July 26, 2007

July 26, 2007 | Commentary on Agriculture

Farm Subsidies for Millionaires

Washington spends more on corporate welfare than on homeland security -- and farm subsidies are America's largest corporate welfare program. This year, as lawmakers rewrite the farm programs and push up their spending, they will invoke Norman Rockwell imagery to portray farm subsidies as a vital lifeboat for small, struggling family farmers. Don't believe a word of it.

Farms have come a long way since subsidies were introduced as a temporary solution to alleviate the effects of the Great Depression. Today, the average farm household earns $81,420 and has a net worth of $838,875 -- both well above the national average. Farm incomes are setting records, and farms have one of the lowest failure rates of any industry.

To be sure, some family farmers continue to struggle. But if farm subsidies were really about alleviating farmer poverty, then lawmakers could guarantee every full-time farmer an income of 185 percent of the federal level ($38,203 for a family of four) for under $5 billion annually -- one-fifth the current cost of farm subsidies.

Instead, small farmers are largely excluded from farm subsidies. Farm subsidy payments are based on acreage, so by definition, the largest agribusinesses get the largest subsidies. Consequently, commercial farmers -- who report an average income of $200,000 and net worth of nearly $2 million -- now collect the majority of farm subsidies. Most farm subsidy dollars go to millionaires.

The Environmental Working Group's farm subsidy database reveals that from 1995 to 2005, farm subsidies have been distributed to Fortune 500 companies such as John Hancock Life Insurance ($2,849,799) and Westvaco ($534,210), as well as celebrity "hobby farmers" such as David Rockefeller ($553,782) and Ted Turner ($206,948). Even members of Congress who vote on farm legislation have received subsidies, such as Sen. Charles Grassley (R-Iowa, $225,041) and Rep. John Salazar (D-Colo., $161,084).

Payment limits exist -- on paper. However, an entire industry of lawyers exploits loopholes, rendering these limits meaningless. Farmers can simply divide their farms into numerous separate entities and then collect subsidies for each farm.

For example, The Washington Post reports that Tyler Farms in Arkansas has collected $37 million in farm subsidies since 1996 by dividing itself into 66 legally separate corporations. Other farmers evade payment limits by signing up family members, such as the Georgia farmer who reportedly collected thousands in additional subsidies by listing his two-year-old daughter as a co-farmer.

It gets even sillier. Most subsidies are based on land's historical use, even if no longer used for farming. So when 75 acres of Texas farmland was recently converted into a housing development, the homeowners on these $300,000-properties become eligible for annual farm subsidies for the lawn in their backyards. Residents never asked for these subsidies and have even stated that as non-farmers they do not want the government mailing them checks.

Small farmers are harmed the most by farm subsidies. Excluded from most subsidies, they must endure the lower crop prices, higher farmland costs and industry consolidation that result from subsidies to agribusiness.

Despite all these problems, lawmakers assert that the agricultural industry would collapse without subsidies. Hogwash. The vast majority of farmers thrive despite few, if any, subsidies. In fact, 90 percent of all farm subsidies are linked to just five crops -- wheat, cotton, corn, soybeans and rice. Producers of fruits, vegetables, beef and poultry receive almost no farm subsidies. Yet they earn healthy incomes, and supermarkets are filled with their products. Free enterprise already works for all other farm production, and it can surely work for the few remaining subsidized crops.

Surely, farming is not risk-free. While it can be very profitable, farmers remain one weather disaster away from losing their crops. But basic crop insurance and savings, rather than $25 billion annual handouts, are the more responsible way to manage this business risk.

A commonsense reform would replace farm subsidies with tax-free farmer savings accounts, and even provide a limited government match. Farmers could pay in during the boom years, and draw out in the down years, with crop insurance covering potential catastrophic losses. This could be targeted to family farmers (and regardless of the crop grown), who would own their accounts. It would save taxpayers billions, promote open trade, and even be more environmentally friendly than current subsidies.

Not surprisingly, a similar proposal recently offered in Congress was met with strong opposition from the House and Senate agricultural committees -- the same lawmakers who will be trotting out the Norman Rockwell, family farmer imagery.

Brian M. Riedl is the Grover M. Hermann fellow in federal budgetary affairs at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

First appeared the McClatchy wire