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Cap Farm Subsidies at $250,000, or $25,000, or $0?

by: Brad Wilson

Sun Mar 11, 2012 at 15:15:25 PM PDT


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Should farm subsidies be capped in the 2012 farm bill at $250,000, at $25,000, or at $0?  For many reform-minded groups and advocates these days, "real reform" can be found at the $250,000 level per farm per year.  The argument goes that there's a need for government to write checks to farmers, and, even during these harder times, that should be continued, but not more than $250,000.  

The Views of the National Sustainable Agriculture Coalition

One major advocate of this approach is the National Sustainable Agriculture Coalition, which has been working on subsidy caps for well over 15 years.  They give the $250,000 per farm per year figure, then call for further specifications, "not more than $100,000 per farm in payments not associated with marketing loans."1

A rationale for this approach is given at the top of NSAC's home page.  My own Iowa Republican Senator Charles Grassley is quoted:    "The farm program was never intended to help big farmers get bigger, instead it was created to help those who couldn't withstand the political whims of Washington or the fierce reckonings of Mother Nature."   Grassley has been an advocate for subsidy caps along similar lines.  His bill, S.1161, the "Rural America Preservation Act of 2011,"2 is linked on NSAC's page.

Brad Wilson :: Cap Farm Subsidies at $250,000, or $25,000, or $0?
NSAC is a very sophisticated grassroots stewardship coalition, with a strong farmer base, strong academic connections, and a serious bent on policy development.  For any policy area OTHER than the Commodity Title, I often look to them first, for the best policies for farmers for Conservation, Research, and some other titles. I find that their work on the Conservation Title is comprehensive and strategically targeted.

Divisions in Farm and Food Movement Sectors Related to Payment Limits

Their approach to the Commodity Title is another story.  I have some direct knowledge of this, as I worked on both Conservation and Commodity committees of the Midwest Sustainable Agriculture Working Group, (the first of the SAWGs, and also with the, then farmer-based, "Sustainable Agriculture Coalition,) and some committees of the National Campaign for Sustainable Agriculture during the mid 1990s.  At that time I was a farm bill policy specialist for Iowa Citizens for Community Improvement.  

There were major divisions among those participating on Commodity Title issues.  There were further divisions between these sustainable agriculture groups and the National Family Farm Coalition, (where I now serve on the board,) and the broader farm justice movement, which was the leading, (or only significant,) movement sector working on corporate exploitation in the farm bill during the 1950s probably into the 1990s.3  Over the past 17 years, these two movement sectors have never resolved their differences over the Commodity Title.

Why Do We Have these Huge Farm Subsidies?

NSAC's $250,000 approach and web page and other documentation fails to address the general public question:  why does it make ANY SENSE AT ALL to have a program where the government pays out such enormous subsidy checks?  On this question, Grassley's rationale, quoted above, appears extremely weak as if NSAC isn't a valid reform organization.  I think that's a tragedy, as their reform measures are so well formulated for other titles.

In fact, participants in MSAWG, NCSA and SAC formerly advocated for a $25,000 payment limit.  That was about 15 years ago.  In evaluating the $250,000 "reform" today, we need to ask, why $250,000 INSTEAD of $25,000?  Why a ten-fold increase in 15 years?  That too is not addressed at NSAC's site.

One possible reason is that $250,000 seems more politically winnable than $25,000.  That's an argument from one side, which is supposedly the farmer side.  On the other side, however, is the food movement.  Surely to many in the food movement, $25,000 also seems absurd, and $250,000 is really whacko.  Then you can look at the bright young leaders in the food movement, who have become informed and who have signed on to the $250,000 standard.  It reminds me of when fiscal conservative Republicans, such as Presidential candidates, Mitt Romney, for example, are taken behind closed doors and "talked into" a similar position on subsidy caps (or more likely, a much higher one:  ie. $460,000, $320,000).  When food movement leaders have signed on, it's probably a sign' of NSAC's strong leadership into the food movement.  (NFFC, which has a very different plan for eliminating all subsidies, has had no comparable influence!)

Perhaps the real reason for the 10-fold increase in the subsidy cap limit is contained in the Grassley rationale, quoted above.  Note how Grassley argues that "The farm program ... was created to help those who couldn't withstand the political whims of Washington or the fierce reckonings of Mother Nature."  Ok, first we have a classic Republican anti-government statement, then the case is made for something like crop insurance, (for Mother Nature).  Neither factor really makes any sense.  Do we really have government subsidies, or now need caps, because the government is no good?  Do we really need them mainly because of Mother Nature?

