Bay Journal

Farm subsidy battle cropping up in as budget cuts intensify

  • By Scott Faber on April 01, 2005
  • Comments are closed for this article.

Food fight! That’s one way to describe the battle brewing over farm spending as Congress struggles to balance the soaring federal deficit this spring and summer.

For months, farm and food advocates pressured Congress to spare farm programs from major cuts.

But, last month, the House and Senate budget committees called for cuts of $5.3 billion and $2.8 billion over five years, respectively.

In the coming weeks, the battle lines will be drawn.

And, the early skirmishes have not been pleasant. When an Iowa senator said an army travels on its stomach and “can’t eat cotton,” a Georgia senator replied that most soldiers are wearing cotton underwear, sock and T-shirts.

On one side are large cotton, rice and feed grain farmers who are trying to protect an income subsidy system that costs more than $20 billion in some years and pays some farmers more than $1 million a year.

On the other side are farmers who grow crops like fruit, nuts, vegetables and livestock that are ineligible for subsidies; small farmers who gets subsidies but want to level the playing field, and an alliance of environmentalists, fiscal conservatives, and anti-poverty groups. They say that the income subsidies help too few U.S. farmers, harm farmers in developing nations, and just cost too much.

“Farm subsidies do little to help most of America’s hard working farmers manage the risks they face despite costing more than $20 billion in some years,” said Colt Fosburgh of the conservative Free Enterprise Fund. “Only one-third of America’s farmers are even eligible for farm subsidies.”

Only “program crops” such corn, soybeans, wheat, cotton and rice are eligible for income subsidies, which come in three forms: payments that make up the difference between a target price and the market price; a “direct” payment that is tied to past production; and loan “gains” that result when interest rates change in a farmer’s favor.

Some environmental groups also oppose the income subsidies, as currently designed, for two reasons.

Income subsidies make it financially possible for farmers to grow row crops on lands that are too arid or too wet, and they encourage farmers to convert pasture and rangeland to row crops that require more chemicals and water.

What’s more, income subsidies and conservation payments come from the same pot of money.

So, farmers seeking USDA conservation payment to improve air, water and wildlife habitat are locked in a low intensity struggle with farmers seeking income subsidies.

Conservation payments flow to all farmers (including subsidized farmers) regardless of what they grow.

This spring and summer, Congress will decide whether to cut income subsidies, conservation payments, or both to help balance the budget. And that means that the budget battle will ultimately determine how many Bay watershed farmers can receive federal funding to improve water quality, restore wetlands and stream buffers, and take other steps to improve the health of the Bay.

The budget committees get to decide how big the cuts should be.

But, the agriculture committees—which have historically been dominated by Southern and Midwestern legislators—get to propose which programs should be cut.

Advocates for small or unsubsidized farmers, the environment and taxpayers are clearly the underdogs in this fight.

But, they have already scored a small, though symbolic, victory.

The Senate budget committee, at the urging of Sen. Charles Grassley, R-IA, passed an amendment advising the Senate agriculture committee to cap annual subsidies to help balance the budget.

In particular, Grassley and many other farm state legislators have proposed a $250,000 annual cap on farm subsidies and to close loopholes in the current cap.

The current farm bill, passed in 2002, placed a $360,000 cap on annual subsidies, but the existing cap is easily evaded. President Bush endorsed the $250,000 payment cap in his FY 2006 budget request.

Advocates like Grassley say payment limits will “level the playing field” between large and small farmers. And, they say, using income subsidy limits will help spare conservation programs from cuts.

Because subsidy payment are linked to production, some large farmers can receive more than $1 million a year. A few even received more than $2 million in 2003.

But, 80 percent of the farmers eligible for subsidies received less than $2,000 in 2003.

As a result, large farmers drive up the cost of renting land—and force their smaller neighbors out of business, experts say. The subsidy payments also contribute to crop surpluses that reduce the price farmers can earn in the market.

“Farm payments that were originally designed to benefit small and medium-size family farmers have contributed to their own demise,” Grassley said.

“Limiting farm payments to those who need it most is the right thing to do,” he said. “Rural America can’t continue to withstand the pressure that unlimited payments create. These sky-high farm payments to the biggest of the big are placing upward pressure on land prices and contributing to overproduction and lower commodity prices, which are driving many family farmers off the farm.”

Only a handful of Bay watershed farmers will be impacted by a lower cap, studies show.

Only 22 out of nearly 35,000 Virginia farmers who received subsidies in 2003 got more than $250,000, studies show. And, several of those “farms” were large agribusinesses like Purdue, Cargill and Pilgrim’s Pride.

Only three Maryland farms received more than $250,000 and no farms in Pennsylvania and West Virginia received that much, according to USDA data collected by the Environmental Working Group.

