Posted August 10. 2006: The Washington Post’s
two recent articles, Farm
Program Pays $1.3 Billion to People Who Don’t Farm
(July 2, 2006) and Growers
Reap Benefits Even in Good Years (July 3, 2006), point
out some examples of problems with the current farm program—non-farmers
receiving “direct payments” on subdivided housing
tracts that were once part of farm fields and farmers who
receive substantial loan deficiency payments on a crop that
sells for more than the loan rate.
It would be very easy for someone unacquainted with crop
agriculture who reads these articles to jump on the “eliminate
farm programs” bandwagon. After all, from the anecdotes
in the articles it doesn’t seem like the direct payments
and the loan deficiency payments (LDP) make much sense.
On that point we agree.
based on calculations using the crop grown and the historic
acreage planted, are paid to farmers whether or not they plant
a crop, have suffered a disaster, or met their costs of production.
These payments are called “non-trade-distorting”
under the rules of the World Trade Organization because they
are believed to not affect production volume or crop choice.
When these direct payments were initiated farmers were expected
to bank the payments and, in low price years, leave the planter
in the shed for at least part of the crop, thus reducing the
overproduction that results in low prices. Prices have fallen
so far that farmers use the payments to cover part of their
production costs but they must still plant all of their acreage
to make a livable profit. As described in the article, some
developers capture the right to receive the payments when
they buy the land and then pass them on when the partially
developed acreage is eventually sold.
were established to make US crops more competitive in world
markets, by allowing the price to drop below the loan rate,
the former floor price. Lower prices were supposed to encourage
increased exports, reducing US crop stocks and raising prices
for the next year. What actually happened is that LDPs have
created a perverse pricing system in which farmers hope for
extremely low prices at some time during the crop year and
before they sell their crop so they can capture as large an
LDP as possible.
For the non-farmer reading this the question has to be, “How
did we get into this mess?” The short answer is that
by the time this type of legislation replaced less expensive
programs, corporate agribusiness had supplanted farmers as
the major influence on farm legislation and the farm bill
was designed to meet their objectives, not the needs of farmers.
Input suppliers like seed companies, fertilizer dealers,
farm chemical companies and equipment dealers objected to
traditional production control programs because they reduced
demand for their products. Instead, they want as many acres
as possible in production and they want farmers to have access
to cash to pay their bills. The elimination of set-aside and
the use of direct payments and LDPs accomplished this.
Grain buyers, processors, integrated livestock feeders, and
transporters make their money on volume—low cost volume
is even better—and the lack of acreage controls and
presence of LDPs go a long way toward ensuring an abundant
supply of low cost inputs.
In this high volume – high stakes atmosphere, farmers
end up being the conduit for federal payments which corporate
agribusinesses skim, leaving the farmer worse off than if
she had received a reasonable price for her crop. Crop farmers
are not the ultimate beneficiaries of current farm programs.
It doesn’t have to be like this. We used to manage
crop supplies in such a way that reasonable prices were maintained
while ensuring that adequate supplies would be available in
the case of a weather-shortened crop. Sure there were some
problems—as long as people are involved there will be
some problems—but the cost was (and would be) a fraction
of the cost of the present program.
In addition traditional farm programs held up the prices
of major commodities in the US and around the world—something
that would work to the advantage of producers in developing
countries whose prices are almost always set slightly below
those of U.S. commodities. Current programs, by way of contrast,
drive prices downward resulting in the US selling agricultural
commodities on the world market at prices that are below production
costs, opening us up to charges of dumping and causing enormous
problems for farmers around the world.
Hopefully, articles like the ones in the Washington Post
will open up the farm bill discussion and allow policy makers
to tailor farm programs to the economic characteristics of
crop agriculture by eliminating welfare-like payments in favor
of modern-day inventory management tools that other industries
take as a given.