Analyst Comments on Newspaper's Focus on U.S. Farm Programs, Spending AgWeb.com January 16, 2007 Editor's note: The following is a guest commentator column written by Jeff Harrison, who served on Capitol Hill for 13 years, in both the House and Senate, most recently as counsel to then House Agriculture Committee Chairman Larry Combest (R-Texas) and as Legislative Director to U.S. Senator Norm Coleman (R-Minn.).He is currently part of Combest & Sell consulting group. Harrison's comments detail his responses to a series of articles from the Washington Post on farm programs ahead of the 2007 Farm Bill debate. I want to share his insight because so many farmers, ranchers and "aggies" on Capitol Hill have been seeking responses to the points made in the newspaper articles. And as always, I welcome alternative comments from anyone or any group to the following remarks, or to anything I write. I have just one caveat: keep it insightful and honorable. A Case Study in Urban Legend: Washington Post Farm Policy Stories, Part II Responding to the flurry of Washington Post stories on farm policy is a lot like responding to a flood in the basement: the trouble is not pinpointing where the problem lies, but in what you have to wade through in order to correct it. With fifteen feckless stories in the series, covering well over one hundred printed pages, only a brief overview is possible in the limited space provided anyone not writing for the Post. This is a link to the first "Case Study," responding to the first two stories. (PDF) Of "Big Farms" and "Powerful Interests." (Stories dated December 21, 22) Gross Income Does Not Reflect Size, Net Income or Profit. The Post article of December 21, once again refers to gross income, rather than net income, when measuring the financial condition of a farm - although gross income and net income are two very different things whether you run a business or a farm. One can have a good gross income and still lose his shirt. This is especially true for farmers who have no control over the weather and little to no control over the price that he or she will ultimately receive at the end of the year. This rather obvious error was noted in the first "Case Study" but has nevertheless gone uncorrected (see the first "Case Study" for further discussion). Devaluing a Person's Main Asset, Investment, and Nest Egg Hurts Farmers and Non-Farmers, Big and Small, Rich and Poor and Everyone in Between. The same Post story once again argues that U.S. farm policy unacceptably inflates land values when, in the Post's judgment, they should apparently be lower - never mind that real land values remain 23 percent below their 1981 peak according to USDA. As a home is to many American families, land is to U.S. farm families their major asset, investment, and nest egg, comprising about 79 percent of total farm assets. Farm policy may contribute positively to land values, like the mortgage deduction may impact housing values, but trends suggest that commodity market prices and other factors, such as competitive uses for land, are the key factors. For example, 1031 exchanges permitted under the tax code allow wealthy non-farmer property owners to sell their property and avoid capital gains taxes if they purchase other property, such as farmland, which they may ultimately use for farm or non-farm purposes. Ironically, these wealthy landowners are often included in the mix of "small farmers" for whom critics ostensibly seek greater farm policy benefits as a matter of "equity." Recall that "small farm" is not measured by USDA according to wealth, income, or even amount of farmland owned, but by agricultural production per year alone. In any case, with "small farmers" owning 69 percent of all U.S. farmland, farm policy critics claiming to want to help "small farmers" would instead deal them a serious blow - be they rich, poor, or anywhere in between - by seeking to devalue what may be for many their greatest asset and their only nest egg. See the first "Case Study" for further discussion. Greater Concentration and Rural Economic Decline Would Result Absent U.S. Farm Policy. The Post argues that U.S. farm policy causes larger farmers to buy more land (apparently despite inflated prices), forcing smaller farmers out of business. Yet they fail to consider the possibility - the probability - that without current U.S. farm policy larger farmers would be forced to become even larger to gain sufficient economies of scale in order to offset the loss of support and remain economically viable. Meanwhile, smaller and mid-sized farmers would fold fast without such support and become a thing of the past. Some indication of this may be found in the answer to the question of whether the attrition or concentration in farm sectors not directly supported by U.S. farm policy have proven greater or less than those sectors which are directly supported by U.S. farm policy. In any case, the Post is correct that U.S. farm policy has not entirely stopped the attrition of farms or prevented farms from expanding in size since 1938. But how is this different than any other sector of the economy? Are other businesses not becoming fewer and larger as they try to cope with economic conditions, largely created by increased global competition? Whatever the answer, farm policy was never intended to stop in their tracks market forces or economic trends, but it is intended to provide some economic stability in an exceptionally cyclical economic sector which is influenced by so many factors beyond a producer's control, not least of which is weather and foreign subsidies and tariffs