With the House and Senate close to agreeing on a
new $171 billion farm bill, the time is right to take a fresh look
at farm policy to ensure that taxpayers are getting their money's
worth. Although farm subsidies are justified as helping struggling
family farmers make ends meet, the bulk of subsidy payments goes to
the largest high-income farms. In fact, current farm policy
allocates two out of every three farm subsidy dollars to the top 10
percent of subsidy recipients while completely shutting 60 percent
of farmers out of subsidy programs.
ceilings that are in place on most farm subsidy programs are rarely
enforced by Congress or the U.S. Department of Agriculture (USDA),
and contain loopholes that allow the largest farms and
agribusinesses to bypass these limits. As a result, taxpayers are
paying billions of dollars to subsidize prosperous farms. Making
matters worse, many of the large farms that receive subsidies have
used these funds to buy out small farms and consolidate the
from remedying this problem, the House's Farm Security Act of 2001
(H.R. 2646) and the Senate's Agriculture Conservation and Rural
Enhancement Act (S. 1731) both increase subsidies and continue
tilting them to large farms and agribusinesses.
Subsidy Programs Designed for
subsidies are traditionally defended as--in the words of Senate
Agriculture, Nutrition and Forestry Committee Chairman Tom Harkin
(D-IA)--a "safety net" supplementing the incomes of poor farmers. One would expect farm
safety-net programs to target poor farmers, just as other
safety-net programs such as food stamps and Medicaid limit
eligibility to low-income families.
reality, however, the opposite is true: Farm subsidies are
distributed not on the basis of need, but with regard to two other
criteria: (1) the type of crop grown, with 90 percent of all farm
subsidies awarded to farms that produce wheat, corn, cotton, rice
and soybeans, and
(2) the amount of crops grown, with farmers who grow more crops
receiving higher subsidies. Therefore, large farms and
agribusinesses--which, as a result of economies of scale, are also
the most profitable farms--are eligible for massive subsidies as
long as they grow the crops the government wants them to grow.
Meanwhile, small lower-income farms growing the same five crops
receive only a fraction of what large farms receive; and farmers
planting the 400 other crops, regardless of their need, are
completely excluded from most farm subsidies.
sum, although farm subsidies are promoted as being necessary to
provide income maintenance for poor farmers, they are designed to
function as the largest corporate welfare program maintained by the
Limits and Loopholes
While farm subsidy limits have been set,
they exist more on paper than in practice. For example, the 1996
Federal Agriculture Improvement and Reform Act included regulations that set ceilings
on the amount of farm subsidies that an individual may receive--per
farm program, and per property. But these limits have not prevented
large farms from collecting millions of dollars annually.
Since 1998, Congress has passed annual
"emergency supplemental" bills that have increased Production
Flexibility Contract (PFC) payments by as much as 100 percent. Likewise, marketing
loan gains and loan deficiency payments supposedly contain $75,000
payment limits. However, their stipulations allow farmers to
continue receiving money beyond the subsidy limit and then forfeit
their crops to government to settle the loan.
Predictably, Congress has been averse to
having tens of thousands of farmers forfeit their harvest to the
federal government, given that the Department of Agriculture would
have to store and eventually sell or give away the crops. To avoid
this burden, Congress opted to double the marketing loan gain and
loan deficiency payment ceiling to $150,000 in 1999 and 2000 so
that farmers would not have to forfeit their crops. In 2000,
then-Agriculture Secretary Dan Glickman implemented a commodity
certificate program that effectively eliminated all payment limits
for marketing loan gains and loan deficiency payments.
of Congress and orders from the Secretary of Agriculture are not
always needed to circumvent payment limits. Congress has left
several loopholes in the law that large farms can easily utilize to
maximize their subsidies.
greatest loophole is the fact that subsidy limits apply to people,
not farms; this applies to individuals as well as to corporations
and partnerships. Therefore, large farms and agribusinesses can
simply sign up each of their employees for a subsidy, and farmers
in some cases can sign up their spouses and children to maximize
the total subsidy to a given farm. Furthermore, the limits shown
for individual payments in Table 1 can be doubled if they are
spread out across up to three properties. For example, an
individual who receives the maximum PFC subsidy of $40,000 for one
property can also receive up to $20,000 for each of two additional
properties, for a total of $80,000 in subsidies.
owners have taken advantage of this law by dividing an existing
farm into several separate farms and then having its workers
collect a separate subsidy for each farm. A case in point is Tyler
Farms in Arkansas, which collected $23.8 million in farm subsidies
between 1996 and 2000 (the largest amount granted to any farm in
America) by dividing itself into 66 legally separate "corporations"
to maximize its farm subsidies.
failure of Congress and government entities to enforce payment
ceilings, combined with subsidy limits that are full of loopholes,
has created a system that has channeled billions of dollars in
"support" to the largest and most profitable farms as long as they
grow what the government wants them to grow.
