Last month, when the conservative Republican Study Committee released its plan for $2.5 trillion in budget cuts over the next ten years, one enormous item of wasteful government spending was conspicuously missing — farm subsidies.
Perhaps that reflects the fact that 24 of the RSC’s 165 members sit on the House Agriculture Committee, the notorious overseer of farm-welfare programs. Total direct government farm payments to the districts of those 24 representatives alone costs taxpayers more than $1 billion per year. Numerous other RSC members hail from farm states, and therefore have a vested interest in protecting payments to their constituents. For example, RSC chairman Rep. Jim Jordan is not a member of the Agriculture Committee but represents an Ohio district that receives $30 million in direct payments annually.
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We are also seeing the usual quadrennial pilgrimage of supposedly fiscally conservative Republican presidential candidates to Iowa, where they swear eternal fealty to farm subsidies generally, but, even worse, to ethanol subsidies in particular. Perhaps the most revolting example of this spectacle was former House speaker Newt Gingrich’s claim that opposition to ethanol subsidies and mandates stems from “big city” folks who just don’t like farmers.
But Gingrich is hardly alone. Mitt Romney defends farm subsidies as a “national-security issue,” because somehow if farmers don’t get an annual government check, al-Qaeda will hold our food supply hostage. Romney, of course, is also a big backer of ethanol subsidies, as is former Minnesota governor Tim Pawlenty, who once keynoted the annual convention of the American Coalition for Ethanol. Sarah Palin? Mike Huckabee? Sorry, they are on the farm-subsidy/ethanol bandwagon too. Indiana governor Mitch Daniels sounded promising: “Farm subsidies in general ought to go away,” he says. But he too can’t break the ethanol addiction. A “national-security issue,” he says.
Incidentally, ethanol subsidies were extended as part of the lame-duck session’s compromise tax agreement in December. It was pushed in large part by six Republican senators, including John Thune, another putative presidential candidate.
The level of hypocrisy is breathtaking. For example, conservatives rightly denounced government subsidies to business when the auto industry was at issue. Why, then, are subsidies a good idea when directed to, say, Archer Daniels Midland?
Similarly, since the rise of the Tea Party, many Republicans have rediscovered fealty to the Constitution. Witness the cheers for Judge Vinson’s decision striking down Obamacare on constitutional grounds. One might ask, therefore, where these “constitutional conservatives” find constitutional authority for farm programs?
And it is hard to see how anyone can claim to be a fiscal conservative while supporting $15–35 billion per year in government spending that largely goes to a group of people with incomes above the national average. Farm income for 2010 exceeded $92.5 billion. That’s a 34 percent increase from 2009, and — even if you subtract payments from the government — 28.8 percent above the previous ten-year average. While conservatives often mythologize small farms, most farm subsidies go to large and corporate farms. In fact, the largest 10 percent of recipients receive 73 percent of all subsidy payments.
If a candidate goes to Iowa and stiffs the farm lobby, my guess (or maybe my hope) is that they will be golden in NH. However, Republicans will not end farm subsidies while keeping subsidies for Amtrak, Corp. for Public Broadcasting, etc. The only chance to get rid of all of these programs is to do it all at once. However, that would probably fail as everyone would be voting against the bill in order to protect their own little piece of the pie.
As a fiscal conservative, there are three industries that I believe should be above market or economic considerations due to national security: defense, energy and food. The capability to manufacture and develop our own weapons and technology is an obvious must, regardless of cost. This is job one. Energy independence and security, while not remotely related to ethanol, is also imperative. Would I support government subsidies to diversify and expand our refining capabilities to protect against natural disaster and terrorism? If the process is competitive and transparent, I absolutely would. Finally, we must have a food policy that ensures we continue to produce food in this country.
Just a little background, agriculture is a unique business or proposition, practically upside down when compared to the traditional business model. To be painfully simple, farmers pay retail prices for inputs and obtain wholesale prices for production. John Deere doesn’t offer wholesale prices to farmers for equipment, and the local grain cooperative offers a take-it-or-leave-it price to all producers at any point in time, based entirely on the world market and transportation costs. As such, there is no opportunity to pass higher input costs to the eventual consumer.
