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A Farmer's Scarlet Letter

Saturday, April 1, 1995

C rop subsidies for the 400-acre farm that we rent here in northwest Missouri average $10,000 a year, and I've gotten in the habit of spending it all. But Pat Roberts, congressman from Dodge City, Kansas, and the new chairman of the House Agriculture Committee, assures me that I won't have to wear bib overalls with a scarlet "S" for "subsidy" on the front. Well, that's a relief.

Roberts's sense of humor is as dry as the West Kansas wind. And this year he'll need it, because 1995 will see the reauthorization of the Farm Bill, the huge piece of legislation that will govern federal agricultural programs for the next five years. As a defender of the existing subsidies, Roberts may find himself as lonely as a Dodge City vegetarian.

Several rounds of budget-cutting have pared farm programs by half, or $14 billion annually, since 1989. Roberts intends to protect what is left, and that may take more than a good sense of humor. He will have few allies. The Clinton administration has no interest in agriculture, except for a desire to turn the Midwest into a gigantic wetland, and to do whatever the poultry industry wants. Bob Dole, normally a roadblock in the way of farm reform, will be busy running the Senate and his presidential campaign. The new leadership of the House of Representatives includes Dick Armey, who looks at farm subsidies the way a dog looks at a bone. Richard Lugar, the chairman of the Senate Agriculture Committee, has opened the debate with a list of 53 questions about farm policy. His first one: "Should we have a farm program at all?" (Roberts likens Lugar to Lizzie Borden, taking 53 whacks at farmers.) Farm programs have been on the defensive for years, but Lugar is the first leading farm-state legislator to question their very existence. Roberts is circling the wagons to do what agriculture-committee chairmen have always done--protect the subsidies--but this time he may lose.

Although I have long been a critic of farm subsidies in principle, Lugar's questions and the programs' unpopularity have suddenly turned a philosophical question into a frighteningly personal one. In addition to his 53 questions, the 54th and most important one is: How would I replace the $10,000 in subsidies that I receive each year?

Well, for one thing, I'd grow more beans. My corn crop is directly subsidized, but my soybean crop isn't. So guess which crop I grow more of. Without corn subsidies, growing soybeans would be more profitable for us here in Westboro, and in many years beans are more profitable even after we receive our green government checks. But we consistently plant more than half our acres in corn to protect our corn base. Base is the number of acres planted to a subsidized crop, and is used to determine the size of government payments.

If we plant more soybeans to take advantage of their greater profitability, we lose some eligibility for future corn subsidies. Fathers pass many important lessons along to their sons. Here in the Corn Belt, a 60-year-old lesson is: Protect your base!

We could offset some of these lost subsidies by reducing our costs of production. Soybeans are cheaper to plant, and their yield is less dependent on timely rains. We could save on the expensive insecticides we have to apply to the 20 percent of our land that is in continuous corn.

We could also save on commercial fertilizer. Soybeans "fix," or capture, nitrogen from the air and leave it in the soil. Some of that nitrogen is available as nutrient for the following year's crop. By increasing our soybean acreage, we could do with less fertilizer. (The two crops compete for the same acres in this region; if soybean prices dropped because lots of other farmers made the same decision, then corn would become more profitable.)

Another thing we'd do without farm subsidies is grow more. In order to qualify for government payments, we must leave part of our farm idle. This spring, for instance, we will plant on only 380 of our 400 acres. We could plant those other 20 acres without any additional investment in tractors, or combines, or rent. Without the acreage limitations imposed by farm programs, we would spread our fixed costs over more acres.

And perhaps most important of all, there is gumbo. Gumbo is the soil that makes up much of our river-bottom ground. The spring after we plant corn on gumbo, the soil has the consistency of well-cured concrete. There are only two solutions to this problem: fall plowing, which is terribly expensive, or rotation to soybeans.

Without the program, we could increase our average yields through better crop rotation. Corn after soybeans consistently yields 10 to 20 percent more than second-year corn. So part of the lost subsidies would be replaced by higher yields.

The largest single expense for any farmer is the cost of his land. And this is where the farm program has its biggest impact. The first thing farmers want to know when a neighbor's farm comes up for sale is the size of its crop base. Farms with a large corn base are eligible for higher subsidies, and so are worth more than those with a smaller one--another reason to protect the base. When farm subsidies diminish, the price of land falls. Farmers compete with one another for land. Farm policy has the effect of subsidizing established farmers who own much of their land, and making it more difficult for younger farmers to buy or rent land to establish themselves. Farm programs are often touted as an attempt to save the family farm. But when the capitalized value of subsidies raises the costs to families who want to farm, the programs serve as a barrier to entry. Not surprisingly, the average age of farmers is well over 50. Cuts in farm subsidies would allow easier entry into farming, and less expensive transfer of farms between generations.

Without subsidies, we would be freed of a number of bureaucratic burdens. This spring, we will have to trek to the local Consolidated Farm Services Administration office to receive approval for our crop plan. After all of our crops are planted, we must return to certify that we did what we said we would. Government planes fly over our farm to take photographs and make sure that our corn plantings are within the limits. (Since we farmers don't have antiaircraft batteries, the USDA needn't resort to spy satellites.) We also have to file conservation plans and plan our crop rotations years in advance.

How much of the $10,000 that I've become so attached to would be replaced if I could farm without all these constraints? I don't know. If full-scale production led to huge surpluses, and crop prices fell to extremely low levels and stayed there, then I would suffer a great deal. But without the guarantee of protection from Uncle Sam, surpluses might not be as much of a problem as in the past. Loan rates (the floor under the market price) were set above the cost of production in the 1980 farm bill, and huge surpluses were the result.

But sometimes we learn from our mistakes: Since 1990, loan rates have been below market-clearing levels. Record harvests in 1992 and 1994 have not produced a huge carry-over of grain. In fact, prices are slightly higher now than after the 1992 harvest, even though corn production in 1994 was considerably higher. And in years of short supply, my profits might well rise without farm programs, because the government sells its grain stocks to set a ceiling on prices.

Senator Lugar wants to know why some crops are subsidized and others are not. He also wants to know whether unsubsidized crops are consistently less profitable than subsidized ones. As I've pointed out, we can make as much profit on soybeans, which are not directly subsidized, as on corn. The greenhouses where we grow unsubsidized geraniums are the most profitable enterprise on my farm, and I don't have to wait for a government check. Cattle and hogs have no subsidy programs, yet hogs are consistently among the most profitable of agricultural commodities. Florida oranges receive no government support, while California oranges are grown under government rules that constrain supply and raise prices. Are Florida growers selling out and heading for California? I hardly think so.

Any government subsidy increases costs in the subsidized industry, and any government-provided profits tend to be bid into the factors of production. There is little evidence that subsidies boost profits in the long run, and the fact that some crops are subsidized and others are not is an accident of history and politics.

In the last two years, farmers witnessed two events that will make more difference in the long run than any farm bill could: the passage of GATT and of NAFTA. These trade agreements will raise agricultural exports and prices by large amounts. GATT will require the European Union to cut subsidies by 36 percent. Export subsidies for more than 8 million tonnes of European exports will have to be cut. American farmers are the low-cost producers of most of the commodities that Europe subsidizes, and we stand to gain most of that business.

GATT is expected to raise incomes worldwide by as much as $5 trillion in the next 10 years. Many of those dollars will be spent to improve diets, as consumers worldwide boost their consumption of meat. Since the passage of NAFTA, agricultural exports to Mexico have risen by 22 percent, or $670 million, in the first 10 months of 1994.

New Farmers' Market

That giant sucking sound you hear emanates mainly from Midwestern grain bins, busily shipping corn and soybeans south of the border. When Mexico recovers from its peso crisis, NAFTA is expected to boost U.S. agricultural exports annually by $2.6 billion.

As trade barriers around the world fall, the number of people who can afford to buy what I produce is increasing. China has a middle class 100 million strong. With 22 percent of the world's population, and an economy growing at 10 percent per year, China's potential as a market for food is mindboggling. As NAFTA expands to include Central and South America, more new markets will open. When the decline in trade barriers is combined with growth in worldwide incomes, U.S. farmers may well be entering a golden age for agriculture. And here on my farm in Westboro, I may find that being part of a freer world market pays better than farming for Uncle Sam.

I've thought a lot about Senator Lugar's questions. I've tried to figure out how it would affect me financially if the answers to those questions persuade Congress to end or drastically reduce farm programs. And I think the answer is clear. I can survive without subsidies. In some years, I might even be better off. And there is one more question that Lugar asked that goes to the crux of the matter: "What is the rationale for transferring public funds from taxpayers, most of whom have moderate incomes, to all farmers, including those whose incomes--are substantially above--average?" Well, I don't know how you justify that.

Recently, my brother took his 15-year-old son along with him to the local USDA office. One of the employees behind the counter pointed out that my nephew was the fourth generation of our family that she had worked with. I'm a little uncomfortable with being on the dole for that length of time, and I'm particularly uncomfortable knowing that my income and assets would qualify me as solidly middle class. The lady behind the counter retired shortly afterwards. I don't imagine it was the thought of another generation of Hursts that drove her into retirement, but I do believe that maybe four generations of middle-class welfare is enough.

As Congress scrutinizes farm programs, it needs to keep one thing in mind. Pat Roberts tells the story of one of his constituents, who said, "I don't care what you do to me, as long as you let me know."

Farmers have planned their businesses with the expectation of continued farm payments. Any reform of agricultural policy must keep those expectations in mind. We have been adjusting to lower subsidies for five years, and have made those adjustments fairly easily. Perhaps we should allow another five years to wind down this 60-year-old experiment in central planning, retire our overalls with the red "S," and let farmers do what we do best: produce the cheapest and most plentiful food supply the world has ever known.

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