Star Tribune (Minneapolis, MN) | September 10, 2001
"I'd love to go back to mom-and-pop stores. But the reality is ... there is a federal role in supporting farmers, and it's not going to go away," acknowledged Congressman Gil Gutknecht, R-Minn.
BY: Kevin Diaz; Joy Powell; Staff Writers
Washington, D.C. - There was always a bit of Norman Rockwell nostalgia in Freedom to Farm, the 1996 law that was going to get government out of farmers' lives.
The idea - incubated in the 1980s in the office of Rudy Boschwitz, then a senator from Minnesota - was that growers would be free to plant what they wanted. In return, they would wean themselves from crop payments from Washington that were born in the Depression era.
It worked, until the bottom fell out of commodity markets worldwide in 1998. This year, with grain prices reminiscent of the 1930s, government payments to farmers are expected to surpass $26 billion, compared with $7.3 billion in 1996. So as Congress prepares to write a farm bill for the next 10 years, and as congressional hand-wringing continues over foreign competition and the market rigors, it's virtually certain that subsidies will remain a big part of the picture.
"I'm a Norman Rockwell guy," said Rep. Gil Gutknecht, R-Minn., a member of the House Agriculture Committee. "I'd love to go back to mom-and-pop stores. But the reality is ... there is a federal role in supporting farmers, and it's not going to go away."
So what's left to be decided is not whether, but how, the money will be spent on programs that affect farmers' incomes, food prices, the environment and tax bills.
Not surprisingly, interest groups from the American Sugar Alliance to the National Farmers Union are angling for position.
For some farm-state legislators - notably Sen. Paul Wellstone, D-Minn. - the farm bill is a historic opportunity to deemphasize commodity subsidies that primarily benefit the biggest farms and instead put more money into conservation programs that help small and mid-sized farms.
But there was no retreat from subsidies in the bill approved unanimously by the House Agriculture Committee this summer. On the contrary, payment limits for grain, cotton and soybean subsidies were doubled from 1996 levels. Import restrictions on sugar - which protect Minnesota sugar beet farmers, but which critics say drive up consumer prices - would be extended.
And so would "market transition" payments that were originally intended to supplement farmers' incomes while Freedom to Farm weaned them from government help.
In fact, the $168 billion bill that's on the table in Congress not only enshrines all of the current staples of farm aid, but it also brings back some old ones. Chief among them is the idea of "target prices" that guarantee farmers of subsidized commodities minimum returns on what they grow.
The new bill would raise spending on conservation programs by $1.6 billion a year - a 75 percent increase - but that is far less than what most environmental groups want.
Environmentalists, for the most part, are coalescing around a bill sponsored by Rep. Ron Kind, D-Wis., who wants to increase annual conservation spending by as much as $5.5 billion.
The problem for environmentalists and assorted small-is-beautiful advocates is that every dollar devoted to conservation is a dollar less for the major subsidized crops: wheat, corn, sugar, cotton, rice and soybeans.
The environmental movement has a strong and organized lobby in Washington, but so do each of the major crops.
Farm peace
Rep. Collin Peterson, D-Minn., a critic of Freedom to Farm, grudgingly supports the new House bill, largely because it restores the "safety net" of payments that were lost in 1996.
Political support for the bill is irresistible, he said, because it provides something for everyone - including Freedom to Farm's promise of "planting flexibility." Farmers would continue to get fixed payments based on their past levels of production, instead of what they decide to grow this year or next.
The bill is "the way to buy peace in farm country," Peterson said.
Under the Bush administration's budget, spending on farm programs would increase by $73.5 billion over the next decade, which would buy lots of peace in farm country. That framework was established months ago, however, and a rapidly diminishing surplus may cut into that figure.
But even House Republicans, whose fiscal policies lean toward tax cuts and spending restraint, have gotten behind agricultural subsidies.
The Senate has yet to vote on new agriculture legislation. Iowa Democrat Tom Harkin, chairman of the Senate Agriculture Committee, has emphasized the connection between growing farm subsidies and the rising price of farmland, which he considers an obstacle to younger and less-established farmers.
"Something is not connecting here," Harkin said at a hearing on farm policy this summer. "Maybe it has something to do with supporting every bushel, bale and pound. ... I'm not talking about cutting back [farm payments], but I'm looking for a different way."
The committee's ranking Republican, Dick Lugar of Indiana, has a different criticism of farm payments, saying that they have promoted overproduction and low commodity prices.
Lugar, a farmer, is one of the few legislators in Washington to question why the continuing decline in the number of farms should be considered any more worrisome than the everyday loss of dot-coms, restaurants and small family-run stores.
"Farming is unique," Lugar said, "in that as a matter of national policy we've decided to keep everyone in business."
Paying the difference
Current market prices for corn and wheat do not cover the costs of production. That means that the farmers who grew the crops this year are essentially living on government subsidies, including a $5.5 billion emergency aid package Congress approved in August.
"The government payments picked up the slack from low commodity prices," said Neal Johnson, a former farmer who now works as a seed manager at Mid-Valley Grain in Crookston.
While a cycle of soft demand and low prices might dictate production cuts, that's not how it worked.
Because government payments kept coming, farmers kept planting, continuing the cycle of overabundance and low prices, said Alan Roebke, a retired farmer and talk-radio host from Hector, Minn. "The taxpayers pay the difference" between the market price and the subsidized price, he said.
But unless the worldwide market rebounds, there's wide agreement that farm payments will probably remain a way of life in the United States, as they are to a much greater extent in Europe and in much of the world.
"I come from a business family," said department store heir Mark Dayton, D-Minn., who serves with Wellstone on the Senate Agriculture Committee. "I know that if you don't make a good price and a fair profit in the marketplace, you don't stay in business. ... We've got to find a way to put the profit back into agriculture, or our policy is a failure."
Ideas for increasing farmers' profits center on curtailing supply or increasing demand. Rep. Mark Kennedy, a Republican whose district in southwestern Minnesota ranks first in the state in both crop production and subsidies, favors a course of growing demand. "That's my business training," Kennedy said.
Kennedy offers three strategies: tapping the growing energy market for biodiesel, ethanol and other renewable fuels; encouraging "value-added" production so that farmers get a bigger share of every dollar spent on food, and increased exports.
Global trade
International trade is one of the more contentious points in the debate, since it also means opening U.S. markets to heavily subsidized imported food.
While President Bush is pushing for "fast-track" authority to negotiate international trade agreements with minimal interference from Congress, a growing number of farmers and environmental groups are wary. So are some of the major commodity groups, that worry about rules of the World Trade Organization (WTO) limiting the amount of government support for U.S. farmers.
In an effort to liberalize trade over the past decade, U.S. negotiators agreed to tighten limits on subsidies that underwrite the cost of growing certain commodities. Current farm subsidies are already bumping up against a WTO agreement limiting the United States to $19.1 billion a year in so-called trade-distorting subsidies.
The skepticism also extends to international grain companies, including Minnesota-based Cargill Inc., which, like all buyers, benefits from the ability to cross national borders and from today's low worldwide commodity prices.
Peterson, a ranking Democrat on the House Agriculture Committee, said Cargill didn't testify on the new farm bill. "They keep a low profile," he said.
Nevertheless, he said Cargill has to be happy with what it sees: a system of subsidies that keep growers in business and commodity prices low. Cargill officials didn't return phone calls.
"The traders have all the upside in the market and none of the risks, while farmers have all of the risk and none of the upside in the market," Peterson said.
While politicians debate the relative advantages of free trade and protectionism, the buzzword among the various farm groups that have gone to Washington is "counter-cyclical" aid.
What that means is a hands-off approach in good years and a taxpayer-supported price floor in bad years. "The goal is to get some kind of safety net to stabilize these prices," said Loren Tusa, president of the Minnesota Corn Growers Association.
Most of the major commodity groups have pronounced themselves satisfied with the target-price system that has emerged from the House Agriculture Committee. "It's as good a farm bill as I think we're going to get," Tusa said.
'Shock absorber'
It has become popular in Washington to say that Freedom to Farm made farmers' problems worse, but Boschwitz, a Republican, maintains that it has worked just fine. "Three years of good crops created surpluses and sent prices down," he said. "Freedom to Farm doesn't determine what prices are. They're determined by world markets."
Farmers who aren't governed by extensive subsidy programs - such as cattle and hog producers and coastal growers of fruits and vegetables - aren't clamoring for government intervention, Boschwitz said.
But the problem facing major grain producers in the Midwest who get the majority of the subsidies is that they operate on narrow profit margins that require huge volumes to be cost-effective.
So the prognosis is that farms will continue to get bigger, all the better to absorb greater risks. And they will continue to get taxpayer subsidies to provide a safety net, a term not everybody likes.
"The term I like to use is 'shock absorber,'" Gutknecht said. "I don't like to say 'safety net' because it sounds too much like welfare."
Kevin Diaz is at [email protected]. Joy Powell is at [email protected].
Aid soars as prices plummet
Total federal farm payments nearly quadrupled nationwide between 1998 and 2000, largely because of falling crop prices.
Major U.S. farm payments
1998 $7.6 billion 1999 $16.1 billion 2000 $26.9 billion
Source: General Accounting Office
The percentage of federal payments made for the major crops varies annually. Nonetheless, the crops receiving the most payments in 1999 have generally received the most payments over the decade.
Corn 41% Wheat 23% Oilseeds (soybeans) 12% Cotton 10% Rice 7% Other 7%
Source: General Accounting Office, 1999 data
Farm payments under Freedom to Farm (1996-2002).
- Income subsidies: Known to farmers as AMTA payments (for Agricultural Market Transition Act), these are the heart of Freedom to Farm. They're direct cash payments to farmers, intended to wean them from government aid by decoupling the money from crop prices and specific planting requirements. The amounts, which were supposed to decline each year, are calculated on acreage enrolled in previous farm support programs (mainly for wheat, corn, sorghum, barley, oats, rice and cotton). Unlike earlier programs, farmers can plant any crop they want on these acres, other than fruits and vegetables. Farmers who rent land often split the payments with landowners who share in the risk. (2000 cost: $5.1 billion)
(See microfilm for chart.)
- Price supports: Farmers are essentially guaranteed a minimum price or rate of return through "marketing assistance loans" for specific commodities. Farmers pledge their crops as collateral at a certain loan rate. They can either repay the loan and sell their crops on the market, or forfeit their crop to the government and keep the loan principal as payment. (2000 cost: $8.1 billion)
(See microfilm for chart.)
- Emergency payments: Sometimes called "market loss assistance," these are direct cash payments intended to compensate farmers for the low commodity prices they have suffered since 1998. In recent years, they have basically doubled farmers' income assistance (AMTA) payments. (2000 cost: $11.1 billion)
(See microfilm for chart.)
- Disaster assistance: Periodic aid to farmers who suffer major crop losses due to natural disasters, such as the Red River floods. (2000 cost: $1.3 billion)
(See microfilm for chart.)
- Conservation payments: Primarily through the Conservation Reserve Program (CRP), the government pays owners of environmentally sensitive farmland to keep it out of production, usually through 10- to 15-year rental contracts. (2000 cost: $1.3 billion)
(See microfilm for chart.)
Source: Government Accounting Office
Copyright 2001 Star TribuneStar Tribune (Minneapolis, MN):
