January 23, 2002 | Backgrounder on Agriculture
The nation was spared the burden of additional misguided and counterproductive agricultural subsidies when the Senate failed to vote before the end of 2001 on a new farm bill that would have dramatically increased subsidies to farmers.1 However, the Senate is now poised to vote on this legislation as soon as late January or early February of this year. If passed, this bill would raise subsidies even further than the version passed by the House of Representatives on October 5, 2001, and would expand agricultural subsidies to their highest levels in history.2
Although it is possible that the Senate may once again be unable to act on the agriculture legislation within the next two months, it will be certain to revisit the issue before next fall. Therefore, it is critical that flaws in the legislation as now written be recognized.
The haste with which this legislation has been brought to the Senate floor has been justified largely in terms of the presumed needs of small farmers; specifically, this year's debate has been punctuated with seemingly endless claims that increased subsidies are needed to save farms with annual incomes below $50,000. Instead of accomplishing this aim, however, the House and Senate legislation would only heighten the effects of current policy and existing programs that channel the bulk of subsidy payments to high-income farms that produce just two crops: rice and cotton.3
Allocation of Subsidies
Largest Subsidies go to High-Income Cotton and Rice Farmers
While the two highest-subsidy states (Florida and Arizona) are not rice growers, both are large-scale cotton producers (above 300,000,000 pounds per year). Cotton production represents about 80 percent of Arizona's total program-crop income, and 83 percent of that value is distributed among farms with annual sales of $500,000 and above. Similarly, in Florida, 71 percent of cotton production value belongs to farms with annual sales of $250,000 and above.
All of the second-tier subsidy recipients (Arkansas, California, Louisiana, and Mississippi) produce both cotton and rice. Cotton represents a relatively lower percent of total production value in these states--between 34 percent (Arkansas) and 66 percent (Mississippi)--but cotton and rice production together represent 80 percent to 86 percent of total production value. Also notable is the income distribution among rice growers.
While covering a broader range than cotton, there is still a clearly uneven distribution toward high-income farms. In the state with the most evenly distributed income (Louisiana), 62 percent of rice production value belongs to growers with $250,000 or more in annual income; in the state with the least evenly distributed income (Mississippi), 92 percent of rice production value belongs to growers with annual sales of more than $250,000.
The trend is clear. The states whose production is dominated by rice and cotton get the highest subsidies per acre, and those subsidies (dispensed on a per-hundredweight or per-pound basis) go overwhelmingly to high-income farmers.5
Helping Low-Income Farmers?
Proponents of agricultural subsidies frequently cite the need to help low-income farmers. In looking at the bottom tier of subsidy recipients, however, it is clear that this is not what subsidy programs actually accomplish. In both Pennsylvania and New Jersey, lower-income farms (those with annual income ranging from $20,000-$250,000) account for approximately 46 percent of total program-crop income. Yet, as Chart 1 indicates, these states rank among the lowest in the nation in terms of the per-acreage subsidies they receive.6 By contrast, in Arizona, California, and Mississippi (which rank among the top seven states in terms of per-acreage subsidies), farms at the $20,000-$250,000 income level account for only 6.5 percent to 10 percent of their states' total income from program crops.
The lesson is clear: The bulk of subsidy payments does not go to lower-income farmers. With few exceptions, states whose agro-economies are dominated by lower-income farms receive lower per-acre payments. This result is contrary to the purported goal of subsidy programs, but it is, in fact, the effect they have.
If the goal of the nation's agricultural policy is truly to save the small farm, Washington policymakers are badly missing their target. The highest subsidy payments are awarded to a few states whose economies are dominated by rice and cotton production generated by a few high-income farms.
If low-income farms are to benefit from a new farm bill, the paradigm of subsidy-based agricultural legislation should be revisited and reformed. Yet hope for reform is dim, given that the only recently proposed legislation that would have shifted programs to target the farms with the greatest needs has been tabled.7 The fact that the Bush Administration supported a bill similar to that passed by the House but did not support the Senate bill (S. 1731), which had bipartisan support, indicates that there is a lack of consensus, even among fiscal conservatives, on how best to address the issue.
The bottom line is that any continuation of existing subsidy programs will not accomplish the goal of helping small farms. The subsidy increases in the proposed Senate legislation would only further exaggerate the uneven income distribution that already exists and continue the vicious cycle of low prices created by overproduction.8 Ultimately, the only prospect for creating a system with long-term stability lies in creating a reformed agricultural policy based on market-oriented principles.
Ethan T. Baker is a consultant in the Center for Data Analysis, and 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.
5. There are two obvious exceptions to this trend: Rhode Island and Massachusetts. These exceptions, however, can be explained by special circumstances; both states possess very small acreage, and both received relatively large disaster relief payments in 1999.