USA TODAY | January 3, 2002
Subsidies even higher despite '96 law that aimed to end them
Thomas A. Fogarty
TARKIO, Mo. -- Farmer Blake Hurst asked Congress in 1995 to end government crop subsidies, or what he calls "middle-class welfare" for four generations of his family.
Congress delivered. In April 1996, President Clinton signed a farm law that scheduled a seven-year phaseout of subsidies, the cornerstone of U.S. farm policy since the Great Depression. Kansas Republican lawmaker Pat Roberts, a key congressional supporter, predicted "a new and golden age of agriculture."
But the so-called Freedom to Farm law went badly off track. Rather than weaning farmers from subsidies, the government is sending them more money than ever. As Congress returns this month to fashion a farm program to replace the 1996 law, talk of subsidy-free agriculture is dead. Among recent beneficiaries are NBA star Scottie Pippen, media mogul Ted Turner, 11 Fortune 500 companies and 492 residents of New York City. Although the outrage factor over such recipients is high, their collective take is a relative pittance.
The public's larger stake in farm subsidies is the drag they place on a federal budget sliding rapidly back into deficit and the barrier they present to expansion of international trade.
If preliminary budget decisions hold, the farm law could leave taxpayers on the hook for $ 170 billion in aid to farmers over the next decade. Even if Congress ultimately approves less, it pulls the rug from under the Bush administration as it prepares for a new round of world trade talks, in which one of the chief aims is to sharply cut governments' aid to farmers.
Hurst, 44, and his wife, Julie, started farming the rolling land of northwest Missouri after college graduation in 1978. A Hurst has been farming in Atchison County since Blake's grandfather settled here 70 years ago. Blake Hurst's father and two brothers farm nearby, and the younger generation of Hursts is moving into the family business.
In addition to the corn and soybeans that Blake and Julie Hurst plant on 500 acres, the Hursts grow bedding plants in a dozen sprawling greenhouses. They market the plants -- which have never qualified for government support -- at garden centers in nearby Omaha and Kansas City.
In the current market, crop farming in the Midwest is barely a break-even proposition. Hurst, sitting at the kitchen table of his modest farmhouse, sketches the numbers. Cost to plant, cultivate and harvest an acre of corn: $ 195. Market price on the average yield per acre: $ 240. Earnings: $ 45 an acre, or $ 22,500 on 500 acres.
It would be a lousy return even if a farmer invested nothing more than labor. But factor in an enormous investment in machinery and land, which fetches $ 1,500 an acre here, and the numbers don't justify farming in times like these. On top of it all is the risk of drought, floods, hail, insects or other calamities that could wipe out the crop.
Subsidies boost farm income
Enter the federal government. In 1933, when a quarter of the USA's population lived on 6 million farms and depression gripped the economy, the government initiated subsidies.
By Corn Belt standards, Blake Hurst's share of federal subsidies is small -- $ 87,626 during the five years ended in 2000. Five Atchison County farmers received $ 400,000 or more over the same period. Twenty-seven Missouri farmers -- most hundreds of miles southeast in rice and cotton country -- received $ 1 million or more, according to public records posted at the Web site of the Environmental Working Group.
To Hurst's way of thinking, government farm programs have fleeced taxpayers and stifled farmers' ingenuity and profits. They've also failed to stem the economic decline of America's dying small towns.
He's seen Tarkio, population 2,000, lose its auto dealers and its farm implement dealer in his time farming. His son's class at Tarkio High School has fewer than half the number of students of a generation ago.
"My little town is dying," he laments.
The story repeats itself in small towns across rural America. Technological advances enable a smaller number of producers to meet world needs. In 1997, 157,000 big farms -- 8% of total farms -- accounted for nearly three-quarters of commodity sales in the USA.
Hurst rejects the arguments of some fellow farmers who justify their subsidies because they spend the money with suppliers and Main Street merchants, thereby propping up the fortunes of rural America.
"By that argument, the government could just rent an airplane and throw out $ 100 bills," he says.
Shifting to the open market
High commodity prices lubricated passage of the 1996 farm law. Net farm income spiked to a record $ 55 billion that year, and the market -- not government -- provided nearly all of it.
Not only was the market looking appealing to farmers and politicians at the time, but Freedom to Farm had other inducements: an end to government-dictated limits on the type and quantity of crops a farmer could plant and no-strings-attached transition payments averaging $ 5 billion annually for seven years.
"It was sold as an exit strategy from farm subsidies," says Ron Knutson, a Texas A&M University economist.
