I've often written about the huge subsidies enjoyed by American farmers. Combined with other large incentives underpinning the production of biofuels, U.S. producers have enjoyed almost a decade of record incomes. This money that comes through the mailbox has a perverse impact on commodity prices. Farmers grow not what the market wants, but what the government will pay for, and even worse for Canadian farmers competing in a North American marketplace, the subsidies allow food processors and consumers to pay less, because tax dollars make up the difference.
The effort now to contain the massive U.S. debt and deficits has these farm subsidies in its sights. This is an interesting part of the story: " The most controversial of these programs are the $5 billion in annual so-called direct payments to farmers of corn, soybeans and other crops, awarded simply for owning tillable farm land, even if they do not plant on it."
Here's the whole story: http://www.nytimes.com/2011/05/07/us/politics/07farm.html?hp
Farm Subsidies Become Target Amid Spending Cuts
by JENNIFER STEINHAUER • May 6, 2011 •
WASHINGTON — When it comes to spending cuts, members of Congress like to say that “everything is on the table.” Except, generally, food. But now federal farm subsidies, long decried by policy makers as wasteful and antiquated but protected by powerful political interests, appear to be in serious danger.
This week, Representative Paul D. Ryan1, Republican of Wisconsin and the chairman of the House Budget Committee2, told reporters, “We shouldn’t be giving corporate farms, these large agribusiness companies, subsidies. I strongly believe that.”
His budget proposal would take $30 billion out of the farm program over the next decade.
Representative Eric Cantor3, Republican of Virginia and the majority leader, attended the first session of debt-limit negotiations on Thursday with a list of areas where he saw a potential agreement between Republicans and the White House, including farm subsidies.
A confluence of factors have lined up against the farm programs. While the rest of the economy remains largely stagnant, commodities prices and farm incomes have remained at a protracted high. The House Agriculture Committee4, while still dominated by farm state members, is now peppered with freshmen who view cuts to these programs as an essential part of the broader attack on the federal deficit, the centerpiece of their campaigns.
Further, after taking a beating from constituents concerning their Medicare5 proposal last month, Republicans are eager to find an area of common ground with Democrats. Farm subsidies seem to fit the bill; conservatives condemn them as intrusions into the free market, liberals denounce them for encouraging environmentally harmful overfarming, and both sides see them as a form of corporate welfare.
What is more, some subsidies have placed the nation in violation of trade agreements, and members from both sides of the aisle have questioned why, with biofuel mandates creating such demand for ethanol, the government needs to subsidize it.
Powerful interests and political traditions continue to constrain efforts to cut subsidies. While all the free-market Republicans back reducing subsidies in general, some continue to support targeted aid like the subsidies long enjoyed by ethanol. Newt Gingrich6, the former Republican House speaker and likely presidential candidate, has been assertively arguing in favor of maintaining ethanol subsidies in the face of intense criticism from backers of market reforms like the editorial page of The Wall Street Journal.
But in both parties there is a sense that support for subsidies is waning. This year, Senator Richard J. Durbin7, Democrat of Illinois, one of the nation’s biggest farming states, told the state’s farm bureau to expect cuts. Senator Debbie Stabenow8, Democrat of Michigan and chairwoman of the Senate Committee on Agriculture, Nutrition and Forestry9, told reporters at a state agriculture conference that “making sure that we’re doing our part in being fiscally responsible” would be the biggest challenge in the next farm bill10.
Others are thinking in a similar vein.
“I have been telling folks that the pie is getting smaller,” said Representative Reid Ribble, a Republican freshman from Wisconsin who sits on the House Agriculture Committee. “I am hearing from constituents back home that they want to see the government have less involvement in the pricing. There is a kind of a tenor right now that will allow us to have a significant change.”
Farm advocates say they hope they can stave off the worst.
“The scrutiny of farm programs is stronger than ever,” said Chuck Conner, president of the National Council of Farmer Cooperatives11. “It’s not that farmers don’t want to participate in deficit reduction, but at the same time, we hope people appreciate that all other federal programs have skyrocketed, which is why we are in this mess, and farm subsidies have not.”
Historically, federal farm subsidies have operated like piles of laundry: there are constant efforts to make them go away, but they always rise right up again.
The program is rooted in the response to the Great Depression12, when the nation enjoyed a largely agrarian economy and the federal government recognized that farmers lacked a safety net.
The program has evolved over the years into a series of direct payments, insurance programs, low-cost loans and other benefits. The programs come up for reauthorization every five years, and farm advocates lobby hard against efforts to meaningfully reduce them, though some have been reformed over the years.
“Substantial cuts to agriculture have already been made,” Ms. Stabenow said in an e-mail. “And we’ll continue measuring the performance of every program to reduce the deficit and maximize effectiveness.”
In 2011, taxpayers are projected to pay roughly $16 billion in aid to farmers through various programs, according to figures from the Congressional Budget Office13.
The most controversial of these programs are the $5 billion in annual so-called direct payments to farmers of corn, soybeans and other crops, awarded simply for owning tillable farm land, even if they do not plant on it.
“If we can’t figure out a way at this point to trim these payments,” said Representative Ron Kind, Democrat of Wisconsin, who has long fought against farm subsidies, “then it is just embarrassing.”
Large cuts to the agriculture subsidies will not go far in taming federal spending.
“Cutting farm subsidies doesn’t bring that kind of ongoing savings,” said Tyler Cowen, a professor of economics at George Mason University, comparing cuts to farm programs with longer term restructuring to entitlement programs like Medicare. “Still, it is a great one-time gain, and it means lower prices for consumers and is a good idea all around.”
Farmers and their advocates insist that the subsidies have been demonized and overstated.
“Every time you read an article saying Congress better be looking at farm programs I am scratching my head,” Mr. Conner said. “When people think of the U.S.D.A. budget they think of farm programs, but it is really more a rounding error.”
But Mr. Kind and others say the push for broad budget cuts is working in their favor.
“The political dynamics have shifted in light of deficit reduction,” he said. “I am cautiously optimistic.”