Overhauling the Farm Bill: The Real Beneficiaries of Subsidies

It's one thing to support a family farmer. It's quite another to subsidize the expansion of a mega-farm that puts family farmers out of business.

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Editor's Note: The Farm Bill is the Olympics of U.S. food and agriculture policy. Every five years or so this important legislation comes up for renewal and the games begin. The federal government awards medals in the form of billion-dollar budgets that will determine what foods we eat and how we grow them. The current Farm Bill is set to expire on September 30, 2012, and the debate over who will dominate the food system is well underway. Farm Bill 101 is a three-part series adapted from the recent update of Food Fight: The Citizen's Guide to the Next Food and Farm Bill and is designed to unravel what is at stake in this vital legislation.

The news media often cite this statistic related to the Farm Bill: the "richest 10 percent" of farm subsidy recipients take in almost three-quarters of payments. While the Farm Bill subsidy system certainly suffers from rampant abuse, such numbers must be unpacked to get a more accurate assessment of the financial state of the American farm -- and to figure out the ultimate beneficiaries of farm subsidies.

To start: What's a farm and who is a farmer? The United States Department of Agriculture (USDA) definition is quite broad: "any place from which $1,000 or more of agricultural products were produced or sold, or normally would have been sold, during the census year." When the USDA calculates average farm income, it also includes "rural residence farms" -- households that may own a cow or a few sheep, but do not list their occupation as "farmer." About 31 percent of farms are producing so little that they don't even clear $1,000 a year.

Why does this matter? Well, these mini- and residential farms don't generally get subsidies, and their households rely primarily on off-farm income -- and yet they represent two-thirds of the 2.2 million "farms" surveyed by USDA. The paychecks these people get from other jobs are also taken into account when USDA tallies "average farm income." This makes it appear as if: (a) the majority of American farmers do not receive subsidies; and (b) farm households have higher than average income.

Just a fraction -- around 15 percent -- of all farms generate most of the nation's agricultural output, primarily because they specialize in commodity crops. Family farms are a dying breed. Although the average American farm measures about 441 acres, farms that size are increasingly difficult to find. While mega-farms and so-called "hobby farms" are on the rise, it is the medium-scale operations, with acreage between 50 and 2,000 acres, that are declining.

Focus on that slice of small and mid-sized farms -- the 10 percent that gross $100,000 to $250,000 from farming and whose operators claim farming as their primary occupation -- and a far different picture develops. According to an analysis of USDA farm data by Tufts University researcher Timothy A. Wise, in 2003, these commercial family farms earned an average net income of $30,000 a year from farming -- more than half of which came from some form of government subsidy payments. In this income segment, 82 percent of farms received some sort of government payment. In other words, contrary to popular belief, a significant majority of family farmers receive benefits from Farm Bill programs and rely on them to keep their operations afloat.

Even as commodity prices reached record highs in 2007, family farmers continued to struggle. While corn prices increased 87 percent between 2003 and 2007, fertilizer costs jumped 67 percent. Fuel costs doubled. At the same time, farm safety net programs called counter-cyclical payments, which kick in when the market price of a crop falls below a target price, dropped by half for small and mid-sized farms. As a result, their net income from agriculture actually declined between 2003 and 2007, from $30,000 to $26,000. Farm households supplemented their income with an average of $31,000 from jobs off the farm during the period of Wise's study. That combined income put these households just barely above the U.S. average. Without the farm subsidies, many would border on poverty.

So it's understandable that true family farmers feel vilified by attacks on farm subsidies. But they have not been good at making their own case to the public, or Congress. Rather, they have handed over their representation to agribusiness lobbies, who use the image of family farmers to fight chiefly for the interests of commercial mega-farms.

