Saturday, May 24, 2008

Going Crazy Because of the Farm Bill

Yesterday I read the following editorial from David Brooks at the NY Times.

The $307 billion farm bill that rolled through Congress is a perfect example of the pattern. Farm net income is up 56 percent over the past two years, yet the farm bill plows subsidies into agribusinesses...
Talking Versus Doing - New York Times

This article prompted the following comment from me:

“People continually get this wrong. Farm subsidies do not equal higher food prices. They equal lower food prices. Even Brooks has it backwards. There is a reason that food costs less today (yes even after the recent increases) in the US than it did 20 years ago. That reason is the long standing policy of the federal government to keep downward pressure on farm commodities via the farm bill.
Pick a side, people. Bemoan rising food prices or bemoan farm subsidies but you can't have it both ways.”

I get so tired of all the misinformation flying around about the farm bill. It really drives me to insanity. Everyone loves to comment on it. Very few care to learn anything about it so they can speak from a factual basis. So I am going to help you out with a few facts about the farm bill.

The first thing I would like to address is the payment of subsidies to "rich farmers". Yes, there are rich farmers and, yes, they do get paid subsidies. Some of this is legitimate and some is through fraud. Fraud is not right and it should be dealt with. I, however, am interested in the legitimate payments. The reason high income farmers qualify for subsidy payments is because, while payments have the effect of helping farmers, the underlying purpose of payments not to help farmers but to keep food prices low.

The reason we have rich "commercial" farmers in the first place is because decades of federal policy aimed at keeping U.S. food prices continually decreased the margins for farmers. These smaller margins mean the only way farmers can make a profit is through increased efficiency and, of course, one of the routes to improved efficiency is scale. In the Eighties everyone decried the death of the family farm but the federal government was not about to do anything about it lest they face the wrath of the U.S. public over rising food costs.

Okay, a few facts about the farm bill:

  1. The 2008 farm bill amounts to about $307 billion. That is a five year figure. Articles regarding the farm bill tend to leave that out.
  2. Of that $307 billion only $26 billion will be used for direct payments.
  3. $209 billion out of 307 will be spent on Nutrition Assistance. Programs such as school lunches and food stamps.
  4. Subsidy payments are based on acreage and production history not need. However, they are indexed to crop prices. As prices rise payments fall. In many cases subsidy payments have already fallen to zero due to the sharp rise in crop prices the past two years.
Finally I leave you with a some additional information about the American farmer. The Department of Agriculture estimates that the average farm household in 2008 will have an income of $89,434.00. And $75,805.00 of that amount will come from off-farm sources. Speaking from personal experience, our farm brings in something in the neighborhood of $30,000 per year from outside sources.

Regardless of what the press, and especially the NY Times, want you to believe, the Farm bill is not welfare for rich farmers. The farm bill is what has allowed the U.S. to have the cheapest food in the world for decades. I, and almost every farmer I know, am not a fan of the farm bill. I would prefer to let the free market work. However, if the pundits in the press believe as I do then they should make that argument instead of couching it in misleading stories that distort the purpose and effect of the farm bill.

I hope I have, in some way, added to your understanding of this issue.

Thanks for reading.
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