Taxpayers funding Washington's
$20,000-per-household budget have long known they are not getting
their money's worth. Farm subsidies are among the most wasteful
uses of taxpayer dollars. The budget-busting $180 billion farm bill
enacted before the 2002 elections not only encourages the crop
overproduction that depresses crop prices and farm incomes, but
also undermines trade and encourages other nations to refuse
American exports.
Perhaps worst of all, farm subsidies are
not distributed to the small, struggling family farmers whom
lawmakers typically mention when defending these policies. Rather,
most farm subsidies are distributed to large farms, agribusinesses,
politicians, and celebrity "hobby farmers." This paper analyzes how
Washington distributed farm subsidies in 2002 and illustrates that
farm subsidies continue to represent America's largest corporate
welfare program.
Farmers Are Not Poor
Farming may be the most federally
subsidized profession in America. The persistence of farm subsidy
programs results from the popular misconception that they stabilize
the incomes of poor family farmers who are at the mercy of
unpredictable weather and crop prices. Yet a recent U.S. Department
of Agriculture report concluded that, "On average, farm households
have higher incomes, greater wealth, and lower consumption
expenditures than all U.S. households." This statement can be broken down into
three parts:
- Higher
incomes. In 1999, the average farm household earned
$64,437--17 percent more than the $54,842 average for non-farmers.
Incomes were even higher among the 136,000 households with annual
farm sales over $250,000--and who also receive the largest
subsidies. Their 1999 average income of $135,397 was two-and-a-half
times the national average. (See Chart 1.) Farmer incomes are not
only high, but also quite stable from year to year, despite
agricultural market fluctuations.
- Greater
wealth. The average farm household had a net worth of
$563,563 in 1999--well above the $88,000 national average.
- Lower
consumption expenditures. Farm households have fewer costs
than other households because (1) the cost of living is lower in
rural America; (2) farm households need to purchase less food from
outside sources; and (3) mortgage and utility bills are often
classified as business expenses. Consequently, the average farm
household spent only $25,073 on goods and services in 1999, which
is $11,000 less than the average non-farm family.
Because farmers are relatively wealthy, alleviating
farm poverty would not be very expensive. Just $4 billion per year
would guarantee every full-time farmer in America a minimum income
of 185 percent of the federal poverty level ($34,873 for a family
of four in 2004).
However, farm subsidies are more corporate welfare than poverty
relief, so Washington instead spends $12 billion to $30 billion
annually subsidizing large farms and agribusinesses that are much
wealthier than the taxpayers footing the bill.
How Farm Subsidies Target Large Farms
Eligibility for farm subsidies is
determined by crop, not by income or poverty standards. Growers of
corn, wheat, cotton, soybeans, and rice receive more than 90
percent of all farm subsidies: Growers of nearly all 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 land, but also are the
nation's most profitable farms because of their economies of
scale--receive the largest subsidies. Meanwhile, family farmers
with few acres receive little or nothing in subsidies. Farm
subsidies have evolved from a safety net for poor farmers to
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 2002 were distributed overwhelmingly to large growers
and agribusinesses--including a number of Fortune 500 companies.
Chart 2 shows that the top 10 percent of recipients received 65
percent of all farm subsidies in 2002. At the other end, the bottom 80 percent
of recipients (including most family farmers) received just 19
percent of all farm subsidies.
Chart 3 also shows that the number of farms
receiving over $1 million in farm subsidies in one year increased
by 13 percent to a record 78 farms in 2002. Riceland Foods, an
Arkansas co-op, topped the list by amassing a staggering $110
million in farm subsidies for its members--more than subsidies to
every farmer in Nevada, West Virginia, Vermont, Maine, Delaware,
New Jersey, Massachusetts, Connecticut, New Hampshire, Alaska,
Hawaii, and Rhode Island combined. (See Chart 4.) Table 1 shows the
13 members of the "$2 million club."
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.
- 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 incomes and net
worths substantially higher than the national average. Predictably,
as subsidies increased, the amounts of subsidies for large farms
and agribusinesses also increased. A growing farm economy has
subsequently caused a decrease in farm subsidy spending--yet
spending remains much higher than in the 1990s.
Although increased subsidies help to explain why
large farms are receiving more money, 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, while
subsidies for small farms have not increased. Large farms are grabbing all of the new
subsidy dollars because the federal government is helping them to
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 become more profitable by
capitalizing further on economies of scale, but they also become
eligible for even more federal subsidies--which they can then 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. 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.
This farm industry consolidation is not necessarily
harmful. Many larger farms and agribusinesses are more efficient,
use better technology, and can produce crops at a lower cost than
traditional farms. Additionally, not all family farmers who sell
their property to corporate farms do so reluctantly.
The
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 D. 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, the
Elected,
and Connected
A
glance at those who received farm subsidies in 2002 shows that many
of them do not need federal dollars. Table 2 shows the 12 Fortune
500 companies that received farm subsidies in 2002. John Hancock
Mutual Life Insurance's $2.3 million farm subsidy payment was by
far the largest among these companies. The farm subsidies granted
to these Fortune 500 companies since 1995 are--on average--70 times
larger than those granted to the median farmer.
Table 3 lists the nine Members of Congress who
received farm subsidies in 2002. Since 1995, these lawmakers have
received subsidies averaging 46 times those received by the median
farmer. Five of the nine lawmakers also sit on the House or Senate
agriculture committees overseeing these programs.
Table 4 details other notable farm subsidy
recipients, including:
- David Rockefeller, the former chairman of
Chase Manhattan and grandson of oil tycoon John D. Rockefeller, who
received 99 times more subsidies than the median farmer;
- Scottie Pippen, professional basketball
star, who received 39 times more subsidies than the median
farmer;
- Ted Turner, the 25th wealthiest man in
America, who received 38 times more subsidies than the median
farmer; and
- Kenneth Lay, the ousted Enron CEO and
multi-millionaire, who received 3 times more subsidies than the
median farmer.
Reform Options
Several options exist to shift farm
subsidies away from large agribusinesses. The best option would be
for Congress to recognize that farm subsidies are unnecessary,
outdated, and counterproductive by:
- Completing the phase-out of farm subsidies
that was scheduled to begin following the 1996 "Freedom to Farm"
law (and was abandoned in the 2002 farm bill);
- Replacing farm subsidies with a subsidized
crop insurance program that is designed to protect family farmers
from the short-term risks of farming (such as bad weather);
and
- Pressuring other nations to follow
America's lead and repeal their own trade-distorting farm policies,
thereby opening up new markets for American farm exports.
Instead of taxing Americans to support a
centrally planned agriculture policy, these reforms would leave
farmers free to compete and prosper in the global free market.
Alternatively, lawmakers who are hesitant
to repeal farm subsidies could save billions by limiting the
subsidies that each farm may receive. Farm policy was never
intended to provide millions for millionaires, and policymakers can
refocus farm policy by enacting the reforms listed in Table 5.
Conclusion
Lawmakers who are serious about fiscal
restraint should consider farm subsidies one of the most
justifiable places to find savings. These corporate welfare
programs enrich agribusinesses and other non-farmers at the expense
of family farmers, the farm economy, and taxpayers. With federal
spending spiraling out of control and the budget deficit
approaching $500 billion, taxpayers can no longer afford to pay
farm subsidies to the rich and famous.
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.