Changes in Farm Payments?

Auburn, April 11, 2004 --- The Environmental Working Group ignited a firestorm last year when it posted on its Web site a complete list of the individuals and corporations receiving federal farm payments.

As a strategy for focusing more public debate on farm payments, it worked --- perhaps even better than EWG expected. The ensuing firestorm not only stirred public interest but spread to Congress and even prompted legislative action calling for steep cuts in farm program payments.

Recently, Texas Democratic Rep. Charles Stenholm predicted that as much as $2.3 billion could be cut from farm program payments within the next five years. Areas most likely to see cuts are conservation, rural development and food aid, he predicted.

Some have even predicted that this marks the beginning of the end of farm payments as we know them.

Are these doomsayers right --- does this spell the end of farm payments, at least in their current form?

One economist has his doubts.

"I'm not convinced that payments, in the short run at least, will even be reduced," said Dr. James Novak, an Alabama Cooperative Extension System economist. "Yes, there's pressure for doing that, and, yes, steep budget deficits may force limitations on program payments, but I don't see the imminent demise of farm payments."

On the other hand, Novak said there is every reason to believe farm payments will evolve to meet changing needs, just as they have in the past. Eight years ago, for example, the 1996 Farm Bill, the brainchild of a fiscally-conscious, GOP-dominated Congress, originally determined to phase out farm payments as they were previously known. Instead of receiving payments tied to commodity prices, producers would receive a fixed payment, which would be gradually reduced and eliminated entirely by 2002.

A series of unforeseen factors --- steep drops in farm commodity prices coupled with a spate of crop disasters --- forced Congress to backtrack. By the time it put its finishing touches on the 2002 Farm Bill, Congress returned to a farm payment system resembling previous systems --- one that incorporated a fixed payment approach coupled with disaster payments.

Whether this approach carries over into future farm bills will hinge on several factors, especially commodity prices, Novak said.

"It really will depend on whether we continue to enjoy high commodity prices," he said. "If we have the sort of prices we've enjoyed within the past few months, we're likely to stay the course."

Critics of the current approach argue that by increasing the costs of production, the payments enable large-scale farmers to out-compete small-scale farmers. Land prices are one example: Opponents maintain these farm payments allow wealthier and large-scale farmers to bid up these prices, making it harder for small-scale farmers to rent or buy land.

Supporters, on the other hand, say the critics have it backwards. It's precisely this trickle-down strategy that aids small farmers. Large-scale producers bring home the political bacon, and this, in turn, helps small-scale producers.

Whatever the case, the thing to watch is the growing interest in conservation provisions, Novak said. Within the last few years, some policymakers, most notably Iowa Senator Tom Harkin, and many small-scale farmers have expressed an interest in a payment approach based largely or even entirely on conservation.

Like many other critics, Harkin believes the current payment system places too much emphasis on supporting large-scale farmers who grow basic crops, such as cotton, corn and wheat, at the expense of small-scale farmers. By encouraging overproduction, distorting trade and depressing prices, he argues, the payments do far more harm than good.

Instead of commodity prices, Harkin envisions payments being based on conservation stewardship. Growers would receive financial incentives to preserve and increase the fertility of cropland through the use of sound conservation practices.

Ironically, provisions very similar to these were incorporated into the 2002 Farm Bill as part of a compromise measure. However, due to budgetary restraints, Congress opted not to fund these provisions completely.

[Source: Dr. James Novak, Alabama Cooperative Extension System Economist and Auburn University Professor of Agricultural Economics, (334) 844-3512; Writer: Jim Langcuster, Alabama Cooperative Extension System News and Public Affairs Specialist, (334) 844-5686.]

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