Monday, November 20, 2006

One of the Main Goals of the 2007 Farm Bill Should be to Eliminate Subsidies for Wealthy Farmers

Wasted subsidiesWe are currently spending billions of dollars subsidizing wealthy farmers who seemingly do not need government support. In 2003, half of commodity payments -- more than $3 billion -- went to households with incomes above $76,000; one-quarter went to households with incomes above $160,000; and 10 percent went to households with incomes above $343,000. To put these numbers in context, the median income of all U.S. households in 2003 was roughly $43,000.

In a 2006 Economic Research Service report entitled “Growing Farm Size and the Distribution of Farm Payments,” James MacDonald et al. explained that the proportion of farm subsidies being paid to wealthy farmers has been increasing. This trend has been caused by the interaction between two factors: 1) the percentages of crops and livestock produced by very large farmers has been increasing, and 2) farm subsidies are a function of the quantity of crops and livestock a farmer produces.

There is no way to justify the billions of dollars we are spending to subsidize wealthy farmers. Supporters of basing farm subsidies on production levels argue that the purpose of farm subsidies is to assist farmers who depend on agricultural markets for income. This method for calculating farm subsidies may make sense for farm households who make less than, say, $60,000 or $70,000. However, this argument does not explain why each year we are transferring billions of dollars from taxpayers to farm households with more than $100,000 in net income—well above the $43,000 median household income. Farm households with more than $100,000 in net income do not need government assistance.

At a minimum, we should impose more stringent caps on farm subsidies. While past farm bills have included caps on farm subsidy caps, these caps have been set much too high. Currently, an individual may receive up to $40,000 in direct payments, up to $65,000 in counter-cyclical payments, and up to $75,000 in marketing loan benefits. 7 U.S.C. § 1308. Furthermore, the “3-entity rule” essentially doubles these farm subsidy caps for farmers who operate three or more separate farm entities. 7 U.S.C. 1308-1a. There is no income limit on who may receive farm subsidies. 7 U.S.C. 1308-3a. I recommend 1) lowering the cap on direct payments plus counter-cyclical payments to somewhere between $10,000 and $20,000, 2) eliminating the 3-entity rule, and 3) imposing an income limit on persons who may receive farm subsidies. We are currently wasting money by paying farm subsidies to farmers with more than $250,000 in gross income.

CropsIn addition, it seems wise to rethink the purposes of income and price support programs and to target payments in a manner that is consistent with these programs’ purposes. Is the purpose of income support programs to assist all farmers with financial need? Or, is the purpose of income support programs to assist mid-sized family farmers, for whom farming is their sole source of income? Nonrecourse loans, one type of price support program, serve the useful purpose of stabilizing prices. Nonrecourse loans prevent markets from being flooded with crops at harvest time and are intended to provide a safety net for years when agricultural prices are particularly low. Are there legitimate justifications for providing income support (e.g. direct payments) to farmers in addition to price support (e.g. nonrecourse loans)?

A debate about the purpose of income support programs would be more complicated than a debate about farm subsidy caps. If we are going to continue to spend $6.5 billion annually on commodity programs, both debates are ones that are well worth having.