June 29, 1995
Everyone who buys food or pays federal taxes should be interested in the coming congressional battle over the 1995 farm bill. The issue is simple: Whether Congress will unleash the unrivaled productive power of U.S. agriculture or keep U.S. farmers plodding along under a tired, worn-out farm program created during the Great Depression.
The right decision could produce significant savings for both consumers and taxpayers, while producing an estimated $35 billion windfall for rural America.
Gradually doing away with the current farm program over a five year period -- and letting farmers produce for customers around the world without interference from Washington -- is the way to get there. The farm bill is the place to start.
The prospect of generating $35 billion worth of new farm income ought to be a powerful incentive for Congress to act, especially considering how the new prosperity would be spread throughout the country, according to a detailed computer model we put together at The Heritage Foundation to measure the impact of phasing out the farm program.
While all states would benefit in the long-run, from California to Florida, the greatest short-term benefits would be seen in the midwest farm belt. Five heartland states -- Colorado, Kansas, Missouri, Nebraska, and South Dakota -- would receive a healthy $5.7 billion chunk of the increased farm income. This is after factoring in added production costs and decreased "deficiency payments" in which the government pays farmers the difference between the market price and a government-imposed "target price" or loan rate, whichever is smaller. By the way, the following figures are for net income after the end of all federal deficiency payments:
* Colorado -- The Centennial State's wheat and corn producers would see an $82 million increase by 2000, and a total of $1.05 billion more by 2005.
* Kansas -- The Jayhawk State's wheat, corn, oats, barley and soybean growers would receive $158 million in added net income by the year 2000, and a cumulative total of more than $2.5 billion by 2005.
* Missouri -- Thanks to increased farm production nationwide, the Show Me State's food processors, as well as Missourians growing corn, soybeans and wheat, would enjoy $43 million in added net income in five years, and $709 million by 2005.
* Nebraska -- Farm machinery producers would share $25 million in added net income by 2000 with ranchers and grain producers in the Cornhusker State. By 2005, the state's farm sector would have received nearly $1 billion in increased income.
* South Dakota -- Oat, flax seed, sunflower seed and rye growers here would receive $21 million in added net income by 2000, and more than $546 million total by 2005.
Texas is another big winner. By 2000, the Lone Star State's wheat, cotton, rice and peanut producers would see a $13 million increase, but by 2005 the total would skyrocket to $1.08 billion.
With such a cornucopia available, one naturally wonders why farmers failed to reap such benefits before now? The answer is because the United States has never weaned itself off the current system, which was created in the 1930s to protect farmers from the volatility of a Depression-era marketplace.
Reform opponents are defending a costly, bureaucratic maze of special interest subsidies, deficiency payments, price supports, acreage allotments and red tape. Everybody but the politicians, Department of Agriculture bureaucrats and a few richly favored farmers will be big losers if Congress protects this creaky relic.
This is because under the current farm program 65 percent of all federal farm payments go to a mere 16 percent of farmers, those with gross annual sales of $100,000 or more. Small farmers -- those who sell less than $10,000 worth of farm products each year -- receive only 5 percent of the payments.
Worst of all, the current system forces farmers to plan, invest and plant as if their only customers are the 250 million consumers here in America, thus ignoring a growing worldwide food market of 6 billion hungry people beyond the United States.
If our farmers were instead free to plan for the near doubling population and rising living standards in Asia, Africa and Latin America in coming years -- where demand for food is expected to triple -- there is no telling how much prosperity could be ahead.
Members of Congress should understand that, if the 1995 farm bill begins the process of eliminating government subsidies and controls, America's farmers will be able to out-produce and outsell the rest of the world, with the expanded production fueling tremendous increases in farm income and in farm-related businesses. If Congress keeps the subsidies and controls, farm prosperity will wither on the vine for years to come.
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Note: John Frydenlund is former director of the Agricultural
Research Project at The Heritage Foundation, a Washington-based
public policy research institute.