Moreover, “they” ain’t makin’ any more land, and there is always outside-the-industry price pressure from a government influenced residential market urging urbanites to build bigger homes on acreages outside of town. Once this land is developed, there is no going back. In addition, the United States is highly regulated at virtually every point of production, from environmental issues to wages to all of the input products used. In California, they value the all-important snail darter over water for food production, for crying out loud. And, unless producers in other countries face these same input challenges, the free market will dictate that we eventually cease to produce food in this country or at least begin importing larger and larger quantities.
That said, the current subsidies are a complicated, nasty-to-administer, conglomeration of bureaucratic idiocy designed to keep farmers tethered to the government. Direct subsidies could be completely eliminated and replaced with incentives for farmers to buy more substantial, total revenue protection policies offered through private companies. Crop revenue coverage exists today through crop insurance companies, but it is expensive and is tied to grain markets and the crop production history of each producer. A total revenue protection package commensurate with the size and expected performance of an operation is likely doable from an actuarial standpoint.
Most farmers do not want handouts, but they’re not going to ignore “free” money as it is offered today. A politician willing to replace the current system with a revenue protection package that takes some of the uncontrollable risk and guesswork out of the industry would likely be welcomed with open arms.
I met an old retired farmer a few years ago outside of Houston. When I asked him about ag subsidies, he just laughed and laughed. The federal gov't pays him to NOT grow crops on his land, so he then leases out his land for grazing. He knows it's illegal, but he says no one from the gov't cares or will ever check, and all farmers do it.
The man is a good person, but he and all farmers who have abused the system should go to jail and payback all the illegal funds they received.
No more ag subsidies! No subsidies for anybody or anything. No exemptions and no deductions for anybody. All citizens should be treated equally by the gov't.
"The only chance to get rid of all of these programs is to do it all at once."
Right.
It happens I work for a government defense laboratory. (I know: "Boo! Hiss!" But remember that national defense is one of the activities of the federal government that is actually authorized by the Constitution.)
Rumblings are that we are due for a 20% budget cut under the Republican plan. Y'know, I can't say I relish that; but if it's part of a comprehensive plan to get the government back into solvency, I'm okay with it. Really.
Just don't make my laboratory a token, symbolic example of "sacrifice" while leaving farm subsidies, or entitlements, or other much bigger problems unscathed.
As a conservative, I want the government to stop giving ALL subsidies to ANY corporations, whatever they produce. The unique thing about farming as an industry is, almost ANYBODY can create the product. And you don't need much land to do it. Also, it is almost always, a better product than industrial farms (check out your local farmer's market).
We buy most of our produce from different countries right now. You don't think we actually grow tomatoes, green beans, broccoli, and asparagus here in February, do you?
Our 3 main crops are corn, soybeans, and wheat, made with all kinds of nasty chemicals to increase yields. These crops also get most of the subsidies. Do we really need more and more corn and soybeans? Food companies are trying to figure more and more new processed foods to create to deal with all our excess. You would be hard pressed to buy a packaged food that didn't contain parts of those 2 crops.
Farm subsidies and regulations hurt the small, local farmer. I have seen it first-hand here in Kansas. The government does not need to be in the business of deciding what we eat.
Ag subsidies are as destructive as they are unnecessary.
I'm all for a safety net. But why do farmers deserve the special exception that they are paid to grow or not grow as a means of assistance instead of simply providing welfare to those farmers that are failures and can't feed/clothe themselves. Why don't we pay realtors & home builders to not market & build real estate since the market is flooded.?
The subsidy system is byzantine and fraught with shades of gray. My family farmed tobacco for a century in NC. Over time, our "allotment" shrunk to barely one acre of the 100 acre farm. Somehow other farmers saw their allotment grow. Of course, tobacco is one of the few areas that fought to be released from the subsidy gimmick.
If you believe the government should manipulate the food market for national security reasons, then I look forward to that debate when an amendment to the Constitution is proposed. Until then, they are illegal and must stop immediately.
Paying people not to grow crops? FDR just called – he wants his policy back.