that far outstrip anything received by U.S. farmers. In short, the pretext Post writers use to condemn U.S. farm policy is that this policy has not managed to preserve every farm in operation since 1938 in its idyllic Rockwellian size - even as the Post joins the cabal of critics in advancing policies that would create an exodus in farm country not seen since the 1980s farm financial crisis whose economic shock waves were felt even by large cities like Minneapolis and Chicago. USDA: 98% of U.S. Farms are Family Farms, Big, Small, and In Between. By the Post's own account, "corporate" farming accounts for just 1.7% of total farms. Nevertheless, the story headline refers to the "myth of the small farmer" rather than the "myth of the corporate farmer," even as the Post concedes that small farms are plentiful in this country, if not the chief source of our food and fiber. In fact, the Post story goes on to correctly point out that a very large number of these small farms are "hobby" or "residential" farms that "produce little or no income from crops or livestock" but afford people an opportunity to enjoy a rural way of life. To the extent these farms receive support under U.S. farm policy, they do so based on the smaller level of production they might produce, or by renting land to a farmer and sharing in the proceeds, or through conservation payments. So, when one looks at the total number of farms in the country, the farms that actually support the livelihoods of families through agricultural production on the land appear very small compared to the total number of farms in the country and they also look very large in terms of their production amount and, consequently, in the support they receive under U.S. farm policy. After all, it would be the height of inefficiency, even by government standards, if the purpose of U.S. farm policy is to help farm families contend with weather and market related production risks only for U.S. farm policy to instead steer support based on the number of warm bodies or some other arbitrary factor rather than on production. Yet, whenever the Post and other critics complain of a small percent of farmers receiving a large percent of benefits that is exactly the path they would take us down. As noted earlier, "small farmer" is not a measure of land, wealth, or income. In fact, some 70 percent of U.S. farmland is owned by "small farmers," according to USDA. "Small" simply reflects agricultural production. So if the policy objective of the Post is to foster farms of a more romantic size, it should either prepare to spend exponentially more money on farm policy to make farming on such a scale economically viable in today's world market or, in the alternative, not expect much in the way of food and fiber production in this country as agriculture and the jobs it creates are also offshored. Forget Big or Small and Keep Your Eye on the Ball: Helping an Important American Industry and the U.S. Jobs It Provides To Compete on a Lopsided Global Playing Field. Perhaps U.S. farm policy was established in 1938 for a different set of circumstances than why it is important now. Yes, weather is still the wild card it was then, and prices can be every bit as volatile. As just one example, despite the passage of time, even the American Enterprise Institute - no friend of farm policy - acknowledges that wholly private multiple peril crop insurance is not commercially viable. That is to say, if farmers are to have insurance it requires government involvement. But, aside from weather-related losses, pricing and even input costs are symptoms of a larger problem that is new and different than it was in 1938. Unlike then, today we are in an extremely competitive world market...and our policies have adapted over the years to adjust to this new reality. But, today, unlike 1938, we are in a world market and that world market remains riddled with foreign subsides and tariffs that no domestic policy can harness. As Ambassador and now OMB Director Rob Portman has stated, agriculture is the most distorted market in the world and foreign subsidies and tariffs are far greater than those in the U.S. And where they are not, look for State Trading Enterprises with single desk sellers and buyers that manipulate prices to support their own production. For a recent example of what State Trading Enterprises are capable of, one needs only to look at the Australian Wheat Board (AWB), which was just recently rapped for its practices in Iraq. Then there are regulatory policies, thinly veiled by foreign competitors as sanitary and phytosanitary rules, that conveniently keep U.S. products out and their own products protected. There may be no better examples today than what has happened to U.S. rice and beef. And everyone knows all too well the energy situation that impacts us all, but an energy-intensive farming or ranching operation first and hardest. Yet, phytosanitary and sanitary issues are off the table in the WTO Doha Round negotiations, State Trading Enterprises also appear to be getting a free ride, and everyone knows the story about subsidies and tariffs: despite strong U.S. farm and ranch support for a balanced agreement, the response from our trading partners was for the U.S. to unilaterally disarm while they keep their subsidies and tariffs. Not surprisingly, those who represent large multinational and foreign companies recommend America follow that advice. Never mind that China, Brazil and many other agricultural powerhouses around the world would essentially get a free pass under a Doha Round agreement. And never mind that foreign countries could