President Franklin D. Roosevelt introduced government farm subsidies in the 1930s. At the time, Secretary of Agriculture Henry Wallace called them “a temporary solution to deal with an emergency.”
That emergency – plummeting farm-household incomes and massive farm failures – impacted 25 percent of the U.S. population.
Between 1929 and 1933, the index of prices received by farmers fell by 55 percent, causing net farm revenues to decline by 69 percent. Up until the Great Depression, the farm failure rate was less than five per 1,000. However, by 1932, failure rates reached 38 per 1,000 – 4 percent of all farms.
But nearly 80 years after their “temporary” enactment, farm subsidy programs remain in place with government payments for them now approaching $25 billion annually. Yet, less than 1 percent of Americans live on farms, which are larger, more efficient and more productive than ever before.
Supporters of continuing farm subsidies offer up a variety of “justifications,” most of which are embedded in the past and hold little to no water today.
The most frequent position asserted by supporters for subsidies is that they bolster farmers’ income in order to alleviate poverty.
Comparing farm-household incomes with other U.S. households easily disproves this myth.
In 1945, farm-household incomes were approximately half of non-farm incomes. However, that is no longer the case. The income gap disappeared, and since 1975, farm-household incomes have exceeded incomes in non-farm households.
In 2007, the average income of farm households was $86,223, which was 28 percent higher than the $67,609 average for all U.S. households. Average farm income is expected to dip to $80,766 in 2010 – still well above the U.S. average.
Also coming into play is the size of modern farms. The farm-subsidy formula benefits large agribusinesses rather than family farms.
The U.S. Department of Agriculture reports that most subsidies go to commercial farms, where average household income is $199,975 and average net worth is almost $2 million.
It is no different in Kentucky, where the top 10 percent of farm operations received 81 percent of the total payments from 1995-2009. For example, Triple Oaks Farm in Bowling Green received $4.75 million in subsidies since 1995 – despite having estimated annual revenues of $1.5 million. And the prize for the largest receiver of taxpayer dollars in 2009 goes to D L Robey Farm of Adairville. Even with annual sales of $2.5 million to $5 million Robey was able to milk the government for $404,000 in farm subsidies.
If subsidies truly help struggling small-scale farmers, why not hand every full-time farmer a check each year for $40,000? This would “only” cost taxpayers $4 billion per year compared with the $25 billion currently doled out.
Next, proponents claim subsidies raise farm incomes by countering low crop prices. Instead, subsidies encourage overproduction and, in turn, lower prices.
As it stands now, farmers can increase the amount of subsidies received by planting additional acreage. Therefore, yields soar and flood the market with crops causing prices to drop.
Lower prices result from supply greatly exceeding demand. One Georgia cotton farmer put it bluntly, “We’re just playing a game. Market prices don’t have anything to do with what we’re doing. We’re just looking at the government payments.”
One final myth about farm subsidies is that without them, the U.S. could not maintain its food security and national security. Supporters say that without subsidies, imports would replace American farm products, rendering the U.S. highly reliant on foreign food sources – much like it is with oil. One scenario is true, the other isn’t.
The U.S. grows more food than it can consume. It exports almost a quarter of all production. Eliminating subsidies would not reduce production of these subsidized crops, because it hasn’t done so to non-subsidized crops.
The subsidy “market” is dominated by five crops: corn, cotton, rice, soybeans and wheat. These crops get 90 percent of all subsidy payments. Meanwhile, fruits, vegetables and livestock production account for two-thirds of the $240 billion in annual U.S. agricultural production. Yet, these crops get no subsidies. Despite the lack of subsidies, these production areas have thrived.
Unintentionally, the current subsidy system created a controlled experiment that allows comparison of subsidized and unsubsidized crops. It shows that ending subsidies would not impoverish or bankrupt farmers, and U.S. production would not fall to imports.
The continuation of farm policies from a bygone era is pure politics supported by “bustable” myths.
Jourdan Causseaux graduated from the University of Tennessee with a bachelor’s in agricultural economics and business in 2007 and Western Kentucky University with a master’s in public administration in May. Causseaux is a summer intern with the Bluegrass Institute, Kentucky’s free-market think tank.
This column reflects the view of its author and not the entire staff of The LaRue County Herald News.