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Backgrounder #1542 on Agriculture

April 30, 2002

Still at the Federal Trough: Farm Subsidies for the Rich and Famous Shattered Records in 2001

By

Members of Congress who are poised to spend at least $171 billion on direct farm subsidies over the next decade would be wise to examine newly released statistics detailing who actually receives these subsidies. In 2001, Fortune 500 companies and large agribusinesses shattered previous farm subsidy records, while small family farmers saw their share of the subsidy pie shrink.

These subsidy programs tax working Americans to award millions to millionaires and provide profitable corporate farms with money that has been used to buy out family farms. The current farm bills1 would provide even greater subsidies for large farmers, costing the average household $4,400 over the next 10 years, while facilitating increased consolidation and buyouts in the agricultural industry.2

How Farm Subsidies Target Large Farms

Legislators promoting subsidies take advantage of the popular misconception that farm subsidies exist to stabilize the incomes of poor family farmers who are at the mercy of unpredictable weather and crop prices. If that were the case, the federal government could bring the income of every full-time farmer in America up to 185 percent of the federal poverty level ($32,652 for a family of four in 2001) for just $4 billion per year.3 In reality, however, the government spends nearly $20 billion annually on programs that target large farms and agribusinesses.

Eligibility for farm subsidies is determined not by income or poverty standards but by the crop that is grown. Growers of corn, wheat, cotton, soybeans, and rice receive more than 90 percent of all farm subsidies, while growers of most of the 400 other domestic crops are completely shut out of farm subsidy programs. Further skewing these awards, the amounts of subsidies increase as a farmer plants more crops.

Thus, large farms and agribusinesses -- which not only have the most acres of land, but also, because of their economies of scale, happen to be the nation's most profitable farms -- receive the largest subsidies. Meanwhile, family farmers with few acres receive little or nothing in subsidies. In other words, far from serving as a safety net for poor farmers, farm subsidies comprise America's largest corporate welfare program.

With agricultural programs designed to target large and profitable farms rather than family farmers, it should come as no surprise that farm subsidies in 2001were distributed overwhelmingly to large growers and agribusiness, including a number of Fortune 500 companies. Charts 1 and 2 show that the top 10 percent of recipients -- most of whom earn over $250,000 annually -- received 73 percent of all farm subsidies in 2001.4 This figure represents an increase above the 67 percent of all farm subsidies that they received between 1996 and 2000. The next 10 percent of recipients saw their percentage of farm subsidies fall slightly from 17 percent between 1996 and 2000 to 15 percent in 2001.

The main losers in 2001 were the bottom 80 percent of farm subsidy recipients, including most family farmers, who saw their collective share of the subsidy pie shrink from 16 percent throughout the previous five years to 12 percent in 2001. This represents a decline of 25 percent in the share of subsidies received by these farmers.

At the same time, Chart 3 shows that the number of farms receiving over $1 million in farm subsidies in one year increased by 28 percent to a record 69 farms in 2001. Topping the list was Arkansas' Tyler Farms, whose $8.1 million bounty was 90,000 times more than the median farm subsidy of $899 -- and nearly equal to the total of farm subsidies distributed to all farmers in Massachusetts and Rhode Island combined.5

Why Farm Subsidies Will Continue to Target Large Farms

Although farm subsidies have targeted large farms for decades, the evolution of farm subsidies into a corporate welfare program has accelerated in recent years for two reasons:

  • Congress has siphoned record amounts of money into farm subsidies since 1998; and
  • Farm subsidies have helped large corporate farms buy out small farms and further consolidate the industry.

Despite an attempt to phase out farm programs in 1996, Congress reacted to slight crop price decreases in 1998 by initiating the first of four annual "emergency" payments to farmers. Subsidies increased from $6 billion in 1996 to nearly $30 billion in 2000 even though farmers have substantially higher incomes and net worths than the national average. Predictably, as subsidies increased, the amounts of subsidies for large farms and agribusinesses also increased.

Although increased subsidies help explain why large farms are receiving more money, however, they do not explain why they are receiving a larger portion of the overall farm subsidy pie. Since 1991, subsidies for large farms have nearly tripled, but there have been no increases in subsidies for small farms.6 Large farms are grabbing all of the new subsidy dollars from small farms because the federal government is helping them buy out small farms. Specifically, large farms are using their massive federal subsidies to purchase small farms and consolidate the agriculture industry. As they buy up smaller farms, not only are these large farms able to capitalize further on economies of scale and become more profitable, but they also become eligible for even more federal subsidies -- which they can use to buy even more small farms.

