The Des Moines Register / By George Anthan
WASHINGTON -- Federal farm subsidies radiate in a vicious circle as tax money spent to prop up farmers leads to overproduction, lower crop prices and the need for even more taxpayer payments, according to a study by Sparks Companies Inc. of Memphis, Tenn.
The study said that large farmers benefit disproportionately from the bailouts.
"The current programs nail the little guy," agreed Iowa State University economist Michael Duffy. "We're propping up a system that is not working."
The Sparks study questioned the need for billions of dollars of public aid to large, highly efficient farm operations. Many big operators can compete successfully for domestic and global markets on their own, it said.
If the current system of annual bailouts continues, the study cautioned, the fruit, vegetable and livestock industries, currently kept out of the public money trough, "will seek a slice of the pie."
Sparks is a global consulting firm. Clients include large agribusiness firms, investment banks and government agencies. The company's report on the $70 billion the government has spent since 1996 to bail out farmers is expected to help steer debate over a new farm bill in coming months.
The report said the government bailout money helped skew market conditions.
For example, the $2 a bushel that farmers received for corn last year was only part of the farm income picture, the study said. Farmers got 69 cents a bushel more through direct cash subsidies. Those who used aggressive marketing techniques averaged 30 cents more a bushel, for a total of $2.99.
Sparks cited Census of Agriculture data that show the largest farmers in 1997 got 12 percent more for corn and 16 percent more for soybeans than the smallest.
The largest farmers, said company vice president J.B. Penn, "are really efficient in terms of having a very low unit-cost structure. And nobody has paid attention to that."
USDA chief economist Keith Collins said that in 2000, farmers' net cash income from the market was the lowest since the farm recession of the mid-1980s. When the record federal payments are included, farm income was $ 2 billion more than in 1999 and about equal to the average of the previous five years.
The current situation had its start in the early 1990s with significantly diminished harvests and the tightest supplies since the 1970s.
The tight supplies pushed up market prices, triggering increased production. Then, in 1997, prices began to sag.
Output, Sparks said, should have dropped, too. It didn't because "as long as production is profitable at the subsidized price, farmers will continue to produce."
Duffy disagreed with that piece of the analysis. Farmers boost production as prices drop, he said, because they need to boost their incomes with higher volumes.
In any event, the Sparks study said, the 1990s economic scenario was made to order for competition between Democrats and Republicans over which party could deliver the most taxpayer dollars to agriculture.
"Politicians seeking to exploit the situation exaggerated farm sector financial conditions," the study said.
Most of the federal money, the Sparks report continued, went to the 10 percent of farmers who produce more than 70 percent of the nation's food.
Those 157,000 big farmers had average sales of $ 900,000 a year and can make money because of their low unit costs, said Penn, who was chief economist for the Agriculture Department during the Carter administration.
Continuing to focus the subsidies on the largest producers -- because payments are based on volume of production -- will increase pressure for effective payment limits, the report said.
Sparks officials agree with the Kansas City Federal Reserve Bank's Center for the Study of Rural America that the time has come to shift the focus from "farm" to "rural" programs that "extend beyond agriculture."
Copyright 2001 Gannett Company, Inc.:
