculous. Your assumption that many established farmers did and do not pay cash to purchase additional farm land is ridiculous. http://www.usatoday.com/story/money/business/2013/03/24/farm-land-prices-bubble/2013451/ http://www.cbc.ca/news/canada/soaring-farmland-prices-a-crisis-in-the-making-don-pittis-1.2420223 http://www.forbes.com/sites/joshuarogers/2014/09/23/dirt-cheap-investors-are-plowing-into-farmland-heres-why/#7a33bb8c2ab2
It depends on the year; this year, LDT, CRP, and ARC provided about 20% of our gross revenue. Payments vary year to year based on market prices.
How much more productive would your farm be if you did not have any federal mandates to comply with? I assume the CRP/Conservation Reserve Program land would have some cashflow potential – or ?
With current prices, the input costs (fertilizer, pesticide, herbicide, fuel, seed, time) would exceed any revenue earned from production increases- the CRP rental payments almost exceeded the county cash rental rate and offered more than what we would have made farming the land. This year’s prices for winter wheat in the region have not covered operating costs, hence the revenue from LDT and ARC. ARC payments will most likely be higher next year as they adjust based on the previous year’s average prices to help offset the funding gap.
http://www.agweb.com/article/crop-insurance-likely-adds-4-to-9-to-farmland-value-ed-clark/ and http://farmdocdaily.illinois.edu/2015/05/influence-of-direct-payments-on-cropland-values.html and http://www.iatp.org/files/Government_Payments_to_Farmers_Contribute_to_R.htm There is seemingly no end of research that comes to the same conclusion if you make an effort to become informed. Also great research at http://www.heritage.org/research/reports/2007/06/how-farm-subsidies-harm-taxpayers-consumers-and-farmers-too
I am informed- I do this for a living. Did you even read the articles? They prove my argument. The first one states that “while rental rates are likely higher than they would have been due to crop insurance benefits, they are probably not economically meaningful, ‘more at the margin, no more than a few cents on the dollar.’” Again, no substantial increase to land value. Farm Doc article talks about direct payments that were ELIMINATED in the 2014 farm bill which makes them irrelevant to this discussion. The heritage foundation is a conservative political think tank with an anti government agenda- their research has an established bias. I never said subsidies have zero influence on value- just that they do not meaningfully contribute to value increases. And again, you fail to address my other arguments.
In the first-ever study examining the impact of crop insurance on land values, Kuethe and Cornell University economist Jennifer Ifft, analyzed USDA’s pilot Pasture, Rangeland and Forage Insurance (PRF) program. They found that 4% to 9% of the increase in land values for rangeland and forage land was due to the crop insurance program.
Kuethe says that while row crops were not examined directly, it’s reasonable to assume that the impact would be similar. The impact on row crop land values from crop insurance likely became greater after the introduction of Revenue Protection (RP) in the 1990s, Kuethe says. The value of agricultural land depends largely on its expected future earnings from farming. Because government payments contribute to farm income, they indirectly support farmland values. In competitive local land markets, land buyers pay a higher price to acquire land that conveys an expected stream of government payments. You have no credible argument worthy of response. . Evidence is overwhelming if you are honest which obviously you are not. You asked for programs that are capitalized into land values. I provided documentation of many. I remember well my neighbor that told me he grew corn since the government guaranteed him a profit. Most of the corn growers in the country were guaranteed $1000 plus growing corn during part of that period of high prices. Also remember a neighbor who said he did not know how he was going to spend all the money he was making growing corn during that period. To pretend these massive government income/investment guarantees were not capitalized into higher land values is a case of being fence post stupid or a case of being dishonest.
We can continue stealing from each other until we are all hungry and homeless. My Bible does not say “You shall not steal unless you can vote for a politician who will send a bureaucrat with a gun to steal for you.”
Big government farm program income enhancing benefits overwhelmingly
flow to those with the most incomes as well as to those with the most
financial assets. In other words big government helps those the most
those who need no help. This insanely disproportionate disbursement
of government income enhancing benefits steals from smaller farmers
any reasonable chance of competing in an industry flooded with big
government income enhancing benefits flowing to the wealthiest.
Definitely time to drain that USDA swamp that big government floods with
annual billions.
Maybe we ought to just nationalize the farms and return farmers – corporate and family – back to the far more traditional serfdom or peonage. No more worries about profits and losses, right? They get to do what they allegedly love (my family certainly claimed that) and get paid for it. Pocket-picking of non-farmers like myself becomes more honest in the process. Win-win all around, right?
My family began farming in Iowa in 1854. I have returned home after a career as a CFO and CEO in large organizations on the east coast, west coast, Asia.
Libertarian purities and naivete aside, Mr. Bovard ignores basic financial facts in constructing his argument.
1. Farmers are profitable, whether or not they have debt service on their land, a few years out of ten. For example, it costs $600 an acre this year to grow corn this year. With average yields at 190 – 220 bushels and an elevator price of $2.80, do the arithmetic. The $600/acre does not include the cost of the tractor that does the cultivating, and the cultivator; the tractor that pulls the planter, and the planter; the tractor (this is the third one now) that pulls the grain cart, the two semis and trailers that accept the harvested corn and beans; the combine, which costs as much as a house in Des Moines; the disc/ripper; the two heads (corn and beans) for the combine; This is the bare minimum required to stay in business with 1500 acres of cash grains. (We’ll ignore the other $250K of tools, trucks, and implements required — such as the bucket loader that allows you to get to the road in December — since the purpose here is to either demolish, or summarize, current farm economics.)
2. Farmers pay for their price insurance.
3. Farmers hope to break even and survive until there is an anomalous year in which they make real money.
4. Farmers capital equipment must be paid for whether or not the market prices sustain profitable farming.
5. An ROC of 0-2% does not attract equity capital. Farming is debt financed, and the banks do not forgive payments in the 7 of 10 years farming is unprofitable.
6. I don’t know a farmer who, when young, did not have to “save up for toilet paper.” Unlike urban dependents, or graduate students at Georgetown, they don’t qualify for food stamps and other emoluments of the welfare state. Every farmer I know who started in the 1980’s, who survived the experience, is still traumatized by it.
7. Mr. Bovard ignores the significant differences between farm ownership and capital structures in a place like Louisiana or California, and a place like Iowa. There are no “corporate farms” in Iowa.
But here’s the punch line. It’s fine if people decide to eliminate price floors. It’s a semi-free country. What that means is that the democratic ownership of food production will be ended; states like Iowa will see 20-50% of their ground go fallow until the government changes ownership rules. The price of food will skyrocket as professional investors will demand reasonable ROCs on their farm investments, and slowly restore productivity to current levels..
Current farm policy, IOW, subsidizes 300 mm consumers, at the expense of enabling individual ownership of production by a few million people. The USA has the cheapest food, by far, in the world, because of current policy. As Mr. Bovard notes, that policy costs $19 billion per year. Somebody else can calculate the aggregate cost of doubling American grocery store prices for 300 million people.
@BuenaVista
Do I understand that, after describing this miserable system, you are nevertheless in favour of it being continued?
nearly 80% of the farm bill goes to food stamps