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Farmers May Be Struggling, but They Enjoy a Generous Safety Net

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Original Publication: The Fiscal Times, February 12, 2017
Article Author:
February 12, 2017
Programs: Agriculture


The U.S. farm economy has had a long, storied history of boom and bust.

Farm incomes reached record highs as recently as 2013, leaving producers flush with cash and optimistic about the future. But the Department of Agriculture’s latest 2017 farm income forecast released last week offers a much bleaker picture of things to come:

Net farm income is forecast to decline by 8.7 percent to $62.3 billion -- the lowest level in nearly 15 years when adjusted for inflation. Receipts from wheat sales are likely to plunge by $1.4 billion or 16.6 percent compared to 2016. What’s more, the value of farm assets will dip by 1.1 percent, while farm debt is projected to surge by 5.2 percent.

And if that wasn’t bad enough, the Wall Street Journal warned last week that another big agricultural financial bust may be on the way. “Across the heartland, a multiyear slump in prices for corn, wheat and other farm commodities brought on by the glut of grain worldwide is pushing many farmers further into debt,” the Journal’s Jesse Newman and Patrick McGroarty wrote.

Among the report’s more salient findings:  The U.S. share of the global market is less than half of what it was in the 1970s -- falling from 65 percent of the world’s grain production to 30 percent today. A strong U.S. dollar is allowing overseas competitors to undercut U.S. prices. Some farmers are shutting down, raising the specter that the total number of U.S. farms may dip below two million for the first time.

Craig Scott, a fifth-generation farmer in Ransom, Kansas, in the heart of farm country, lamented to the Journal reporters that “You keep pinching and pinching and pretty soon there’s nothing left to pinch.”

Farming forever has been a high-stakes enterprise, with success or failure determined as much by the vagaries of weather, the relative value of the dollar and the shape of foreign markets as by a farmer’s skill in managing his land and planting the right crops. Farming has changed considerably over the past half century, with larger, more efficient, corporate farms absorbing smaller farms, or driving them out of business.

But one thing that hasn’t changed that much is the invisible hand of the federal government, which has heavily subsidized and propped up farmers over the years with hundreds of billions of dollars of assistance. The Farm Belt throughout the south, the Midwest, and the far West has long been a potent political force, and Congress has generally responded with generous assistance – even for some who don’t really need it.

The 2014 farm bill was hailed as a major breakthrough in agriculture spending reform, with changes that got rid of some of the most blatant boondoggles. Even so, the legislation called for nearly $1 trillion of spending over five years on agricultural programs and food stamps, with a lot of that money earmarked for programs to take some of the risks out of farming.

“Agricultural businesses have a safety net that would be the envy of any industry,” said Joshua Sewell, senior policy analyst with Taxpayers for Common Sense. Sewell argues that this sudden concern about declining farm incomes overlooks the fact that farmers were on an economic roll for several years and now must face up to a market correction.

“Crop prices and farm incomes have reverted to their long-term norm after experiencing record highs from 2009 to 2013,” he said, hardly a cause for further government assistance.

Taxpayers for Common Sense, a government watchdog group, has long made a cottage industry of closely monitoring federal agriculture programs that cover everything from subsidizing agriculture businesses to rural utilities to nutrition assistance. Some of these programs date back to the 1930s, during the Great Depression, and are hard to justify today. While the group applauded some of the reforms in the 2014 legislation, it denounced some of the changes as legislative sleight of hand.

Republican and Democratic negotiators agreed to cut roughly $19 billion in farm programs over five years. One of the biggest breakthroughs was the elimination of so-called direct payments. In the past, grain producers would receive payments each year totaling about $5 billion, regardless of the prevailing market prices or which crops, if any, they grew.

With the blessing of the Obama administration, Congress finally voted to get rid of the wasteful direct payments. Yet while taking away that subsidy, lawmakers quietly gave some of it back, as the Fiscal Times reported. Some of those savings from direct payments were added to a massive crop insurance program, in which the federal government covers losses from poor yields or declines in revenue.

According to Sewell, the 2014 farm bill “put taxpayers on the hook for keeping these good times rolling,” by expanding federally subsidized crop insurance and creating two new subsidy programs – Agriculture Risk Coverage and Price Loss Coverage.

“And we’ve been hooked,” Sewell said in an email late last week. “The most recent estimates put the price tag for ARC/PLC at $32 billion for the first five years of payments, $15 billion more than originally estimated, and crop insurance is still expected to cost an additional $8 billion a year.”

Sewell terms the latest round of bad economic news for farmers a “market correction” following years of good times, and insists that the government shouldn’t have to blunt the impact.

“This market correction didn’t sneak up on anyone,” Sewell said. “Instead of looking to taxpayers for additional financial bailouts, we need to reform our ag policy to allow farmers to plant for a 21st-century market rather than Washington.”

Original Publication URL: http://www.thefiscaltimes.com/2017/02/12/Famers-May-Be-Struggling-They-Enjoy-Generous-Safety-Net

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