Under this mistargeted system, agriculture
policy has become America's largest corporate welfare program.
According to the Environmental Working Group, two-thirds of all
farm subsidies go to the top 10 percent of subsidy recipients while
the bottom 80 percent of recipients receive less than one-sixth of
farm subsidies. A full 60 percent of America's farmers do not
qualify for any assistance. In 2000 alone, more than 57,500 farms
received subsidies totaling over $100,000, and subsidies of at
least 154 farms topped $1 million. Among these beneficiaries are
fifteen Fortune 500 companies, including Westvaco, Chevron, and
John Hancock Mutual Life Insurance, which receive as much as 58
times as much as the median annual subsidy of $935.
current system has caused hardship not only for the taxpayers who
pay this enormous subsidy tab, but also for unsubsidized farmers
with small farms. Many of the largest, most profitable farms and
agribusinesses that have received the lion's share of subsidies
have used these funds to buy out smaller farms. In what one
agriculture official calls the "plantation effect," family farms
with less than 100 acres of land are being bought out by larger
agribusinesses, which then convert them into tenant farms. To date,
three-quarters of the nation's rice farms have already become
tenant farms, and the ownership of other types of farms is
beginning to trend in that same direction.
other words, far from saving America's family farms, the current
farm subsidy system is destroying them.
How Current Bills will Increase these
According to the USDA, the cost of
creating an effective safety-net farm policy to ensure that the
income of every full-time farmer in America would be at least 185
percent of the federal poverty line ($32,652 for a family of four
in 2001) would have been approximately $4 billion in 1997 and just
slightly more today. This investment is dwarfed by the
amount that has been spent for the nation's crop subsidy programs,
which totaled $29.8 billion in fiscal year 2000.
the House and Senate farm bills would spend approximately $171
billion on subsidies over the next 10 years. These large increases in farm
subsidies would be used in part to expand Production Flexibility
Contracts, establish a new "countercyclical" subsidy program, and
extend marketing loan gains and loan deficiency payments to
producers of wool, mohair, and honey.
bills not only preserve massive subsidies for large farms and
agribusinesses, but effectively increase these subsidies by
weakening payment limitations. Table 1 shows that the House bill
increases the annual PFC ceiling from $40,000 to $50,000, while the
Senate bill establishes a limit as high as $100,000 for PFCs and
new countercyclical payments combined. Both bills also double the
ceiling for marketing loan gains and loan deficiency payments to
$150,000. Finally, the maximum grant for one-year Environmental
Quality Incentives Program (EQIP) projects is quintupled from
$10,000 to $50,000 in both bills, while the maximum grant for
multi-year projects increases from $50,000 to $150,000 in the
Senate bill and to $200,000 in the House bill.
Overall, these changes will further
consolidate subsidies among the wealthiest farms and
agribusinesses, and will substantially increase the programs' cost
to taxpayers. There have, however, been some attempts to trim back
such increases in corporate welfare.
- Representative Nick Smith (R-MI) proposed
an amendment to the House bill that would have enforced the new
$150,000 annual limit for marketing loan gains and loan deficiency
payments by restricting the commodity certificates loophole to
bypass the limits; the amendment was defeated 238-157.
- Another amendment authored by
Representative Smith would have directed the Secretary of
Agriculture to reduce the subsidies of those whose benefits were
above $150,000 in the event that annual farm subsidies exceeded the
subsidy ceiling mandated by the World Trade Organization; that
amendment failed by a voice vote.
- The Senate voted to reduce the total
subsidies an individual can receive in one year from $500,000 to
$275,000; that first step, however, though well-intentioned, would
not reduce the bias toward wealthy farms because subsidies would
still be targeted to the largest farms growing the most crops, and
every subsidy-limit loophole described above would be retained.
Rather than seriously reform the farm subsidy system's bias toward
wealthy farms, the Senate has moved to make this bias a state
secret. S. 1731 amends the Freedom of Information Act to classify
many of the publicly released lists showing who receives farm
subsidies and how much they receive.
time when the critical war against terrorism is costing
approximately $70 billion per year and a recession is reducing tax
revenues, the nation will face persistent budget deficits of over
$100 billion annually and possible tax increases unless Members of
Congress can make the decisions necessary to reduce wasteful
spending. Abandoning a massive $171 billion corporate welfare farm
bill that is designed to shift more money to the largest farms and
agribusinesses at the expense of small farmers and taxpayers should
be one of their easier tasks.
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