Mike Meyers: Farm subsidies spread money like manure

  • Article by: MIKE MEYERS
  • Updated: March 13, 2010 - 5:07 PM

Farm subsidies help those who need help least, yet a powerful lobby keeps them alive.

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With spring planting season fast approaching, farmers again confront a world of uncertainties -- from flood to drought, storms to pestilence. But one thing they always can count on: The sun never sets on taxpayer-financed crop subsidies -- welfare for the well-off.

The paradox of the perpetual subsidies rarely gets much attention. Through 75 years of showering money on American farmers, the federal government has helped put millions of farms out of business, has rewarded the big while punishing the small, and has prevented untold numbers of young people from going into farming.

Instead of protecting the "family farm," this largesse has helped make those bucolic small plots a fast-disappearing remnant of the past.

Nevertheless, farm lobbies -- and their friends in Congress -- manage to ignore the perverse incentives of direct farm payments year after year, decade after decade.

Regarding the damage done by farm payments, Congress is like Pa Kettle, surveying the broken gate to his ramshackle farm and musing: "Gonna have to fix that one of these days."

For Congress, as for Pa, that day never comes.

Consider the latest White House effort to limit direct payments to farmers, a move that appears to have been blocked from the outset by reputed friend-of-the farmer Rep. Collin Peterson, the western Minnesota Democrat who chairs the House Agriculture Committee.

The Obama administration recently proposed trimming direct farm payments by $2.3 billion over the next 10 years. Its formula: reduce the maximum annual direct payments to $30,000 from $40,000 today -- and cut off eligibility for farmers making more than $500,000 per year from farming or $250,000 a year from off-farm investments or business.

Imagine that -- at a time of unprecedented federal deficits, limiting handouts and reserving them for farmers who aren't rich. And that represents too much sacrifice? It has the odor of what farmers spread on their fields.

President Obama's doomed proposals for cuts echo proposals made by former President George W. Bush -- which also went nowhere. Peterson appears ready to hurry up and wait. He recently told a farm forum that the House ag committee soon will start working on the next five-year farm bill, due in 2012, but has no plans to trim spending in the current one. Up for reelection this year, Peterson shows no interest in upsetting anyone on the receiving end of subsidies. In 2008, Minnesota farmers received more than $544 million in direct U.S. farm payments.

Red River Valley floods require urgent government action. But budget deficits topping $1 trillion? Where's the emergency?

The loudest voices

In many ways, direct payments to farmers grow from the same seed as the wider federal budget problem: the tendency for the intense interest of the few to overshadow the diffuse interest of the many.

The billions spent on farm payments may not seem like much within a $1.35 trillion projected deficit. But containing the cost of farm programs mirrors challenges elsewhere, from ending ill-advised weapons programs to cutting tax breaks for fossil fuels to rolling back ambitions in space. Congress hears loud objections to all such cuts from those with the most to lose -- and next to nothing from anyone else.

Obama's farm budget would produce a 10-year savings of $2.3 billion. In 2008, the last year for which figures are available, the U.S. farm program doled out $12.37 billion. At that pace, the proposed savings, over a decade, would represent an overall cut of less than 2 percent. Get that? Less than 2 percent!

"The president also proposes reducing federal crop insurance subsidies by $8 billion over the next decade, which seems reasonable, since the Agriculture Department estimates that the companies engaged in this taxpayer-backed business make an average annual return on equity of 17.1 percent," the Washington Post recently intoned in an editorial.

That gets at one of the most ironic problems with farm subsidies. Because farmers expect federal payments as far as the eye can see, and others involved in agriculture expect those payments to flow as well, all that money bids up the price of land, tractors, irrigation equipment and fertilizer -- anything required for farming. As billions in subsidies pass through the farm economy, the cost of farming rises. That's great news for John Deere and Monsanto but a mixed blessing for their farm customers.

The result: Far from preserving the family farm, the government has contributed to its decline by driving costs out of reach for many.

In China, the army drives people off the land. In the United States, subsidies have done much the same job.

Higher costs, bigger farms

When direct subsidies were introduced in the 1930s, America had more than 6 million farms. Today, the number has dwindled to less than 2 million. In 2008, Minnesota was home to 81,000 farms, down 2,000 from the start of the decade and a decline of 60 percent from the 204,000 when the payments program began in the 1930s.

Large operators -- who capture the bulk of farm subsidies -- buy out smaller players who give up or go broke.

Out with the Waltons, in with the corporate countryside.

In 2008, only 5.1 percent of all farms made more than $500,000, but those farms controlled 31 percent of the nation's farmland.

Farms with more than 2,000 acres collected more than a third of all government payments in 2007, the last year USDA distribution figures are available. More than another 20 percent went to farms of 1,000 to 1,900 acres.

To be sure, technology and rising output have played major roles in the trend toward fewer and larger farms. But the adverse costs of farm subsidies should not be ignored, even though they often are.

"Evidence supports that the effect of the payments has been to encourage the big guys to buy out the little guys, contributing to farm enlargement and the reduction in farms," said C. Ford Runge, professor of applied economics and law at the University of Minnesota.

But that evidence has been piling up for decades without much effect on federal legislation. In 1996, a new farm bill promised to phase out direct payments. Within two years, federal direct payments tripled. Eight years ago, Congress tried again to pull back payments, with limited success.

"From the point of view of feeling invested in the outcome, I pretty much gave up in 2002," Runge said.

Influential, prosperous owners of the largest farms across the land are unlikely to give up, however. They may never be assured of the right mix of rain, sun or good luck, but farmers can count on an abundant harvest of taxpayer dollars, no matter what the season -- or the consequences.

Mike Meyers, formerly a Star Tribune business reporter, is a Minneapolis-based writer.

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