Farm Bill’s Crop Subsidy Paradox Reveals How Government Kills What It Touches

By Brian Barth | January 19th, 2019 at 11:56 am

BY: Brian Barth / Contributor

Filed Under: Agriculture, Contributor, Culture, Ethics, Federal Government, US Congress

Small-scale, diversified farming goes against the get-big-or-get-out mentality of modern agriculture. The subsidy system encourages not only monocultures but also consolidation. Subsidy payments are so baked into the system that farmers concoct business plans based entirely around maximizing their potential subsidy payments.


Pointing fingers at Big Ag, both index and middle, is like an Olympic sport in some circles. This nefarious entity is singled out as the culprit for everything from the decline of butterfly and bumblebee populations to the vast expansion of the American waistline. Climate change, depleted aquifers and toxic algae blooms? They get blamed on Big Ag, too.

So, why exactly has the image of modern agriculture come to consist largely of herbicide-drenched GMO crops stretching to the horizon and livestock wallowing shoulder to shoulder in their own manure? The answer, in part, lies in the agricultural subsidy system: Farmers grow what the government pays them to.

American farmers who produce commodity crops — staples like corn, soy, wheat and cotton — are eligible for various forms of government assistance, generally lumped together under the broad banner of “subsidies,” which forms a central component of the Farm Bill produced by Congress roughly every five years. The latest version of this omnibus legislation was signed into law by President Trump late last year, bringing a long-raging debate over the merits of agricultural subsidies back to the fore.

The inner workings of subsidy programs is a subject best left to PhD economists, but, generally speaking, they kick in when demand for a particular crop falls. According to the laws of supply and demand, this causes the market value of the crop to fall, meaning farmers receive less per bushel. Because commodity-crop farming is such a low-margin business, it doesn’t take a huge drop to put a farmer on the brink of bankruptcy. The basic intent of subsidies is to make up the difference between the market price for a crop and the price that a farmer needs to survive.

Some subsidies kick in automatically when the market price for a particular crop falls below a predetermined point. Others take the form of government-subsidized insurance policies: Farmers file claims based on their losses, whether those losses are related to weather or markets. The former is akin to government programs that bail out citizens whose homes are destroyed by a hurricane or other “acts of God” (a seemingly wise investment of taxpayer dollars for the sake of maintaining a stable food supply), while the latter, some argue, bails out farmers who grow crops that there isn’t a market for, thereby distorting the natural function of the food economy.

In 2016, the United States government doled out about $13.9 billion in subsidy and insurance payments — the equivalent of 25 percent of total farm income in the U.S. Naturally, the farmers who get the checks don’t complain, but the system has produced a host of unintended consequences. Because subsidies are available primarily for low-margin commodity crops — the kind most often grown in vast industrial-scale monocultures, with well-documented environmental and public health consequences — this form of agriculture has grown. Meanwhile, forms of agriculture that promise better societal outcomes lack subsidies that might encourage more widespread adoption.

Put yourself in the farmer’s shoes: When your subsidy check is calculated in terms of acres of corn or soy planted, it’s hard to rationalize planting anything else. About 90 million acres of each are planted annually in America, accounting for more than half of all cropland. Of the corn, 90 percent of the crop will either be fed to livestock, converted to ethanol fuel or exported. Most of the corn that does make its way into the gaping American maw isn’t on the cob, or even in the form of corn chips, but pours in as high-fructose corn syrup and other corn-derived products found in processed foods.

Meanwhile, fruits, nuts and vegetables — known as “specialty crops” in industry jargon — account for only 10 million acres, or about three percent of cropland. We all know they’re supposed to account for more than that on our plates. Yet, specialty crops aren’t eligible for Farm Bill subsidies. One significant change in the newly passed Farm Bill was the inclusion of subsidies to help organic farmers transition through the three-year period between ceasing chemical sprays and acquiring certified-organic status — and the price premiums that come with it — which should help to bring many more acres under organic cultivation.