One New York farm received more than $250,000, but it is not in the Bay watershed.

Most farmers in Bay states received considerably less than their large counterparts in states like Mississippi and Arkansas in 2003. In Virginia, the bottom 80 percent of farmers eligible for subsidies received $397, on average.

Bay state farmers expected a major influx of federal funds when the Congress passed the 2002 Farm Bill, which more than doubled national farm spending when compared with the early 1990s.

But, total farm spending—subsidies and conservation combined—in some Bay states actually fell in 2003 or was lower than recent peak years.

For example, total farm spending in Maryland in 2003 was $66.3 million, down from 2000 and 2001, when total farm spending reached nearly $90 million. Farm spending in Virginia also fell slightly in 2003. Spending in Pennsylvania increased, thanks in part to the creation of a new dairy subsidy program and disaster payments.

But, farm spending in Bay states is still meager when compared to states like Texas and Iowa, where farmers collected $1.8 billion and $1 billion in 2003, respectively.

Although conservation spending reached new highs, payments to improve air, water and wildlife habitat were far less than expected, and farmers in Bay states still face long backlogs when they seek USDA conservation money.

One reason is a program designed to address nutrient use in the Bay watershed was dropped, at the insistence of House leaders, during the final hours Farm bill negotiations. A provision to implement a conservation plan for the Delmarva Peninsula was included but never implemented.

A “regional equity” provision that requires states to receive at least $12 million annual funding has helped small states like Maine but has not done much to help Bay states, as most already received more than $12 million a year.

As a result, all of the farmers offering to restore wetlands in Maryland, Virginia and Pennsylvania in 2004 were rejected because of inadequate funding, and half of Maryland farmers offering to improve water quality were turned away, according to the USDA. Almost 80 percent of Pennsylvania farmers seeking incentive payments through the Environmental Quality Incentives Program were rejected in 2004.

Congress has already cut by more than $3 billion the $18 billion promised to farmers who offer to help the environment when Congress passed the 2002 Farm Bill. Most of those funds have been diverted to pay Great Plains farmers disaster relief.

President Bush proposed to further cut conservation programs in his budget blueprint.

Most budget watchers expect Sen. Grassley’s payment limits proposal to prevail in the Senate Agriculture Committee and on the Senate floor.

But, the outcome in the House is far less clear, and many expect House and Senate budget bill negotiators to face some tough choices—whether to cut income subsidies that flow to 33 percent of farmers, or cut conservation payments that flow to all farmers

Senate Budget Committee Chairman Judd Gregg, R-NH, represents a fiscally conservative state where fewer than 500 farms are even eligible for subsidies.

By contrast, House Budget Committee Chairman Jim Nussle, R-IA, represents part of the second most subsidized state in the nation (after Texas) and is rumored to be considering a run for governor.

But, Iowa Sens. Grassley and Tom Harkin, D-IA, are longtime advocates for payment limits. And, only three Iowa farmers received more than $250,000 in 2003.

Lobbyists for larger farmers say the payment limits proposal would “reopen the farm bill” and undermine “the delicate balance” struck by the 2002 Farm Bill.

“That’s an argument they didn’t make when Congress was cutting conservation funds promised by the farm bill,” said one Senate staffer. “And, I didn’t hear them complaining when Congress reopened the 1996 Farm Bill to give them more money.”

The lobbyists also say farmers planned to receive big checks until 2007, when the current farm bill expires, and that changing course by imposing payment limits would “wreak havoc” in some farm communities.

Family farm advocates who have been pushing meaningful payment limits for decades say the time is ripe for change.

“It is time to stop forcing the taxpaying public to pay for farm consolidation and the loss of economic opportunities in farming,” said Ferd Hoefner of the Sustainable Agriculture Coalition. “The current lack of effective payment limits hurts family farmers and the rural communities they help support, harms the environment and compounds our compliance problems with world trade rules.”

A World Trade Organization panel last month confirmed that U.S. farm subsidies violate a 1994 treaty that limits “trade-distorting” subsidies.

As a result, US exporters—including exporters of crops not eligible for subsidies—may soon face retaliatory tariffs.

Conservatives like Fosburgh of the Free Enterprise Fund note that U.S. farm subsidies are harming “the farmers who look to the market, rather than the treasury, for their success.”

“Expanding export markets is among the most promising ways to boost the income of farmers, including many of the farmers who are ineligible for subsidies,” said Fosburgh, referring to USDA studies predicting that farm earnings will grow by $13 billion a year if tariffs and subsidies are simultaneously reduced.

“It’s not as if the subsidies are saving the family farm,” adds Ken Cook of the Environmental Working Group. “The farmers who produce most of America’s food do so without a check from taxpayers.”

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About Scott Faber

Scott Faber is a writer living in Washington, D.C.

Read more articles by Scott Faber

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