Further, I believe that farmers who currently take subsidies will be more willing to part with them if they see an across-the-board move away from government welfare and micro-management. Even though I cashed that $8,000 check I got when I bought my house, I’d rather pay it back if it meant smaller government across the board. As long as others are riding the gravy train on my taxes, I feel like I have to “get mine.” That’s what makes the welfare state so insidious.
Worth remembering- We are paying all these subsidies at a time when ag prices are at record highs. Farmers are making money hand over fist these days. And we are seeing food riots around the world in response to these high ag prices. Monetary tightening in China, India, and elsewhere is due, in large part, to these food prices.
Also worth remembering- We are maintaining tariffs to keep out Brazilian sugar based ethanol, which is lower cost and more efficient than domestic corn based ethanol.
When Romney et. al. refer to food production as a "national security" issue, aren't they referring mostly to the ability of the US to produce most of its food within its own borders to protect against diplomatic shifts and such?
I don't have direct experience with farming or subsidies, but it seems that due to all the regulations put on farming (environmental, labor, etc.) that other countries don't have to deal with, doesn't something need to be done to counteract the disincentive to grow in the US that these rules create?
Safety nets such as federal crop insurance are gravy trains for John Deere and many other insurance companies as well as for the largest farmers. Safety nets called federal crop insurance are very effective in destroying smaller farmers financially. Who can compete with highly subsidized multimillion dollar investment guarantees that in many cases guarantee the largest farmers a profit. These financial security blankets drive up land prices and drive margins of profitability narrower. This works real swell for the largest farmers by financially bullet proofing their operations and drives out the smaller farmer. Read how this works at External Link
Farm subsidies, like any subsidy, are not only wasteful, but immoral. Property is confiscated by violence or threat thereof, and given to others, without moral justification.
It is specious to argue that the United States, under free-market conditions, would soon find itself unable to meet its own demand for food. Even if that were to happen, would not market incentives operate quickly to reallocate productive capacity towards agriculture?
Simply put, everyone likes being given free money, as long as they can ignore its provenance, and will go to great lengths to invent a justification for themselves in accepting it.
I am not a fan of subsidies but at least we must get the facts straight here:
First, 13+Billion gallons of ethanol were made in US last year with gasoline consumed at 145 Billion gallons. This is way over 1% and almost is 10% of the gas supply coming from the ethanol industry.
Second, ethanol is currently produced at about $1 LESS per gallon than gasoline and excluding the Blender Credit (subsidy) it actually LOWERS the price of gas at the pump for the consumer.
Third, US exported a portion of its production and Brazil was a significant IMPORTER of ethanol. The country held up as the leader in ethanol because they use sugar (another government subsidized and controlled crop) was using US ethanol because it was cheaper than the sugar based stuff because of the crop and world supply of sugar pushed up prices.
Food vs. fuel is a bigger debate than can be done here. But a by-product of ethanol is a high quality livestock feed that can replace the corn requirement one for one and actually can be a benefit to the farmer. Humans do not consume yellow corn from which ethnaol is made.
Last, nobody talks about the impact of the government printing money on these commodity prices. Is oil increasing to $100 per barrel because of supply and demand or because the US is devaluing the dollar by printing money? There is so much more to this story than just to bash ethanol but at least get the facts right please.
@splined:
With all due respect, your take on crop insurance is dead wrong. I work in the lending industry, and crop insurance is mandatory for any responsible lender extending operating credit. There are a minority of financially strong producers who don't borrow annual operating credit and who are able to self-insure. It is the smaller, less financially secure operators who benefit from crop insurance and other marketing tools that enable them to secure needed financing.
I fail to see why it matters if a farmer is a multimillionaire or a corporation unless you're William Jennings Bryan. The purpose of subsidies is to assure an abundance of a good thing. If you do not believe that this is a good policy, that the policy does not achieve its stated objective, or that the policy objective is not a legitimate function of government, please develop that argument. The economic success and the organizational structure of the producers that respond to these incentives is entirely irrelevant.
I am a farmer (My operation is organized as an LLC, does that make me an evil corporate farmer?) and a conservative. As such I advocate for the elimination of ALL subsidies, not just those that affect agriculture.