The subsidy system developed in the 1930s, back when most farms were small and diverse and well before the advent of modern agrichemicals, much less genetic engineering. Staple foods — what we now consider commodity crops — were the focus of subsidies because of the calories they provided to American consumers, not because they happened to be ideal raw materials for industrial products ranging from artificial sweeteners to plastics to biofuels.

The first subsidies were a stopgap measure to keep Depression-era farmers from fleeing to cities as Dust Bowl conditions decimated the countryside, but they’ve become deeply ingrained in the rural economy. The argument for their continued existence is counterintuitive to your average finger-pointing consumer. American farms are, in a sense, too productive: We produce immense surpluses of grains and other commodity crops most years, which keeps the prices paid to farmers low and perpetuates the need for subsidies. In other words, by producing more food than we need, farmers inadvertently drive down the value of their harvests — the immutable laws of supply and demand at work.

Subsidy proponents argue that this catch-22 belies a greater purpose. “It’s in the interest of society for farmers to always produce more than what we need,” says Roger Johnson, an agronomist and president of the National Farmers Union (NFU). “Another way to think of that is abundance, but abundance collapses markets. Farming is more profitable when there is a shortage.” Economists call this “the farm problem,” he says, because it is contrary to the logic of the broader economy, in which supply and demand act as beneficial, self-regulating forces.

One can hardly fault the hardworking men and women who produce our food for wanting a safety net — the term that farm groups now prefer over the less politically palatable “subsidy.” But whatever you call it, says Ken Cook, executive director of the Environmental Working Group, who has worked on every Farm Bill since the late 1970s, a check in the mail sends a powerful signal: “If you subsidize something, generally you get more of it.”

Even if you buy into the idea that our food supply might crumble if left exposed to the vagaries of the free market and that taxpayer-financed subsidies are the solution to the so-called “farm problem,” it’s fair to ask whether we are we subsidizing the best possible form of agriculture. That’s why every five years, when the Farm Bill comes up for renewal, every food and agriculture group in the country climbs into the ring to duke it out for their particular vision of what American agriculture should look like.

Haggling over the merits of the subsidy system delayed passage of the last Farm Bill for nearly two years, though it finally passed in September 2014, with a nearly $1 trillion price tag. Commodity prices had climbed to record highs since the 2008 Farm Bill, meaning more and more farmers were able to stay profitable without the subsidy crutch. This led some political factions to call for abolishing, or vastly reducing, the subsidy system, while others saw this boom as a bubble destined to burst. Though significant changes were made in 2014, the overall approach to subsidizing commodities remained intact. An unexpected turn of events has cast the upcoming bill in a different light: Commodity prices have tanked across the board, causing a nearly 50 percent drop in average net farm income since 2013.

“These low prices mean that the subsidy lobby will be coming to Congress before the next Farm Bill, hat in hand, saying ‘Oops, we overproduced and the markets aren’t as robust now, so we need more support,’” said Cook, when I spoke to him during the negotiation phase for the recently passed bill. He points out that the drop in income isn’t so extreme when you realize that it’s essentially retuning to pre-boom levels and that farmers’ median income remains about $20,000 higher than the national average. “It’s an opportunity for those of us who have been critics of the status quo to say ‘Let’s look at the consequences’ before we expand these programs,” says Cook.

Dale Moore, executive director of public policy at American Farm Bureau Federation, the nation’s largest agricultural lobby group and a vigorous defender of commodity subsidies, argues that farmers don’t grow commodities because they’re subsidized but because the market demands it. In this view, it’s a taxpayer’s duty to chip in for subsidies that keep farmers in business and grocery prices low.

Moore bristles at the idea of non-farmers telling the agricultural industry what it does and does not need. “That sentiment typically comes from people who have the luxury of sitting back and watching the folks out in the field doing the farming and ranching and have the audacity to think they understand the actual day-in-and-day-out realities of farming and the immense capital it requires,” he says. “Last time I checked, there wasn’t a lot of agriculture in Brooklyn.”