Why Do We Have A Farm Bill?

Clearly, the answer is no.  A better answer, the real answer, surely, best comes from Daryll Ray.  Ray has covered this dozens of times, (probably hundreds,) and the message is still slow to get through.  Ray's answer is that we have farm programs primarily for a fundamental economic reason.  This problem is "the lack of timely self-correction on both the supply and the demand side for aggregate agriculture."5    Ray argues, "This lack of price responsiveness is the rationale on which the historic US farm programs were built."6

One thing this means, Ray also shows, is that government itself is not bad.  We had great farm programs that addressed these concerns in the past, and they addressed them without ANY farm commodity subsidies.  Those programs include price floor loans where farmers pay interest, with floor levels originally set for living wage prices, backed up by supply reductions, as needed.  To protect consumers, livestock interests and corporate buyers these programs also featured price ceilings, backed up by reserve supplies to be placed on the market, as needed.  These programs totally eliminate the general need for subsidies of $250,000.  Or $25,000.  This is the long time position of the family farm justice movement, and is specifically proposed today in NFFC's Food from Family Farms Act, although it's rarely known in the new food movement.  These solutions are not at all included in NSAC's position, and they never have been.  From this point of view, Republican Grassley's farm bill proposal is a typical Republican failure, saturated with hypocrisy.7  

Why NSAC, Other Interest Groups, and the Government Raised Payment Limit Standards 10-Fold or More

By looking at NFFC's position we can also see how and why NSAC increased their standards for payment limits by 10 fold.  Back in the early 1990s, for example, when sustainable agriculture advocates favored a cap of only $25,000 we also had a government payment limit of only $50,000, (not counting loopholes).  That's usually forgotten today, and has not been taught to the new food movement.  Obviously, when the cap was $50,000, progressive reformers like NSAC were not calling for it to be raised to $250,000!  

Why, then, was the limit raised so drastically?  It was raised as NFFC-style price floors and supply management were ended in the 1996 farm bill, and as that bill almost immediately failed, and was followed by four emergency farm bills prior to the 2002 farm bill.  At the same time as nonsubsidy price floors were ended, Direct Payments were invented, in addition to an option for LDP (Loan Deficiency Payment) subsidies, which were similar to the earlier "Deficiency Payments."  To these two subsidies, the emergency legislation then added countercyclical payments.  As almost all of these foolish changes toward increased needs for subsidies were implemented, Congress also foolishly meant the subsidies to be temporary. The was all changed in the 2002 farm bill, and the same was done in 2008, but with reduced subsidy amounts and the added option of Revenue Insurance subsidies. Farmers could choose between two general options, a clear gamble, and then one group farmers would have their income's even further reduced, depending on market conditions.

To properly explain this, however, I must go back farther into history.  Price Floors were lowered, more and more and more, from 1953-1995, creating a new need for farm subsidies, at ever growing levels.  After about 8 years of lower and lower prices, a version of farm commodity subsidies was invented to meet this need (1961, corn and other feedgrains and wheat). Other subsidies were added later, as prices were further lowered.  All in all, subsidies added up to about 1/5 of the price reductions from the living wage standard of parity (ie. the standard of 1942-1952, when no subsidies were needed).  Basically, Congress increasingly ignored the real reason why we have farm bills, the "lack of price responsiveness" described above.  Then in 1996, price floors were ended (or dropped to zero,) and we had the lowest (ie. adjusted for inflation,) farm commodity market prices in history (ie. 1998-2005).

In short, by increasingly ignoring the reason why we have a farm bill, a need for something like subsidies was created, and progressively increased. Between the early 1990s reform idea of a $25,000 payment limit and NSAC's more recent standard of $250,000 (also shared by Republican President George Bush Jr., who was praised by the Environmental Working Group and media all across the nation), a drastic step was taken in the same direction as the worsening of farm bills since 1953.  Price Floors were totally ended for most farm commodities (exception, beet and cane sugar).   That's the real reason for the ten-fold increase in NSAC's standard, and for similar increases in the standards of other groups, (ie. Farm Bureau,) and in the farm bill itself.  

Is NSAC's Leadership on Payment Limits Divisive?

