Harvesting Cash

It’s a good time to be a farmer. Buoyed by rising demand for biofuels and the growth of the middle class in developing nations like China and India, corn prices have risen to $5.53 per bushel, an increase of more than 100 percent over 2006 levels. These gains, along with similar surges in the prices of wheat and rice, are poised to spur American agriculture to a record $92.3 billion in revenue this year.

To top it all off, American farmers are still receiving $13 billion every year in subsidies from the federal government.

If that seems strange to you, then you’re not alone. A long list of luminaries ranging from Nancy Pelosi to President Bush have tried to do something to cut the wasteful spending. Farm subsidies are one of those rare issues on which everyone from the staunch free market advocate to the ardent proponent of social justice can see eye to eye.

A cursory reading of Mankiw’s Principles of Economics will reveal subsidies are, as a general rule, inefficient; they distort incentives and create deadweight loss. While they can produce artificially low prices at the grocery store, the funds paying for this difference come straight out of consumers’ wallets in the form of tax dollars. Ultimately the costs outweigh the benefits.

American farm subsidies are no exception, and have the added drawback of incurring the ire of foreign farmers who find themselves undersold by government-backed U.S. agriculture. This consistently creates a roadblock in international trade negations, as evidenced by the near failure of the trade liberalization talks in Doha over the issue of protectionist agricultural policies. By impeding the progress of international trade, the subsidy programs of the U.S. and other global culprits like the European Union end up creating a highly inefficient system that hurts everyone one from farmers in the developing world to American taxpayers.

The ineffectual farm subsidies could potentially be justified if they promoted a more equitable distribution of resources. However, they seem to be doing exactly the opposite. While the subsidy programs were initially created to combat the abject poverty facing many farm families in the Great Depression, times have changed dramatically. In 2006, average farm household income was $76,654, 17 percent higher than the average U.S. household income. In 2008, the disparity is projected to grow even larger, as average farm incomes soar to a whopping $90,000. Farmers note that prices will likely fall once again, just as the crop booms of the ’70s were followed by lean years in the early ’80s, but cyclical market fluctuations are a feature of nearly any business. Government policies have gone to ridiculous lengths to remove the risk from farming, offering “emergency disaster payments” for crop failure while at the same time subsidizing insurance to cover those failures. For that matter, from 2000 to 2006, $1.3 billion was give to individuals who don’t farm at all simply because they own land that was once used for agriculture.

It’s also not just struggling farmers who benefit from the government’s programs. The current farm bill allows farmers with incomes up to $2.5 million per year to collect federal dollars; in 2001, 73 percent of subsidies went to the largest 10 percent of American farms. Previous recipients of much-needed farm aid have included media mogul Ted Turner and Kenneth Lay of Enron fame. David Rockefeller—one of those Rockefellers—received $554,000 in subsidies from 1995 to 2005, despite his estimated net worth of $2.6 billion.

Farmer’s need subsidies almost as much as hedge fund managers do. In an era of gaping budget deficits, it seems quite clear that the billions of dollars dumped into lining the pockets of America’s already affluent farmers could be better spent elsewhere. In 2005, the government doled out $25 billion to farmers, which was 50 percent more than the amount received by welfare families.

Many in the executive and legislative branch agree, and have tried to cut back the subsidies and dramatically lower the maximum income level for receiving them. Still, the farming industry and its lobbyists won’t go without a fight, and the deeply ingrained subsidy programs will require a struggle to dismantle.

Farming has a particularly strong valence in our national consciousness. The image of the courageous yeoman farmer, rising at dawn to milk the cows seems as American as apple pie or corn-based ethanol. As Ralph Grossi, president of the American Farmland Trust, told the Wall Street Journal, farmers are perceived as “hard working, salt of the earth, a core part of our culture.” Perhaps this sentiment, combined with the political clout of farming states like Iowa and the $80 million big agriculture poured into lobbying last year, explains why congressional attempts at reform have been slow in coming, and met with considerable resistance. Just recently, a group representing the American Farm Bureau Federation has been brining in farmers from Iowa to Washington, promising to give policymakers “a dose of in-your-face reality.”

The “reality,” however, is that, like an old combine harvester, farm subsidies have long outlived their usefulness. It’s time for us to abandon our illusions and put them out to pasture for good.





Daniel E. Herz-Roiphe ’10, a Crimson Associate Editorial Chair, is a social studies concentrator in Adams House.