That said, it must be noted that Farm Bureau represents the interests of more than just farmers. The non-profit organization claims to be the “unified voice of agriculture,” serving more than six million member families, even though there are only 2.1 million farms in the country, according to the United States Department of Agriculture (USDA). The inflated number reflects the number of people who have purchased insurance from Farm Bureau’s nationwide network of for-profit insurance agencies — the third largest in the U.S. They sell home, auto and health insurance policies, along with crop insurance — policies backed by massive government subsidies.

The organization also has a long track record of lobbying on behalf of the interests of food-industry conglomerates. Its insurance affiliates own stock in the likes of Cargill, Conagra, Tyson and Archer Daniels Midland. Thisprompted John Hansen, president of the Nebraska Farmers Union, to once remark: “I can’t think of a major issue where Farm Bureau didn’t have the same position as the grain and meat processors. It’s impossible to represent the interests of food producers [farmers] and food processors. The economic interests of these two groups are almost always at odds.”

Those inclined to point fingers at Big Ag have long advocated for diverting subsidy dollars from commodity agriculture to incentive forms of agriculture that produce better environmental and public health outcomes. In any economic sector, government stimulus is helpful for getting new businesses established, but under the umbrella of agriculture, diversified organic farms seem to be one business model that remains viable in the long term without ongoing subsidy support.

Full Belly Farm in Northern California’s Capay Valley provides a case in point. The farm’s 400 acres are divided up into 10- to 15-acre plots, made up of mostly different vegetables but also fruits, herbs, cut flowers, nuts, hay and, yes, grains. A flock of sheep, which yields lamb and wool for market, are continually rotated through the fields to mow down crop residue, fertilizing the fields in the process. Full Belly’s livestock, which also includes laying hens and a few pigs, is sustained primarily through crop waste and grains grown on-site to cut down on feed costs. Value-added offerings range from cornmeal and almond butter to organic yarn and sheepskin.

Full Belly prefers to keep its financial information confidential, but Judith Redmond, one of Full Belly’s six co-owners, reports that at no time in the farm’s 33-year history have profit margins dipped uncomfortably low. In fact, the farm is profitable enough to pay its 80 employees an average of $13.65 an hour, well above the industry average, and provide health insurance and workers’ compensation benefits, which few farmworkers in America receive.

It’s an image of agricultural integration akin to Thomas Jefferson’s nation of “yeoman farmers,” but 61-year-old Redmond believes that such diversity in modern times could pave a path to greater economic stability — a diversity of crops begets a diversity in income streams, after all — and help wean farmers off subsidies. “If there is a late freeze and we lose the peach crop or we have a bad tomato year due to blight or there’s an insect invasion in the potatoes, we can still squeak by because we have so many other crops in the ground,” says Redmond, “so we don’t really need crop insurance the way other farmers do.”

Ferd Hoefner, a food policy expert at the National Sustainable Agriculture Coalition, says the original 1930s-era subsidy program required a percentage of each farmer’s land to be planted in non-commodity crops for exactly that reason. “We need to bring back some form of incentive for diversification,” he says. “It’s the best risk-management strategy a farmer can have, but the subsidy system isn’t sending that signal.”

Another advantage of fruits and vegetables on the farm: Prices are much higher at farmers’ markets than at grain elevators. A single heirloom tomato plant can yield $100 worth of fruit. Farmers have reported grossing upwards of$50,000 per acre on their Cherokee Purples and Black Krims, with roughly$7,000 in expenses. Items like radishes and rutabagas earn considerably less, but on average, fruit and vegetable crops net about $2,000 per acre after expenses.

The value of corn, meanwhile, is measured in hundreds of dollars per acre. In a good year, the harvest is worth slightly more than the cost to produce it. When prices are low, it costs more to grow corn than it’s worth, which is where subsidies kick in. After reaching an all-time high of about $900 per acre in 2011, corn prices dipped to about $550 per acre in 2016 — about $150 less than the cost to produce it.