continue to refuse access to U.S. farm products and do so with impunity. It is precisely this lead-with-your-chin attitude that cost American workers about 3 million good paying manufacturing jobs earlier this decade. This prompted Congress to pass the American Jobs Creation Act which was billed as a competitiveness bill to help stop the hemorrhaging of American jobs in the sector and to prevent further offshoring. There was not then nor is there now any talk of unilateral disarmament, much less means-testing or payment limitations involved in the debate over this legislation. There were no questions of whether the U.S. manufacturer receiving benefits is big and strong or small and cuddly. The principal was that this is an important sector of the U.S. economy and behind these companies, both large and small, are seen millions of American working men and women who would very much like to keep their jobs to support themselves and their families. Yet, agriculture, which comprises 17% of the nation's GDP, creates 25 million good paying American jobs, and contributes $3.5 trillion per year to our economy is somehow held to a different standard, even though it faces a far more distorted world market, as Ambassador Portman and others have noted. The Farm Bill is a U.S. competitiveness bill designed to keep an important economic sector competitive on the most lopsided global playing field. The issues of big, small, or hardscrabble are hardly relevant if the U.S. is serious about keeping this industry and the millions of American jobs behind it. In a moment of unguarded optimism, one would be tempted to hope that we would actually want and seek to promote a strong and healthy agriculture sector in this country, rather than one that merely limps on. Powerful Interests Indeed. The Post and other critics frequently lament what they see as a politically powerful farm lobby, suggesting lawmaker support for U.S. farm policy is simply inexplicable without something sinister brewing just below the surface. But the Post writers unmask the real powerhouses in this debate in their December 22, story entitled, "Powerful Interests Ally to Restructure Agriculture Subsidies." The article specifically mentions those lined up against U.S. farm policy, including big corporate interests, many multinational and foreign, along with the right wing (and congenitally altruistic) think tanks they help bankroll, well-intentioned but misguided advocates for the developing world, and extreme environmental groups whose concern for the environment is only eclipsed by their fundraising. It is understandable that the self-effacing Post writers did not add to this mix their own employers and other big newspapers that provide unlimited ink and pages to the propaganda of farm policy critics. Powerful interests indeed. And if one cynically looks at PAC contributions as any indication of who does and does not wields power in Washington, U.S. farm and ranch families certainly draw the short straw. Only 7 percent of all PAC contributions are from the agriculture sector - and much of this is not from farmers and ranchers at all but from agribusinesses, many of whom strongly oppose U.S. farm policy. There are also recent reports that farm policy critics have amassed a staggering $14 million to throw at their campaign to kill U.S. farm policy. The fact is, no objective person, whatever he or she may think of U.S. farm policy, would honestly judge from this terrain that money and power somehow land on the side of the American farmer and rancher. So if it's not raw power or money, how does U.S. farm policy survive? The Post knows exactly why but simply cannot come to grips with it, as evidenced recently in one of its editorial pages. The Post's exasperation with the refusal of the "majority" of Americans to budge from its stubborn support for U.S. farm policy was palpable, calling the American public "oblivious" for not seeing the thing their way, despite the relentless efforts of critics. The truth is that the American people simply do not wish to see their farmers and ranchers unilaterally disarmed in the face of unfair foreign competition in order to offshore yet another industry and the jobs that go with it - and Members of Congress are reflecting that sound judgment of their constituents, not to mention all the objective facts surrounding this debate. Of Crop Insurance and Disaster (Stories dated October 15, 16; July 18, 19) Crop Insurance and Disaster Aid Capped at 95% of Loss is Not Double Dipping. One article accuses farmers of double dipping because they may receive crop insurance and ad hoc disaster assistance on the same crop, but then contradicts itself by acknowledging that "[t]hose farmers have come to depend on both crop insurance and disaster payments, which together allow for covering up to 95 percent of the value of their crops." Of course, receiving two payments that indemnify a person up to 95 percent of a loss is obviously not double dipping. The article also quotes some suggesting that federal policy should provide either insurance or disaster assistance to farmers, but not both. Recent natural disasters affecting non-farmers, the vast majority of whom buy insurance, and the federal aid that followed demonstrates that insurance does not always obviate the need for additional assistance since insurance rarely makes a person whole. Lastly, the concentration of drought payments toward drought stricken areas of the country did not escape the notice of most astute Post reporters. Farmers Suffering Losses Prefer Disaster Aid Over Loans That Would Place Them Deeper in Debt After