NSAC's significant leadership in the Food Movement, (ie. at the $250,000 level,) is probably fairly divisive for the food movement.  While it may not be bashed by most leaders, surely many in the grassroots find no adequate rationale for a $250,000 and below standard. This may account for some of the failure of NSAC's position.  More broadly, for the public at large, the $250,000 standard is a way to spend (squander?) some precious, hard won, political capital. It may also hurt progress on NSAC's excellent conservation policies, in both legislation and appropriations.  The ongoing failure to resolve the farm subsidy issue, (in a way that doesn't look hugely absurd to outsiders,) likely squanders the political capital of farmers in general, as well, reinforcing farmer bashing.  

All of this applies even more to the various policy positions of the mainline farm commodity groups and Farm Bureau, of course.8  They've changed in similar ways.

Another significant implication is that it enables greater political mileage to be captured by libertarians, (and we find a lot of those in the sustainable agriculture and local food movements as well, for example, Joel Salatin, plus they're getting good mileage in the Republican party).  Even more than corporate/farm welfare Republicans, Libertarians ignore the reason why we have farm bills.  They're ideologically biased against believing the basic economic fact that free markets fail for farm commodities, and therefore, they're ideologically biased against implementing any effective policies to address these fundamental economic realities behind the farm bill.

Giving these freebies to Libertarians then hurts the possibility of winning NFFC's Commodity Title mechanisms, for running the farm bill like a business and balancing supply and demand to make a profit.   It hurts our chances to stop giving huge farm bill windfalls to mega-corporate CAFOs, HFCS, transfats, ethanol, exporters, and all the same in other countries.  Those benefits (implicitly subsidizing these corporations via below fair trade and below cost prices by amounts that dwarf the farm subsidy database,) are not at all addressed by a payment limit position.  In short, NSAC has no policy position to prevent cheap corn from going to CAFOs.  

I must repeat here that subsidies don't cause cheap corn. Market failures (lack of price responsiveness,) causes cheap corn.9  For example, there is a zero correlation between farm commodity subsidies and the lowering of farm market prices between 1953 and 1961 (for feedgrains & wheat), or 1964 (for cotton), or 1977 (for rice), or 1998 (for soybeans), because there were no subsidies.10  Price floors were lowered starting in 1953.  Because of the economics lack of price responsiveness, prices went down when price floors went, (with a few exceptions, such as the 1970s Russian grain deal).

So Which Will It Be:  $250,000, $25,000, or $0?

We're left with several advocacy reform choices, based upon this historical analysis.  Limit payments to $250,000, to "reform" but keep the status quo.  Limit subsidies to $25,000, with a return to the low, inadequate price floors and supply management, and the much lower subsidy levels, of the 1990 farm bill.  Eliminate subsidies by paying attention to the reason why we have a farm bill, and implement NFFC's farm bill.11

1. "Commodity Payment Limit Reform," National Campaign for Sustainable Agriculture, http://sustainableagriculture....

2. The Rural Agriculture Preservation Act (S.1161). http://thomas.loc.gov/cgi-bin/...

3. "Missing Food Movement History: Highlights of Family Farm Justice: 1950-2000,"
by Brad Wilson, Feb 26, 2012 , http://www.lavidalocavore.org/...

5. Daryll E. Ray, "Are the five oft-cited reasons for farm programs actually symptoms of a more basic reason," Policy Pennings, APAC, University of Tennessee, October 27, 2006 #325, http://agpolicy.org/weekcol/32...

6. Daryll E. Ray, "It's price responsiveness! It's price responsiveness!! It's price responsiveness!!!" Policy Pennings, APAC, University of Tennessee May 6, 2005 #248, http://agpolicy.org/weekcol/24...

7. Related:  on how Grassley duping the food movement in a King Corn DVD cameo see, "King Corn vs Good Food Policy: Senator Grassley Against Supply Management," http://www.youtube.com/watch?v...

8. I plan to post a blog on various farm bill policy positions, as analyzed by Daryll Ray,  on one of my blogs soon, linked through my name here.

9. Brad Wilson, "Michael Pollan Rebuttal:  4 Proofs Against Pollan's Corn Subsidy Argument," http://www.zcommunications.org...

10. "Farm Income: Data Files," "Government Payments," "Direct government payments by program, 1933-2010," http://www.ers.usda.gov/data/F...

11. "Food from Family Farms Act, National Family Farm Coalition, http://www.nffc.net/Learn/Fact...

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