Chad R- I don't have a problem with private insurance offering farmers crop insurance. I do have a problem with government guaranteeing nearly all farmers crop loans. It is not just John Deere receiving corporate welfare from the gov. as banks are also major recepients of the multibillion dollar federal crop insurance scheme. It sure would be a vast improvement if only the smaller and less financially operators benefitted from federal crop insurance. In the real world the highly subsidized investment insurance and profit guaranteeing policies the largest farmers receive are so absurdly disproportionately financially more valuable than what their smaller competitors receive that these larger operators are able to blow any smaller farmers out of the water when it comes to competing for land. If the federal gov. is going to offer investment and profit guarantees to farmers all farmers are equally deserving of comparably valued financial security blankets. Why should the government be turbocharging the already most financially competative operators with the greatest investment and profit guarantees?
Excellent piece. And let's remember, farm subsidies aren't just a fiscal but a trade issue. Most of the breakdown in free trade talks over the last decade were a result of developed nations being unwilling to cut their farm subsidies.
By lowering the price of American and Japanese and European food, we create disincentives for farmers in say Kenya to rationalize their own production. Farming becomes a poor man's occupation, with farmers trapped in poverty, while the people in the cities buy subsidized rich world food. This leaves these nations poor and dysfunctional.
The ethanol subsidies are worse. They drive up the price of food everywhere. Thus, the most poverty stricken starve while we pay more for potatoes and bananas and carrots. All of this makes the farm subsidies one of the most irrational elements of our governmental system. Surely, we can do better.
"... So far the results have been disappointing." If the Republicans don't want the election results to be disappointing in 2012, they'd better balance the budget and that will require that farm subsidies go away. Time for farmers to act like grownups and support themselves.
So call them on there bluff limit the subsidies to small farmers and producers. Eliminate any company with over 10 million in annual revenue from subsidies.
This would basically make the subsidies a non issue. Most of the money from subsidies goes to multinational conglomerates like ADM, which then quickly funnel the money off shore and hide it with fictional losses and fees.
I have nothing against ADM they are a good business employing a large number of people. But they dont need the gubernment teet any more. They arent the only one just one of the biggies.
Finally! A conservative speaks up! I have been saying this for a very long time. Subsidies are a pathetic hyprocrisy from a community that stands for free-market principles. Its a shame when, as a member of the community, I hear respected ranchers, farmers and business people speak of the virtues of farm subsidies. Subsidies contributer to the over-production of products like high-fructose corn syrup. Because HFCS is so cheap due to subsidies "junk food" happens to be cheaper than meat, veggies and fruits. Ever wonder why a half pound of apples cost more than a box of Little Debbie Cakes, even though the cakes are part of a much more complicated mechnaical production process?
Subsidies also limit the advancement of trade in smaller, poor nations. Especially in regard to corn. If nations of Sahel Africa could sell their corn at at dollar price comparative to that of the US or Europe, they could have a chance at industrial/technilogical advancement as farms would bring in a profit that parallels that of the developing world. But this is nearly impossible to do since the US can sell corn on the world market at vastly lower prices. The same can be said of wheat, cotton and tobacco.
And furthermore, as a conservative agriculturalists I have to add that farming is a business, no matter the amount of idealism placed on it by organic "sustainable" growers, FFA chpaters and some agricultural educators. If a luandry service fails to advance their business we dismiss their venture as an experiment proving their incapability at management. The same is said of grocery stores, construction firms and machine shops. But somehow we have convinced ourselves that a farmer incapable of running a business should be excused and allowed to continue his failures at the expense of tax payers.
I work as a mechanic / harm hand on a family owned wheat and cattle ranch.The company farms in 2 states and 4 counties.If the USA would get an energy policy that allowed for drilling for oil and natural gas ,which affects the price of fuel and fertilizer,perhaps your arguement to end subsudies could hold up.Its always easy to go after the farmer , less than 2 percent of the US population,when you cancel food stamps WIC and all other non ag subsudies lets talk.We as working farmers can produce the food to feed the world but we cannot survive with goverment policies ie the new food safety law, and all other regulatory schemes that the author seems to forget or doesnt care to learn.