a Loss. Another revealing article observes that, when confronted with the choice, farmers actually prefer ad hoc disaster assistance to help offset their losses, rather than have to take out big loans that they would ultimately have to repay after they just suffered huge a loss. Nolo contendere. Payment Limitations Make No Sense for Farmers or Non-Farmers Suffering a Loss. A third article uncovers the story of a farmer who produced a crop for which insurance was not available and who reorganized his farm in order to qualify for alternative disaster assistance because, under his old farm structure, the farm was regarded as too large to receive any such assistance. What would any homeowner or businessman do if insurance were not available for his or her commercial or residential property and an alternative federal program was available to help but only if he or she legally changed the ownership structure? Go unprotected? Abuse Unwelcome Under Any Insurance. A fourth article uncovers a problem with a sweet potato crop insurance policy that was apparently identified and corrected by the Risk Management Agency (RMA). One of the core pillars of the 2000 Crop Insurance bill was to eliminate the potential for abuse of insurance. Insurance fraud is a problem that is hardly unique to crop insurance and every effort should be made to stop it in any venue. The vast majority of farmers, agents, and companies are united with the Risk Management Agency in the effort to combat abuse because it harms the integrity of the Federal Crop Insurance program and inevitably results in higher premiums and ultimately less coverage. And because of concerted public-private efforts in this regard, fraud rates in crop insurance are lower than in other commercial lines of insurance. Crop Insurance and Disaster Aid Must Work in Tandem to Provide Effective Risk Management for All Farmers and Regions. Yet another of these articles focuses on recent crop insurance profits, which Dr. Keith Collins, USDA Chief Economist, is quoted as describing as "atypically good," inferring that this is not always the case. It should come as little surprise that insurance providers, whether commercial, residential, auto, or farm, seek and, in fact, need to make a profit over the long haul. What makes crop insurance different is the federal government's involvement, which begs the basic question of why? The answer lies in a quote from a critic of U.S. farm policy, the American Enterprise Institute, which explains in, The Economics of Crop Insurance and Disaster Aid, that, "…unsubsidized commercial multiple-peril crop insurance is probably not a viable commercial product." In short, without government involvement, farmers go uninsured. The issue then boils down to what is the appropriate level of government involvement. To its credit, the article observes that crop insurance providers, unlike other insurance companies, must offer insurance to all persons anywhere at a predetermined price. Dr. Collins is also noted in the article as having stated that companies have taken on greater risk in recent years and that this could portend for both greater risk of loss as well as opportunity for profit. The question for policymakers is if a drought or flood on the scale of 1988 and 1993, respectively, were to occur, would recent profits evaporate - along with the providers that once made them. The article also quoted one suggesting that a disaster program in lieu of crop insurance might be preferable. However, few seriously believe that disaster assistance alone could offer the protection levels now provided by crop insurance without both breaking the federal bank and inviting serious moral hazard. Finally, the so-called Premium Reduction Plan (PRP) rebate is raised to suggest that insurance providers oppose discounts to producers. The Post later acknowledges that insurance providers do support an alternative discount (i.e. one that is universally available, upfront, certain, and bankable for all farmers) rather than PRP, which promises to only some farmers rebates of unknown amounts that may or may not ever materialize two years after the policy is purchased (never mind that insurance rebating is generally banned in 48 states). But all the PRP distraction aside, the main goal must be to continually improve Federal Crop Insurance to meet the needs of all producers and regions of the country, perhaps in conjunction with a complimentary standing disaster program, as some in Congress have suggested. Others. There are a few other stories (regarding livestock drought aid programs first designed and implemented by the Administration without specific Congressional authority, as well as dairy and catfish, dated July 18, 19, and December 10) where an attempt by the author of this paper to unravel the truth of the matter is constrained by a lack of direct knowledge of all the relevant facts, though this constraint evidently has not stood in the way of others. However, one interesting observation concerning the livestock drought aid stories is that the Post took time to discuss benefits received by ranchers where insufficient loss may have been sustained between three and five years ago, but never utters a word about ranchers receiving little to nothing this past year despite very dire circumstances, including in the Texas Panhandle where more than 1 million acres burned by wildfires. And so, with the help of the Washington Post, farm policy discourse may have finally reached its nadir. Put another way, the Post has pushed this debate into the basement and made it pretty deep down here. Printed With Permission.