On paper, switching from commodity crops to fruits and vegetables looks like a no-brainer. The demand for organics far outstrips supply in this country: The industry has seen double-digit growth over the past several years and, though about five percent of food sold is organic, less than one percent of farmland is organic, leaving retailers to import boatloads of organic food from abroad. Industrial-scale producers seem to have all the incentive they need to go neo-yeoman style, even without the government dangling a subsidy to tempt them.

So, why aren’t more farmers making the leap? For starters, the Farm Bill contains rules against it. Historically, commodity crop growers have had to forfeit their subsidies if they suddenly decide to plant a specialty crop. In part as a result of lobbying by environmental groups, the 2014 Farm Bill changed the rule to allow up to 15 percent of acreage to be converted to non-commodity crops.

Other opposing forces are cultural. Small-scale, diversified farming goes against the get-big-or-get-out mentality of modern agriculture. The subsidy system encourages not only monocultures but also consolidation. Subsidy payments are so baked into the system that farmers concoct business plans based entirely around maximizing their potential subsidy payments, says Hoefner.

“If a big operator is looking to take over a neighboring farm or two that might be looking to sell out because it’s losing money on low commodity prices, it’s comforting to know that each new acre bought will be fully subsidized,” he explains. “Small and midsize farms disappear, and beginning farmers can’t enter the market because they can’t compete with someone already farming 10,000 acres who can leverage that equity for a land purchase.”

The 2014 Farm Bill set a cap on total payouts to individual farmers, but Hoefner says that widely exploited loopholes render the rule virtually irrelevant. Farming efficiently on such a large scale requires immense investments in specialized equipment and infrastructure that can’t be adapted for other modes of production, effectively locking farmers into a single system. And it’s not just farmers who have, quite literally, a vested interest in maintaining the status quo; industrial food processors, distributors, retailers and farmers are all linked in a supply chain built around cheap commodity crops (there are 600 companies, from Monsanto to ExxonMobil, who spent $500 million lobbying the 2014 Farm Bill). According to NFU data, farmers receive an average of 17.4 cents for every food dollar spent at a grocery store. The more processed the food, the less of a consumer’s grocery bill goes to farmers: It’s 36 cents on the dollar for carrots, but it’s five cents for soda. In community-shared agriculture and at farmers’ markets, farmers get the whole dollar.

To be fair, the USDA already provides a number of incentives for sustainable agriculture. To receive subsidies, farmers must have conservation plans in place to show that they are taking basic precautions to protect the environment, though the USDA has limited resources to check that what every farmer puts on a piece of paper is practised. Conservation programs, including subsidies to keep environmentally sensitive lands out of production and to reward practices like “no-till” cultivation, planting cover crops and other erosion control techniques have been part of every Farm Bill since 1985. The USDA operates a number of low-interest loan and cost-share programs to support upstart organic farmers and develop local and regional food systems. But with such a tiny sliver of American farmland planted with fresh produce — and much less with organic crops — it’s clear where political priorities lie.

Johnson, head of the NFU, disagrees with the notion that more acreage in specialty crops would be a good thing — at least, from an economics perspective. In fact, he points out that specialty-crop growers have traditionally lobbied to keep the rule that prevents commodity growers from making the switch in an effort to limit competition, which, according to the laws of supply and demand, would drive down prices. “If you take even a small number of acres out of commodity crops, that’s equivalent to a huge percentage of specialty-crop acres, which would really destroy their market,” he says, “so I think it’s a bit of a disingenuous argument.”

One upshot of that scenario is that low-income Americans could finally afford to eat more fresh produce rather than rely on the cheap calories of processed foods. But fruit and vegetable growers might end up struggling to sell their crops for more than what they cost to produce and become reliant on government subsidies to make ends meet. Or maybe the built-in resilience of smaller, more diversified farms, which can more easily ramp up the production of crops with the highest demand in a given year, would resolve that conundrum. Either way, it might be a good — or, at least, better — farm problem to have.