The nation was spared the burden of additional
misguided and counterproductive agricultural subsidies when the
Senate failed to vote before the end of 2001 on a new farm bill
that would have dramatically increased subsidies to farmers. However, the Senate is
now poised to vote on this legislation as soon as late January or
early February of this year. If passed, this bill would raise
subsidies even further than the version passed by the House of
Representatives on October 5, 2001, and would expand agricultural
subsidies to their highest levels in history.
Although it is possible that the Senate
may once again be unable to act on the agriculture legislation
within the next two months, it will be certain to revisit the issue
before next fall. Therefore, it is critical that flaws in the
legislation as now written be recognized.
The
haste with which this legislation has been brought to the Senate
floor has been justified largely in terms of the presumed needs of
small farmers; specifically, this year's debate has been punctuated
with seemingly endless claims that increased subsidies are needed
to save farms with annual incomes below $50,000. Instead of
accomplishing this aim, however, the House and Senate legislation
would only heighten the effects of current policy and existing
programs that channel the bulk of subsidy payments to high-income
farms that produce just two crops: rice and cotton.
Allocation of Subsidies
Chart 1 shows the per-acre subsidies and
the cultivated acreage in each state. An analysis based on these
data reveals the following:
- Two of the three states receiving the
highest per-acre subsidies--Florida ($349 per acre) and Arizona
($346 per acre)--are dominated by cotton production alone. In
Florida, cotton represents 74 percent of total income from program
crops, and in Arizona, 80 percent of total income is derived from
cotton. Furthermore,
the low total cultivated acreage found in both states indicates
that these high payments are being distributed among a relatively
small number of farms.
- The crop production of the group of states
receiving the next-highest payments (Louisiana, Mississippi,
California, and Arkansas) is dominated by a combination of cotton
and rice. Although cotton by itself accounts for a lower percentage
of total production value in these states, cotton and rice together
account for at least 80 percent of total production value.
- In Pennsylvania and New Jersey,
program-crop income is distributed predominantly among lower-income
farms, but these two states also are among the three states
receiving the lowest subsidies.
Largest Subsidies go to High-Income Cotton
and Rice Farmers
While the two highest-subsidy states
(Florida and Arizona) are not rice growers, both are large-scale
cotton producers (above 300,000,000 pounds per year). Cotton
production represents about 80 percent of Arizona's total
program-crop income, and 83 percent of that value is distributed
among farms with annual sales of $500,000 and above. Similarly, in
Florida, 71 percent of cotton production value belongs to farms
with annual sales of $250,000 and above.
All
of the second-tier subsidy recipients (Arkansas, California,
Louisiana, and Mississippi) produce both cotton and rice. Cotton
represents a relatively lower percent of total production value in
these states--between 34 percent (Arkansas) and 66 percent
(Mississippi)--but cotton and rice production together represent 80
percent to 86 percent of total production value. Also notable is
the income distribution among rice growers.
While covering a broader range than
cotton, there is still a clearly uneven distribution toward
high-income farms. In the state with the most evenly distributed
income (Louisiana), 62 percent of rice production value belongs to
growers with $250,000 or more in annual income; in the state with
the least evenly distributed income (Mississippi), 92 percent of
rice production value belongs to growers with annual sales of more
than $250,000.
The
trend is clear. The states whose production is dominated by rice
and cotton get the highest subsidies per acre, and those subsidies
(dispensed on a per-hundredweight or per-pound basis) go
overwhelmingly to high-income farmers.
Helping Low-Income Farmers?
Proponents of agricultural subsidies
frequently cite the need to help low-income farmers. In looking at
the bottom tier of subsidy recipients, however, it is clear that
this is not what subsidy programs actually accomplish. In both
Pennsylvania and New Jersey, lower-income farms (those with annual
income ranging from $20,000-$250,000) account for approximately 46
percent of total program-crop income. Yet, as Chart 1 indicates,
these states rank among the lowest in the nation in terms of the
per-acreage subsidies they receive. By contrast, in Arizona, California,
and Mississippi (which rank among the top seven states in terms of
per-acreage subsidies), farms at the $20,000-$250,000 income level
account for only 6.5 percent to 10 percent of their states' total
income from program crops.
The
lesson is clear: The bulk of subsidy payments does not go to
lower-income farmers. With few exceptions, states whose
agro-economies are dominated by lower-income farms receive lower
per-acre payments. This result is contrary to the purported goal of
subsidy programs, but it is, in fact, the effect they have.
Conclusion
If
the goal of the nation's agricultural policy is truly to save the
small farm, Washington policymakers are badly missing their target.
The highest subsidy payments are awarded to a few states whose
economies are dominated by rice and cotton production generated by
a few high-income farms.
If
low-income farms are to benefit from a new farm bill, the paradigm
of subsidy-based agricultural legislation should be revisited and
reformed. Yet hope for reform is dim, given that the only recently
proposed legislation that would have shifted programs to target the
farms with the greatest needs has been tabled. The fact that the Bush Administration
supported a bill similar to that passed by the House but did not
support the Senate bill (S. 1731), which had bipartisan support,
indicates that there is a lack of consensus, even among fiscal
conservatives, on how best to address the issue.
The
bottom line is that any continuation of existing subsidy programs
will not accomplish the goal of helping small farms. The subsidy
increases in the proposed Senate legislation would only further
exaggerate the uneven income distribution that already exists and
continue the vicious cycle of low prices created by
overproduction.
Ultimately, the only prospect for creating a system with long-term
stability lies in creating a reformed agricultural policy based on
market-oriented principles.
Ethan T. Baker is
a consultant in the Center for Data Analysis, and Brian M. Riedl is
Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas
A. Roe Institute for Economic Policy Studies, at The Heritage
Foundation.
S. 1731, the
Agriculture, Conservation and Rural Enhancement Act of 2001.