To Subsidize or Not To Subsidize

Franklin News Service -

Central to any key economic philosophy is the subsidies question. Yet, sometimes geographical or regional concerns override ideology when it comes to the actual subsidy in question. Agricultural subsidies often have this effect. How should the government handle farmers and the subsitizing of their crops?

Below: the current battle in the United States...

Criticism rains on Obama's farm subsidy cut idea
Reuter News Service
By Charles Abbott Charles Abbott – Sun Mar 1

WASHINGTON (Reuters) – Wally Darneille has two words for President Barack Obama's proposal to end the so-called direct payment subsidy to large U.S. farmers: "That's insanity."
"I think we're really going down the wrong path here," said Darneille, the head of a farmer-owned cotton marketing cooperative in Lubbock, Texas.

An array of lawmakers and farm groups agree, suggesting poor odds for the idea to become law.
Foes say the idea is poorly timed and aimed at growers who account for three-fourths of farm production. Two longtime Senate backers of farm subsidy reform oppose Obama's proposal.
As part of his 2010 budget, Obama proposed phasing-out direct payments to farmers with sales of more than $500,000 a year, to save $9.8 billion over 10 years.

Direct payments, which total $5.2 billion a year, are paid regardless of crop prices.
"Large farmers are well-positioned to replace those payments with alternate sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production and providing clean air, clean water and wildlife habitat," the White House budget documents said.

Criticism of the direct-payment plan eclipsed a companion White House proposal for a $250,000 a year cap on farm subsidy payments, the usual battleground for controlling subsidies.

"Most full-time farmers, commercial farmers ... it looks to me like they're going to get hit," said Daryll Ray, a University of Tennessee agricultural economist.

"It will include any livestock operations you have. You might even go over (the sales limit) on livestock alone."

A farmer could reach $500,000 in sales with 885 acres of corn or 2,250 acres of lower-yielding wheat.

Roughly 126,000 U.S. farms have sales over $500,000 a year, according to the Agriculture Department.

"We did some figuring, and it would not take much to get to that cap, said Tim Bartram, who farms 400 acres of wheat in Guthrie, Oklahoma. "They are showing a real lack of understanding of agriculture."

FAMILY BUSINESS

Gregory Guenther, a farmer from Belleville, Illinois, said the "agribusinesses" are actually family operations.

"Brothers or a father and son or whatever have combined their resources, their acreage, into one big operation in order to capture volume discounts on seed, fertilizer, chemicals, or things like that which make them more efficient," he said.

"Each of those individuals that are involved in this so-called corporate farm, they only have the income off of a few hundred of those acres," said Guenther.

Bartram and Guenther were interviewed at a farm conference in Grapevine, Texas. Darneille spoke at an USDA meeting.

The Obama proposal faces opposition in Congress, which has taken the lead in farm policy in recent years.

Lawmakers overrode two presidential vetoes last year to enact a five-year farm law that bans crop subsidies to people with more than $500,000 in income from off the farm and tightened subsidy rules somewhat.

They rejected a $250,000 payment cap.

"We just passed a fiscally responsible Farm Bill that made cuts to farm programs, so now is not the time to reopen it," said House Agriculture Committee chairman Collin Peterson.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said he opposed any effort to cut support for the farm safety net, especially when the economy was so weak.

The two most direct ways to cut direct payments would be for the House and Senate Agriculture committees to pass a bill or for the budget panels to order long-term cuts.

Opposition by Peterson and Conrad would make those routes more difficult.

"While it aims for the right goal, the approach outlined in the president's budget is not the best way to ensure farm payments go to those who need it most," said Iowa Senator Charles Grassley, a Republican who favors a $250,000 cap on payments.

"I'm a farmer and I know that gross income or sales revenue does not reflect your ability to pay."

Jay Hardwick, chairman of the National Cotton Council, said "the direct payments are critical to a producer's ability to secure financing."

Bob Young, an economist for the American Farm Bureau Federation, said farmers often feel under attack from their city cousins and that it was time to build connections with them. "I think we need a renewed emphasis on what is involved in agriculture today," he said.