A Call to End Farm Subsidies

Farm Leaders Deride Heritage Foundation Plan to Gut Farm Safety Net

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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As farmers start to gear up for harvest, a think tank in Washington is calling on Congress and the next president to eliminate most farm programs and cut premium assistance for crop insurance. (DTN file photo)

OMAHA (DTN) -- A pair of national farm groups are denouncing a new report from a conservative Washington, D.C., think tank calling on Congress and the next president to eliminate most of the farm safety net.

The Heritage Foundation is calling on Congress to transition away from safety nets for American farmers. In a report released Thursday, Heritage calls for a strategy of "freeing the agricultural sector to manage risk privately."

Specifically, the group wants lawmakers to eliminate price-support programs for grain and dairy farmers such as the Agricultural Risk Coverage, Price Loss Coverage, marketing loans and safety nets for dairy operations. In its report, Heritage argues subsidies distort planting decisions, artificially drive up land prices and create a moral hazard as farmers plant crops on environmentally sensitive ground.

Heritage's report reflects that old Washington adage of politics creates strange bedfellows. A vice president from Environmental Working Group was on the advisory committee that drafted the report, which also frequently cites details from EWG reports on farm programs. While Heritage and EWG have completely opposing policy scripts for environmental policies, they are married in their attacks on farm programs.

Heritage has increasingly moved to "declare war" on the House and Senate Agriculture Committees, said Dale Moore, executive director of public policy for the American Farm Bureau Federation. Moore credited the committees for being able to produce bipartisan legislation that may not be perfect, but provides farmers with a more market-oriented safety net. Heritage seeks a farm bill that does very little to help agriculture "and everything they can to throw a wrench into the gear set," Moore said.

"I have not read the entire report, but it's pretty clear they (Heritage) started with the conclusion that we're going to eliminate farm programs and take away the risk-management utility of crop insurance for producers," Moore said.

Moore pointed to the famous 1956 quote from President Dwight Eisenhower in which Eisenhower said, "You know, farming looks mighty easy when your plow is a pencil and you're a thousand miles away from the cornfield." Moore said Heritage analysts forget that farmers are price takers in the market and also have to deal with the whims of Mother Nature.

National Farmers Union defended current risk-management priorities, noting that farm legislation is designed to help farmers in economic downturns like the difficulties facing commodity producers now.

"Farming can be a pretty thankless job, especially when you are a family who is financially struggling to keep producing food that feeds consumers around the world while a multi-million-dollar organization is trying to pull the plug on your life line," said Roger Johnson, president of NFU. "We see every farm bill cycle, groups with little connection to actual agriculture, like the Heritage Foundation, coming off the sidelines to attack farm programs that provide critically needed assistance for family farmers and ranchers. Many producers rely on those programs to continue farming through these tough economic times."

Overall, Heritage states the roughly $15 billion a year that goes to various commodity programs such as ARC, PLC and dairy only supports a select group of producers growing the main commodity crops. Then there is the sugar program, which protects domestic sugar producers through tariffs and caps on most imported sugar.

While the current farm legislation is set until 2018, various groups are ramping up for more aggressive policy debates kicking off in 2017. The Heritage report comes as the chairmen of the House and Senate Agriculture Committees meet for a farm issues forum this weekend at the Kansas State Fair. The Farm Foundation also has a forum set for early next week on agricultural and food policy priorities facing the next president.

Heritage dismissed the assertion that getting rid of subsidies would lead to the end of farmers. "This argument is an insult to farmers and ranchers," the report stated. "U.S. agricultural producers are sophisticated business people who can succeed without taxpayer help, just like other businesses."

The report noted that, according to USDA data, 67% of all farm sales come from just 4% of farms that generate at least $1 million in sales annually. Further, farmers have higher net income than average American families and also have significantly higher net worth.

While debt-to-asset ratios for farms have risen in the past two years, Heritage asserts that they remain relatively low and averaged 12.2% from 2005-2014. That is an indicator that farms are "well insulated from risks associated with commodity production (such as adverse weather)."

NFU countered that farmers are not doing that well financially as farm income has fallen more than 40% since 2013. Low commodity prices also are translating into expected losses for farmers in all major commodities. This has an impact beyond the farm, NFU's Johnson said.

"When farm country hurts, that impact is felt on both sides of the farm gate. Over the last couple years, we've seen thousands and thousands of layoffs in rural American business and manufacturing as an indirect result of the plummeting farm economy," Johnson said.

The report states farms will be lost, but that is the cost of progress. Risk is inherent in every business, Heritage notes. "Some farmers are going to lose their farms, just as restaurant owners will lose their restaurants and pastors will lose their churches. The federal government should not be guaranteeing that all operations will survive, and, even worse, guaranteeing that all operations will flourish." The report added, "When a farm does fail, this does not necessarily mean that there is one less farm in the country or that their land goes out of production."

Regarding insurance, Heritage wants crop insurance to cover only major yield losses, but eliminate revenue policies that are now focused heavily on subsidizing revenue protection. In fact, revenue protection plans accounted for 77% of all policies in 2014. Thus, crop insurance is more about providing subsidies to farmers than insurance, Heritage stated.

Farmers could buy higher coverage levels, but Heritage wants to cap subsidy payments to cover 70% yield protection -- ensuring that taxpayers only subsidize deep losses.

It should be noted that while the ag committees have protected insurance from cuts, there have been multiple attempts over the last few years in Congress and by the Obama administration to make cuts to either premium subsidies or administrative overhead for insurers.

Looking to a country that has successfully eliminated subsidies, Heritage held up New Zealand as a successful example. "Farmers are now farming better than ever; they are much more conscious that their activities must make good business sense. They are no longer chasing subsidies, pursuing maximum production at any cost."

Earlier this summer, Heritage released a "Blueprint for Reform" as an agenda proposal for the next administration. That plan calls for the elimination of most USDA functions and programs. For instance, since farm subsidies should be eliminated, the role of Farm Service Agency offices should be significantly reduced. USDA nutrition programs should be moved to the Department of Health and Human Services; USDA Rural Development should be eliminated because those programs are addressed in other areas; and the Agriculture Marketing Service should largely be privatized as well.

The full Heritage report can be viewed at www.heritage.org

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN


Chris Clayton