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
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
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.