Not surprisingly, those elite, commercial mega-farms -- those earning over $250,000 per year that control vast acreages -- haven't felt economically squeezed. They have a manufacturing model, with an emphasis on long-lasting commodity crops like corn, cotton, rice, wheat, soybeans, and other animal feed grains -- not fruits and vegetables that humans actually eat. Human labor is replaced with gas-powered machinery, chemical fertilizers, and pesticides. Those supplies and equipment are expensive, but get economical when spread over a maximum number of acres or animals. According to Wise's analysis of USDA data, these huge farms were responsible for 44 percent of commodity crop production and received 32 percent of commodity payments in 2003. As Wise explains, "The concentration of farm payments is caused primarily by the concentration of land and production."

It's one thing to support a family farmer. It's quite another to subsidize the expansion of a mega-farm operation that puts family farmers out of business.

One problem is the lack of practical limits on how much a single farming operation can receive in subsidies. Thanks to numerous legal loopholes, lax enforcement, and loose definitions of what it means to be actively engaged in farming, essentially no caps currently exist. Farmers and landowners creatively form complex family partnerships with associated limited liability companies that find new ways to get on the subsidy gravy train. Lawyers and accountants exploit these loopholes, offering "payments limitations planning" services that stretch the legal definitions of "actively engaged in farming."

Under the 2008 Farm Bill, direct payments were capped at $40,000 for an individual or twice that for a married couple where both spouses are actively engaged in the farming operation. (Counter-cyclical payments are capped at $65,000/$130,000.) However, the vague and largely unenforceable regulatory standard for "actively managing" farm operations foiled even these attempts to target subsidy payments to working farmers.

THE TRUE BENEFICIARIES

The goals, strategies, and rules governing today's Farm Bill subsidies represent a complete departure from the price-stabilization policies that dominated Farm Bills until the 1970s. For decades, the government purchased grain from farmers during harvest time when it was plentiful, then sold it off when grain was more scarce. Other programs, such as land set-asides, also helped manage supply, boost prices, and conserve soil.

These programs were slowly dismantled beginning in the 1970s, when globalization began to shape the political and economic agenda. The U.S. began encouraging its farmers to plant fencerow to fencerow to generate exports. By 1996, the grain reserve program was eliminated by a Republican-dominated Congress. With the government out of the supply management game, farmers planted as much as they could, hoping to get ahead. The result was deflationary oversupply. In the ensuing years, the market price of corn fell to an average of 23 percent below what it cost farmers to grow it. As rural communities foundered, a flustered Congress instituted so-called "emergency payments" in 1998 to help keep farmers afloat. Those payments were made permanent in the 2002 Farm Bill.

With that move, the U.S. completed its shift away from policies designed to benefit farmers by stabilizing commodity prices to a system that encourages low market prices and then attempts to make up the difference with subsidies, revenue insurance, and disaster assistance programs.

In the meantime, the companies that buy commodity crops have been riding high. According to Tufts' Timothy Wise, Tyson, the country's largest chicken producer, saved nearly $300 million per year in the decade after the 1996 Farm Bill because it could buy chicken feed so cheaply. Smithfield, the world's largest hog producer, saved nearly the same amount. In total, the top four chicken companies saved more than $11 billion in the decade after the 1996 Farm Bill, while the top four hog giants saved nearly $9 billion on their feed costs.

Big processed-food manufacturers also fared well. According to a 2011 paper by Food & Water Watch and Public Health Institute, soda companies have saved an estimated $100 million each year on their corn bill -- mostly for high fructose corn syrup -- since supply controls were dismantled.

So to understand the subsidy debate that is about to get underway with the 2012 Farm Bill, it helps to know who ultimately benefits from policies, rather than who directly gets the money. The real winners in the subsidy explosion since the mid-'90s have clearly been the animal feedlot operators and the largest corporate mega-farms. Suppliers like Monsanto and big grain traders -- ADM, Bunge, Cargill, and Dreyfus -- benefitted handsomely as well. Small and mid-sized growers depend on subsidies to stay afloat, sometimes even in big years; meanwhile, big industrial growers thrive. Isn't there a better system?

Excerpted from Food Fight: The Citizen's Guide to the Next Food and Farm Bill (Watershed Media)