The result is a "plantation effect" that has already affected America's rice farms, three-quarters of which have been bought out and converted into tenant farms.7 Other farms growing wheat, corn, cotton, and soybeans are tending in the same direction. Consolidation is the main reason that the number of farms has decreased from 7 million to 2 million (just 400,000 of which are full-time farms) since 1935, while the average farm size has increased from 150 acres to more than 500 acres over the same period.8

This farm industry consolidation is not necessarily harmful. Many larger farms and agribusinesses are more efficient, have better technology, and can produce crops at a lower cost than traditional farms; and not all family farmers who sell their property to corporate farms do so reluctantly.

The issue of concern is not consolidation per se, but whether the federal government should continue to subsidize these purchases through farm subsidies and whether multimillion-dollar agricultural corporations should continue to receive welfare payments. When President Franklin Roosevelt first crafted farm subsidies to aid family farmers struggling through the Great Depression, he clearly did not envision a situation in which these subsidies would be shifted to large Fortune 500 companies operating with 21st century technology in a booming economy.

Millions for Millionaires

A glance at some of the recipients of farm subsidies in 2001 shows that many of those receiving these subsidies clearly do not need them. Table 1 shows that 12 Fortune 500 companies received farm subsidies in 2001. Subsidies to the four largest of these recipients -- Westvaco, Chevron, John Hancock Mutual Life Insurance, and Caterpillar -- shattered their previous record highs.



Table 2 lists other rich and famous "farmers" who received massive farm subsidies in 2001. David Rockefeller, the former chairman of Chase Manhattan and grandson of oil tycoon John D. Rockefeller, for example, received a personal record high of $134,556. Portland Trailblazers basketball star Scottie Pippen received his annual $26,315 payment not to farm land he owns in Arkansas. Ted Turner, the 25th wealthiest man in America, received $12,925. Even ousted Enron CEO and multi-millionaire Kenneth Lay received $6,019 for not farming his land. Chart 4 shows how these amounts tower over the amount received by the median farm subsidy recipient, who has received just $899 per year since 1996.





Conclusion

The farm bills currently being considered by a House-Senate conference committee would further accelerate the transformation of farm subsidies into corporate welfare programs. Most of their enormous $171 billion cost would subsidize highly profitable Fortune 500 companies, agribusinesses, and celebrity "hobby farmers" and help fund their purchases of small family farms, and the average American family would be left paying $4,400 in taxes and inflated food prices to benefit millionaires -- unless Congress or President George W. Bush finally puts an end to this counterproductive waste of taxpayer dollars.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation.

Show references in this report

1. The current bills, which are in conference committee, are S. 1731 and H.R. 2646.

2. For a summary of the calculations showing a $4,400 per-household cost, see Brian M. Riedl, "The Cost of America's Farm Subsidy Binge: An Average of $1 Million Per Farm," Heritage Foundation Backgrounder No. 1510, December 10, 2001.

3. "A Safety Net for Farm Households," U.S. Department of Agriculture, Agriculture Outlook, January-February 2000, pp. 19-24. The authors estimated a cost of $7.8 billion when including everyone who reports any farm income, including "hobby farmers" who have other full-time jobs. Restricting their data to full-time farmers, defined as lower-sales, higher-sales, and large-family farms as well as a fraction of limited-resource farms that are also full-time, the total cost adds up to approximately $4 billion. The eligibility threshold for several federal income-assistance programs, like Women, Infants and Children (WIC), is 185 percent of the federal poverty level.

4. Unless otherwise noted, all farm subsidy recipient statistics in this paper are provided by the Environmental Working Group at www.ewg.org.

5. Tyler Farms received this bounty, despite laws capping farm subsidies, by dividing itself into 66 legally separate "corporations" to maximize its farm subsidies. See Brian M. Riedl, "How Farm Subsidies Became America's Largest Corporate Welfare Program," Heritage Foundation Backgrounder No. 1520, February 25, 2002.

6. U.S. General Accounting Office, Farm Programs: Information on Recipients of Federal Payments, GAO-01-606, June 2001,
p. 14.

7. Elizabeth Becker, "Land Rich in Subsidies, and Poor in Much Else," The New York Times, January 22, 2002.

8. Robert A. Hoppe, "Structural and Financial Characteristics of U.S. Farms: 2001 Family Farm Report," U.S. Department of Agriculture, Economic Research Service, Agriculture Information Bulletin, No. 768, May 2001, p. 6.

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