Some of the nation's farmers have found a dependable crop that always gives a high yield: The federal subsidy
By Greg Burns. Greg Burns is a Tribune senior correspondent.
At first glance, it's hard to reconcile corn at rock-bottom prices and farmland in the Corn Belt selling at record highs. But with billions of dollars in federal farm aid up for grabs during an election year, all sorts of financial magic becomes possible in the rural heartland. As of last week, congressional conferees were still struggling to find middle ground between a House farm bill favoring the biggest producers and a Senate measure that tilts slightly more toward small farmers and conservation initiatives. In one of the hotter disputes, House negotiators are pushing for a $550,000-per-farmer cap on annual government subsidy payments, while the Senate wants a $275,000 cap. Either is grossly excessive. And the magnitude of those subsidies helps explain why the dirt is worth more than the crop in prime Midwest growing regions. The government works its magic by encouraging the biggest operators to take on more land and giving landowners a guaranteed investment return, no matter what the market pays for corn. Yet the healthy land values mask depopulation, crumbling infrastructures and diminished community life throughout much of farm country. In its latest survey of rural bankers across Illinois, Wisconsin, Iowa, Indiana and Michigan, the Federal Reserve Bank of Chicago found that farmland prices rose 5 percent in 2001, on top of a 6 percent gain in 2000. Both years set records, surpassing the previous highs established just before the farm crisis of the 1980s, when a debt-financed boom gave way to a bust of foreclosures and forced auctions. The latest gains have come more gradually than in the 1970s. "It's taken a long time for those prices to move back up," noted Jack L. Hervey, senior economist at the Chicago Fed, who conducts the study. But prices still are gathering momentum, real estate experts say, even as commodity prices go nowhere, with corn futures prices at barely $2 per bushel and soybeans well below $5. One of the dirty secrets of federal farm subsidies isn't such a secret any longer. Just 4 percent of the nation's farmers receive two-thirds of federal farm dollars. That's nothing new, but the statistic has taken on a human face recently with the introduction of a Web site from the non-profit Environmental Working Group. Through a database at ewg.org, anyone can track how much money has gone to individual farmers through direct subsidy payments in a given county. For instance, the database shows that Lowell Heap Farms in Dewey collected $743,580 in total U.S. Department of Agriculture subsidies between 1996 and 2001, the most in Champaign County. Sound like a lot? Well, Illinois' top recipient, the Pat Scates & Sons partnership of Shawneetown, pulled in $3.67 million in the 1996-01 period, the database shows. That's a lot in a shrinking town of just 1,410 residents. You don't have to be down on the farm to collect either. During that same time, 1,398 residents of Chicago pulled in $16.5 million in USDA subsidies. For the confirmed urban dweller, inheriting that patch of dirt in the sticks never looked so good. 'Egregious inequity' Imagine the fun this data provides for the have-nots in rural America, who now can so easily see how much they outnumber the haves. An "egregious inequity," thunders Sen. Richard G. Lugar of Indiana, ranking Republican on the Senate Agriculture Committee. "This is a program that transfers taxpayers' money to a select few." And guess what typically tops the shopping list for that select few? Even more than a new pickup or combine, it's land. "It's very hard to find new land to rent," explains Alan Grimm, owner of a real estate firm in North English, Iowa. "When property comes up for sale, they bid on it. Farmers buy most of our farmland." No surprise, the phenomenon of big farmers buying out the neighbors does nothing to promote rural development in communities bereft of economic opportunities for the young. No wonder most of the nation's 556 rural farm counties are losing population. "Nobody's moving in," noted Kenneth Johnson of Loyola University Chicago, a rural demographer. "They are fading away because the young people keep leaving and the people left in them keep aging." Of course, farmland values aren't solely influenced by farm programs. As the Fed's Hervey notes, urban sprawl plays a role in pushing up prices in areas near big cities, including the collar counties of Chicago. Grimm recently handled a transaction for a Chicago investor who sold 40 acres close to the city for housing development at $5,000 an acre, then bought a bigger, more fertile spread in Iowa for $1,800 an acre. Demand for hobby farms and second homes in rural spots with nice scenery also contributes to the overall increase, and some of the least-desirable farmland in Grimm's area is selling to out-of-state hunters for pheasant preserves. The strong economy of the late 1990s, including the rise in stock market values, contributes as well. But those factors have a solid economic basis. The subsidies create the biggest distortions, and no one has an easy answer for bringing rational economics back to the farm. The 1996 farm bill was supposed to do it, by eliminating the short-sighted practice of paying farmers to idle productive land. But it turned into a dismal failure. Nicknamed "Freedom to Farm," it became known as "Freedom to Fail" when commodity prices plunged shortly after its passage. Emergency aid Congress responded with major emergency aid. So legislation billed as a farewell to subsidies instead sent them soaring while also doing away with production controls. Most of the prescriptions from do-gooders concerned about rural degradation urge spreading around the big bucks to promote economic growth and investment. Conservation could get a huge boost from an enlightened farm bill. Better credit and insurance programs to help young farmers, job-creation through rural development, and research into renewable energy sources all could pay dividends for the nation. And to be sure, a cutback in taxpayer expenditures on farm programs is in order. Both the Senate and House measures contemplate $170 billion in spending over the next 10 years--money that could support more worthy priorities. But those potential reforms run up against a political calculus that makes the status quo harder to break than ever. Sparsely populated North Dakota has the same two votes in the Senate as California, New York or Illinois, after all. And with party control of both houses of Congress held so narrowly, and several critical election contests taking place in flyover country, farm state votes are critical. Low-cost food has its charms, too, in an election year. So don't look for the economics of agriculture to change soon. Instead, think about opportunities for owning a piece of the heartland. Uncle Sam seems determined to make it pay. DOMESTIC POLICY If the marketplace determined farmland values, you could pick up acreage for a pittance. But a battle in Congress over the current farm bill shows that, for a select segment of U.S. agriculture, praying for subsidies, which drive up the price of farmland, is probably more important than praying for rain.:
