The Des Moines Register / March 4, 2001 / By TIMOTHY J. GALVIN
From coffee shops to congressional hearing rooms, there's a consensus of sorts emerging in U.S. farm-policy debates. The conclusion is that current policy is, at best, unsustainable, and at worst, not serving rural America very well. While no one is much satisfied with present policy, there's little agreement on how to change it.
The bulk of farm program assistance is in the form of Agricultural Market Transition Act payments, provided under the Freedom to Farm bill, and so-called supplemental AMTA payments, which Congress has approved on an ad hoc basis to stem the erosion in farm income. The payments are based largely on a farmer's historical production of major program commodities (feed grains, wheat, cotton and rice) rather than current plantings or prices. AMTA and supplemental AMTA payments account for more than $16 billion of fiscal year 2000's $28 billion in direct cash payments to farmers. Any effort to reshape agricultural policy almost requires that AMTA payments be reviewed.
Before offering an alternative policy, there are important factors that should be considered in determining the nature and distribution of farm-program benefits.
The first is the structure of U.S. agriculture. There are more than 2 million farms in the United States, and the number seems to be growing modestly. But more than 1.2 million of those farms are defined by the USDA simply as "retirement" or "residential/lifestyle" farms with little farm sales or income, and an almost exclusive reliance on off-farm income. At the same end of the spectrum are another 127,000 "limited resource" farms that average just $10,000 in total household income and lose an average of $800 a year in their meager farming operations.
At the opposite end are two categories: "very large family farms" with more than $500,000 in annual farm sales and more than $200,000 in average annual household income, and so-called "non-family farms" (non-family corporate or cooperative farms) with net farm income averaging more than $110,000 annually. These two categories account for 58,000 and 39,000 farms, respectively.
In the middle are about 730,000 farms that depend on their farming operations to maintain at least a portion of household income, which typically ranges from only modest to comfortable. Since government payments account for about 51 percent of U.S. net farm income, the balance sheets of even the most prosperous of these mid-size commercial farming operations could be significantly weakened if farm payments were suddenly denied altogether.
A second major factor is the thrust of payments toward producers of major commodities (feed grains, wheat, soybeans, cotton and rice), mostly in the Midwest and South. Producers of other commodities and from other regions are increasingly asking for "their" piece of the farm safety net. That demand is not one that Congress will likely ignore.
A third factor is that current farm payments often seem to miss their mark - at least if you believe they should be going to help moderate-sized family producers stay on the farm. A case can be made that too large a share of current federal payments serve to benefit landlords, not necessarily farmers.
A fourth factor is the likelihood that future trade-liberalization efforts under the World Trade Organization will continue WTO members on a path toward further limiting, and perhaps one day eliminating, so-called "trade distorting" forms of domestic farm support. That support is generally defined as aid tied to the current production or price of specific commodities.
How should these factors be taken into account? One way is to put the focus on supporting farmers - especially those who depend on their farm income for a living - rather than on a handful of favored commodities. It should be clear to taxpayers just who those payments are going to and the public benefits that likely will result.
Public support should go to those farmers who derive much of their livelihood from agriculture, but who need some government support to maintain a viable farming operation. Three criteria could determine eligibility: 1) current, active engagement in farming; 2) annual farm sales of at least $50,000 in one of the past three years; and 3) total household income, exclusive of government farm payments, of less than $50,000 per year.
If the above criteria were applied, approximately 525,000 U.S. farms would be eligible for government income support based on annual sales of at least $50,000. However, the household income test of less than $50,000 annually (net of government farm payments) likely would reduce the number of eligible farms to not more than 450,000. If policy-makers decided to supplement those farm households with payments of up to $25,000 per farm, the total annual cost would be about $11 billion per year -around $5 billion less than fiscal year 2000's AMTA and supplemental AMTA payments, yet higher than the annual cost of direct income payments in previous years.
Payments would be available to all farms meeting the broad eligibility criteria. Support would be provided to many livestock and specialty crop farms that are largely excluded now. The result would be a program that truly reflects a national farm policy.
If taxpayer support for farmers is to be maintained, then payments should be viewed as something more than mere cash transfusions to the rural sector. Eligible farmers should be allowed to apply their payments toward options that offer some public benefits as well:
* Conservation, environmental or wildlife habitat improvements. Considerable progress has been made to reverse the environmental damage done by previous farm policies and give priority to conservation and wildlife habitat improvements. However, the needs continue to outstrip available resources. Farmers and ranchers should be allowed to use some of their federal farm support in partnership with private organizations to further conservation and wildlife goals.
* Health insurance. Comprehensive family health insurance for a self-employed person can easily exceed $ 6,000 per year. If you're a rancher getting by on $20,000 a year, that's a large bite out of the family budget. Many farm families are dangerously under-insured or have no insurance. Their competitors in Australia and Canada may receive less government farm support, but they do benefit from government-sponsored health care, as do farmers in the European Union who also receive generous farm subsidies.
* Retirement or natural disaster accounts. Farmers often can't save for retirement or to guard against drought, flood or other natural disasters. Crop insurance can protect most farmers against the biggest losses, but natural disasters typically set any farmer back, or drain a retirement account as well. Farmers should be allowed to put some of their savings in a tax-deferred retirement/disaster fund, with a match from the federal government.
* Cooperative producer processing/marketing ventures. One key to financial survival lies in farmers' ability to claim a larger share of the consumer dollar. That's partly why farmers markets, offering direct producer sales to consumers, have flourished. Similar ideas, like neighboring cattlemen who want to sell their "natural" beef under a local label or minority farmers who need a distribution facility for their specialty produce, often founder for lack of modest start-up capital. Farmers should be allowed to pool their federal payments in joint processing, marketing and promotion ventures.
* Any "approved" state program. States should be encouraged to offer incentives that could be matched with federal money to support priority initiatives in the state. Many states have their own farmland-preservation programs. Others offer education and training programs geared toward upgrading a farmer's marketing and other skills. Federal farm support could be used, on a matching basis, to supplement these and other creative state efforts.
Some might fault this menu approach, preferring to send farmers a check, regardless of farm size and household income. That, essentially, describes current policy. But that's part of the reason that others feel the policy often misses its mark, favors producers of certain commodities and artificially inflates land and rental values to the benefit of landlords, while leaving moderate-size family farmers on the brink of financial ruin.
Federal farm support should be viewed as a pact between producers and the public that provides some assurances to taxpayers that public support will generate public benefits in the form of enhanced conservation of soil and water, increased wildlife populations, improved health-care coverage and stronger and more diversified farming operations and rural communities. Farmers and ranchers should be assured that the public is willing to support the fabric of family farms most likely to make those objectives obtainable.
The choice is ours.
TIMOTHY J. GALVIN, who is from Sioux City, was the administrator of the USDA's Foreign Agricultural Service from 1999 to 2001. He was an aide to former Iowa Democratic Congressman Berkley Bedell from 1976 to 1986.
Copyright 2001, The Des Moines Register:
