June 27, 1995
"Farm Subsidies Need More Than Just Pruning"
San Jose Mercury News
By Timothy Taylor
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THE November 1994 elections not only delivered a Republican congressional majority, they also unseated the man who insiders once called the "permanent" secretary of agriculture. Jamie Whitten, a Democrat from Mississippi, had been chairman of the pivotal House Subcommittee on Agricultural Appropriations for 40 years.

A change in agriculture policy is overdue. But the Republicans are not seizing the chance to rethink farm policy from the roots up. Instead, they are tinkering to trim an average of $1 billion or $2 billion from annual farm spending over the next seven years.

When the framework for supporting agriculture was established back in the 1930s, it was a method of funneling income to the poor. More than a quarter of America's jobs were on the farm, and the income of farm families was only about half the national average. Federal agriculture policy during the Great Depression supported those families by keeping the price high for farm commodities like wheat, feed grains and cotton.

Times have changed. Here are some facts culled from a set of background papers on the 1995 Farm Bill produced by the National Center for Food and Agricultural Policy.

The number of farms has shrunk as their size has increased. In 1945, there were 5.9 million farms with an average size of 195 acres. Now, there are 1.9 million farms, average size 491 acres.

Less than 2 percent of the nation's workforce is now on the farm, and half the nation's farmland is owned by just 5 percent of the farmers. The largest 400,000 farms, with annual sales above $100,000 each, account for 75 percent of farm sales and 66 percent of all government cash payments to farms.

Rural areas have developed more service and manufacturing jobs, and are no longer so dependent on farm income. Of the nation's 2,276 non-metropolitan counties, only 25 percent get more than one-fifth of their income from agriculture. When the small family farms are taken into account, farm income accounts for only 13 percent of the income of the average farm household!

These two trends - farming as big business and the growth of non-farm income in rural areas - have helped the income of farm households to reach the national average. Once the value of farmland and equipment is added, an average farm family actually has considerably more wealth than the average U.S. household.

Finally, out of the $175 billion of agricultural commodities sold in 1993, about $110 billion involved commodities where the federal government does not offer price or income supports.

In considering this fact, Dale Hathaway of the National Center writes: "Despite 60 years of federal support and intervention there is surprisingly little evidence that the producers of supported products are better off than the producers of unsupported products. There is no evidence that the producers of supported products are more efficient or more competitive."

In short, direct government payments to farmers now benefit mainly wealthy landowners and large farms. They do little to help efficiency of these farmers, or the rural poor, or the overall rural economy.

It's time to move toward the abolition of direct government payments to producers of wheat, feed grains, cotton, dairy and other crops. Further, we should phase out the restrictions on domestic production and imports that keep prices high for crops like peanuts and sugar. These steps would cut agricultural spending by more than even the Republicans are proposing, and reduce food prices for consumers as well.

Even under this scenario, the federal government still has several roles to play in the agricultural sector.

Spending on agricultural research and development should be continued and expanded from its present level of $2 billion per year. Such research has proven remarkably productive in raising output, cutting production costs, protecting the environment, and finding new uses for agricultural products. Vern Ruttan, an eminent economist at the University of Minnesota, warns that without continually raising yields through agricultural R&D, the world could face the Malthusian nightmare of population overwhelming the food supply within 20 to 30 years.

Roughly a quarter of U.S. farm output is now exported. The recently completed General Agreement on Tariffs and Trade talks make a start at reducing export subsidies for farm products around the globe, but the government must continue to negotiate aggressively to be sure that American farm products get a fair crack at global markets.

The government should assure that communication and transportation infrastructure extends to rural areas, to provide a basis for rural participation in the developing high-tech economy. Strangely enough, the single best thing the government can do to support the small family farm is to make sure that such households continue to have opportunities to supplement their farm income from non-farm sources.

Finally, although farmers can now use private financial markets to protect themselves against fluctuations in crop prices, the government has a role to play in insuring against disasters that decimate crops. The Federal Crop Insurance Reform passed in 1994 is a useful step in this direction.

The 1995 Farm Bill will help to show if the new Republican majority is serious about rethinking the role of government. Supporting R&D, free trade, infrastructure and disaster relief are legitimate roles for a limited and frugal government. However, direct government payments to large producers, whether in agriculture or any other industry, are almost always a costly mistake.

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