A case of the correct answer to the wrong question?
Last week, we began our examination of U.S. Secretary of Agriculture Mike Johanns' statement before the National Farmers Union that "60% of all farmers do not receive program payments, [they] don't because they aren't raising one of the program crops."
In that column, we took exception to one of the implicit assumptions behind the statement: The purpose of farm programs is to simply disburse money to farmers and thus it is only right that all farmers get their fair share. As we see it, the original purpose of the farm program, as explained by the 11th secretary of agriculture, Henry A. Wallace, was to provide policy mechanisms to manage the set of problems caused by the lack of price responsiveness on both the supply and demand sides for aggregate crop agriculture.
We also noted that, using this criteria, many of the current policy mechanisms are ill-designed and fail to account for the lack of timely market correction in response to low prices. Current programs do not provide the supply management functions played out by the market in the manufacturing and marketing sectors of the economy.
We now want to talk about the rest of the story. While we don't disagree with Johanns' assertion that "60% of all farmers do not receive a program payment," Like with so many things, we really do need to consider the rest of the story.
The implication of the "60%" statement is that only those farmers that receive payments benefit from farm programs. As reasonable as that may sound, it's not true.
For example, program-crop farmers receiving direct payments are prohibited from using that cropland to grow specialty crops like vegetables, fruits and tree nuts.
One can quibble about the amount of specialty crop farmers financially gain from the no-switch rule, but it seems undeniable that specialty crop farmers indeed do benefit from farm programs.
An even larger group of farmers that receive benefits from current farm programs, but not payments, are livestock and poultry producers. Yes, grain and oil seed farmers are the ones that receive government payments to offset "low" grain prices. But livestock and poultry farmers then buy the grain and oil meal at the subsidized prices, which often are well below the full costs to produce the grain and oil seeds.
We think it is clear that livestock and poultry farmers benefit from current commodity programs but, for those you who remain in doubt, let's think about the subsidization issue from a greater "emotional distance." In years past, when we heard of bread being sold in a far-off country for a fraction of what it cost to produce the bread, which of us would not think that the buyers of bread were being subsidized?
Also, the 2002 farm bill contains nine other titles in addition to Title I that authorizes commodity programs including program payments. These other nine titles contain provisions that either benefit all farmers or have carve-outs that benefit specific crops.
A recent article indicated that "under the conservation title, 60% of all funds under the approximately $1 billion per year Environmental Quality Incentives program (EQIP) is dedicated by law to livestock producers."