with slashing deficits now a priority in Washington, subsidies are under attack. ´the federal government is this year expected to write $11bn in cheques to farmers, up 4 per cent from 2011.
Only 1 per cent of US workers are employed in agriculture, leaving the sector with less electoral muscle than in decades past.
US farm subsidies attacked amid boom
By Gregory Meyer in New York and Hal Weitzman in Chicago
Brad Lawrence has been farming for 40 years. Following his father and grandfather into the family business, he and his brother grow seed corn, soyabeans and peppermint on 6,000 acres in Knox, north-west Indiana.
The 57-year-old has seen his share of booms and busts in the agricultural markets, but with commodity prices soaring in recent years and land values at record highs, he says farmers are experiencing an unprecedented windfall. “This is the best we’ve ever had it, financially speaking,” Mr Lawrence says.
The good times have not escaped notice in Washington, where the federal government is this year expected to write $11bn in cheques to farmers, up 4 per cent from 2011. These kinds of payments might have been justifiable in the 1980s when family farmers were struggling, but with slashing deficits now a priority in Washington, subsidies are under attack.
Barack Obama, US president, last week unveiled a budget that would end “direct payments” to farmers, which totalled $4.7bn last year and are made regardless of whether a farmer plants a crop. The budget would trim subsidies for crop insurance, which indemnify farmers when revenues or harvests fall short.
Last year bipartisan leaders of the Senate and House agriculture committees also recommended the end of direct payments, suggesting its days are numbered. In December Congress let expire a longstanding tax credit for blending corn-based ethanol with petrol.
Only 1 per cent of US workers are employed in agriculture, leaving the sector with less electoral muscle than in decades past.
But in states where agriculture plays an important role, including the swing states Indiana, Iowa and Wisconsin, cutting payments to farmers could alienate rural voters and tip the balance in November’s elections.
Public sympathy for farmers is fading. The average US farm household’s net worth was $901,700 in 2007, according to the latest US Department of Agriculture census data.
Most of this is tied up in land, making it illiquid, though rapidly escalating prices suggest balance sheets may be even stronger today. Farmland values in the midwest corn belt rose 22 per cent last year.
The small family farm that holds mythic power in the US mind is less and less relevant as a component of the food supply. The majority of US production comes from the 2 per cent of farms with $1m or more in annual sales, USDA says. Medium and large farms reap more than three-quarters of government payments.
In real terms, farm income in 2012 is projected to decline slightly from record levels but remain the third highest in more than three decades.
“You’re talking about people who today, at least on paper, have a lot of wealth and are receiving pretty substantial cheques” from government, says Neil Conklin, president of Farm Foundation, an education and research group. “The public is saying: ‘What am I getting for the money I’m giving these farmers?’”
In the past decade nominal US corn and cotton prices have trebled, while soyabeans and wheat have more than doubled. Official outlooks for these crops will dominate a two-day USDA conference in Washington this week.
The high prices have been sustained by demand for corn and soya meal by livestock farmers in emerging economies, a major export market for the US. Last week a delegation from China closed deals to buy record amounts of US soyabeans.
Domestically, record ethanol production has buttressed demand for corn, putting pressure on acreage available to other crops. Despite the demise of the ethanol tax credit, government consumption mandates stand.
“There are more and more people who feel that we’ve reached the end of an era of declining real prices,” Mr Conklin says.
Farm subsidies will attract more attention than usual as Congress takes up debate on renewing farm legislation. Top of the agenda will be direct payments.
“We recognise that the political will for direct payments has declined substantially,” says Bob Young, chief economist at the American Farm Bureau Federation.
Farmers in the midwest say they can live without direct payments, which gives them some $20-$25 per acre, compared to hundreds of dollars per acre of revenue they receive from crops such as corn and soyabeans.
But even as direct payments are targeted, some are less comfortable with touching other programmes. Frank Lucas, the Oklahoma Republican who chairs the House agriculture committee, slammed the president’s plan to cut crop insurance.
Some farm lobbyists want to boost crop insurance as a trade-off for the loss of direct payments. So-called “shallow loss” coverage would pay for even small dips in income at harvest time, far more than existing crop insurance, which typically covers only 65-70 per cent of shortfalls and along with revenue insurance cost the government a record $7.3bn last year.
“What the industry is looking at is a product that would be available for purchase that would cover some of those upper-end losses,” says Gary Adams, chief economist at the National Cotton Council.
Tom Sell, a farm industry lobbyist in Washington, says US farmers receive relatively less support than their peers in other countries. He adds that removing financial aid will hurt smaller, family farms and accelerate the move to industrialised, large-scale farming.
Back in Knox, Mr Lawrence says he is watching the debate in Washington closely. “The focus now is on crop and revenue insurance,” he says. “We’re trying to protect those programmes. That’s our line in the sand.”
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