Resentment of the government's role in agriculture traditionally runs high in farm country, even as its politicians have scrambled to maintain subsidies. A poll by The Des Moines Register taken at the time Clinton signed the Freedom to Farm law showed 64% support among Iowans for the government's move toward elimination of subsidies.
But here's how far U.S. agriculture has drifted from the government's 1996 goal of subsidy-free farming:
* In 2000, subsidies provided farmers 49% of their net income, up from 13% in 1996. Government payments last year soared to $ 23 billion, the highest ever.
* Subsidies since 1996 total $ 92 billion, triple the sum authorized in 1996 to ease the scheduled transition to the free market.
* Since enactment of Freedom to Farm, subsidies have provided 32% of farmers' incomes.
Free-market farming flops
In 1995 Senate testimony, Blake Hurst told lawmakers: "I'm ready to make it on my own."
So how did the plan for free-market farming fail?
In 1997, commodity prices dropped. Although Freedom to Farm had already provided transition payments to hedge against a market decline, Congress jumped right back into the issue.
Faced with cries of likely farm failures, Congress in 1998 -- and in each year since -- approved generous emergency supplements to farmers' scheduled transition payments.
Not in dispute is the fact that commodity prices have been in a prolonged slump. The reasons:
* Weather. An uncommonly long run of favorable weather has produced six consecutive bin-busting harvests for U.S. farmers. Result: more supply, depressed prices.
* Asia. The international financial crisis that started in Thailand in July 1997 reduced foreign demand for U.S. farm exports. The crisis slammed Asia particularly hard, stunting growing markets for U.S. farm products. The value of U.S. farm exports plunged 23% from 1997 to 1999.
* Protectionism. The government failed to aggressively open new foreign markets. That, say supporters of the 1996 law, meant bets were off for eliminating subsidies.
Skeptics say the 1996 farm act from the start was never a good-faith move toward free-market agriculture. Enactment helped fulfill a 1994 campaign pledge by GOP congressional candidates to scale down government and balance the federal budget.
And, at the time of the farm law debate, Clinton and majority Republicans in Congress were fashioning welfare reform. Neither could afford politically to be viewed as targeting only poor single moms in their budget-cutting.
Farmers fit the need for middle-class budget targets.
"It looked like reform and it smelled like reform," says subsidy critic John Frydenlund of Citizens Against Government Waste, explaining the political appeal of Freedom to Farm.
The farm lobby, meanwhile, welcomed the lifting of meddlesome government restrictions on the types and quantities of crops they could plant. In an eventual price downturn, which was certain to come in the cyclical business of agriculture, they knew farmers wouldn't be left in the lurch.
"If times got tough, they knew they could go back to Congress and get help," says Bruce Babcock, an economist at Iowa State University.
To true-believing free-market advocates, including Hurst, the outcome has become something of a bad joke. Conservative journal National Review recently derided agriculture policy since 1996 as "freedom to farm Washington."
"We should be extremely cynical," says Frydenlund, who pushed for passage of the 1996 act while at the Heritage Foundation, a conservative Washington think tank.
For an opinion journal called The American Enterprise, Hurst wrote recently of the policy failure: "Farmers and politicians discovered that their allegiance to self-sufficiency, freedom and all of the hardier virtues was closely tied to their bank accounts ... and the nearest election."
A return to subsidies
The collapse of Freedom to Farm has prompted supporters and critics alike to conclude that subsidies will be around not only for the five- or 10-year duration of the next farm program, but for generations to come. Among the reasons, they cite:
* Politics. As production consolidates, the smaller number of big producers are finding they have more common interests, including preserving subsidies. That, says Iowa State's Babcock, gives the farm sector a more unified voice in shaping government policies.
* Land values. In buying and selling farmland, the expected value of future subsidies is a significant part of the price. Department of Agriculture economists recently pegged it at 20% nationally, higher in the Midwest. If subsidies are eliminated, land owners would see their net worth plummet. Many mortgage lenders would be left holding title to land less valuable than the debt against it, jeopardizing the farm credit system.
* Commodity markets. Farmers are less able than other commodity sellers to force an end to prolonged price slumps like the current one. That's because there are so many of them, despite the consolidation of production in recent years. Unlike petroleum producers, for example, farm producers have no mechanism for forcing a price increase by agreeing to constrict supplies.
Looking back, Hurst says, few farmers really expected subsidies to disappear even when Freedom to Farm became law. Even for him, he says, it was more hope than expectation. He continues to favor farming without money from taxpayers. But, he says, he'll continue to cash the checks as long as the government keeps sending them.
Of the Freedom to Farm law, he says, "It was a great idea. Too bad we didn't follow through with it."USA TODAY:
