|Direct payments are a result of the 1996 farm bill. Prior to that, subsidies were given based on need. If you couldn't sell your crops at a price the government thought was fair, you got a subsidy to make up the difference. I believe the direct payments were an attempt to wean farmers off of subsidies so we could all "let the free market work." Except it doesn't really work in the case of farming, and farming isn't an industry we can let go under if the free market determines that it isn't profitable.
Here's how FarmPolicy.com explains it and I'll translate it into English below:
The USDA's Economic Research Service (ERS) has stated that, "On a per acre basis, the value of direct payments varies by the commodity associated with the historic base and by payment yields (graph), which vary by location (graph)." ERS added that, "The primary economic impacts of direct payments are increases in farm income and land values. However, since direct payments also increase producer wealth, they could facilitate additional investment and may influence a farmer's risk aversion."
If you own land where commodities were grown (by you or someone else) in the past, you get a direct payment whether you grow anything or not. You could do nothing, potentially, and still receive a direct payment. Does that sound stupid? I think so too.
Your direct payment is calculated on your "base acres." They keep a running average of how much you grew on your land (or how much somebody grew on your land if it wasn't you), and that yield determines how much you get in government cash. During the past farm bill debate, grain prices were high and farmers were doing well, but the direct payments kept flowing in. And of course, everyone moaned and groaned about how much money we were wasting on farmers who didn't need it.
I think our subsidy system is screwed up and stupid, but I do think we need SOMETHING. If we scrap the current subsidy system, telling farmers "too bad" isn't an option. Farmers are stuck in a sort of prisoner's dilemma. No matter whether prices are low or high, they still do best when they produce the maximum amount they can. Ideally, demand will outweigh supply and prices will be high. By producing the max possible, the farmer will reap the maximum amount of profit. But when ALL farmers produce the max possible, we end up with a glut of supply and low prices - barring some natural disaster.
Back to the direct payments, there's been a lot of anger in the media over direct payments going to "millionaire farmers." We subsidize farmers because a stable food supply is a matter of national security. If a farmer's nowhere close to going under, why are we paying him or her anyway? Just to be nice? According to Tom Laskawy:
The 2008 Farm Bill reduced the limit for adjusted gross income from $2.5 million to a three-year average of $500,000 of non-farm income. After three years of non-farm income averaging above $500,000, a farmer or entity would lose eligibility for commodity or disaster payments. To qualify for direct payments, farmers or farm entities must also have a three-year average adjusted-gross income of $750,000 or less in farm income.
I am much more comfortable with the government using income rather than sales as a measure for cutting people off the federal dole. If you're making a lot in gross sales but still netting very little in income, I don't think it's necessarily fair to deny you subsidies.
Now that the budget's out, Laskawy reports:
[Obama] wants to eliminate direct payment for farmers with SALES greater than $500,000. That will affect a lot more farmers than using income as the basis for a limit. But before you start cheering, know that the administration fully expects the lost subsidy will be replaced by "alternate sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat."
Aha! Carbon sequestration and conservation. You see THAT is where I want us to go. Instead of paying farmers for yield, why can't we pay them for taking good care of the environment. I want to pay them enough to keep them solvent, but let's determine who stays in business based on who's the most sustainable. Who takes the most carbon out of the air. Who leaves our air and water the cleanest. Because when our criteria is just "who produces the most" we end up encouraging farmers to use more fertilizer, GMO seeds, and pesticides. And then we have to live in the environment that creates and eat the foods it produces. And nobody wants that.
And guess what? Michael Pollan agrees with me!
"It's a dead end to try and eliminate subsidies, because then you get all of America's farmers, who have political power out of all proportion of their number, unified against change. Right now the incentives are to produce as much as possible, whatever the costs to the environment and our health. But you can imagine another set of assumptions, so that they're getting incentives to sequester carbon. Or clean the water that leaves their farm, or for the quality, not the quantity, of the food they're growing."
In 2007, farmers received nearly $8 billion in government payments. However, only $1.7 billion went to conservation programs. And whereas over 800,000 farms received government money (out of a total of 2.2 million farms in the U.S.), only 350,000 received conservation money. One of the most promising new programs is the Conservation Security Program (CSP), but as our new Deputy Secretary of Agriculture, Kathleen Merrigan, pointed out in testimony before the Senate, the program sorely lacks funding.
There won't be a new farm bill for a while, but let's hope Obama can do something about this. He's certainly moving in the right direction, and he's appointed a real expert to the USDA who can help him achieve his goals. As Natasha Chart notes previous presidents have tried to change the subsidy system and failed. That's why my hope that our payment-for-yield system can turn into a payment-for-conservation system is such a lofty and unattainable one (see what agribiz is saying about it here and here). But Obama promised us change. Can he deliver?