By Jeff Wilson
CHICAGO (B)--As farm groups continue to push for additional government spending to supplement low commodity prices, it is becoming clear that the 1996 Freedom to Farm program will need to be revamped when agriculture policy is rewritten before this program expires. Government officials have already indicated the dependence on government programs is too great and economists at this week's annual U.S. Department of Agriculture outlook conference probably will reinforce that policy goal.
USDA Chief Economist Keith Collins told the House Agriculture Committee Feb. 14 the first heap of subsidies handed out to farmers after the 1996 farm act was created, about $7 billion worth, was a key turning point in the dependence building. That set an unrealistic "standard" for what producers came to expect, he said.
"We have made farmers too reliant on government payments," Collins said. "When we dump the amount of aid we do (on farmers), of course we insulate them."
"It is time the farm community wakes up and develops new programs, or increasing pressures on the government policy makers will do it for them," one analyst said.
Congress responded to the problems caused by low prices and adverse weather by providing nearly $25 billion in supplemental assistance to farmers and ranchers in the past three years, greatly limiting the farm financial stress that farmers and ranchers would otherwise face. These supplemental payments plus payments authorized under the 1996 Farm Bill pushed government payments to a record high $22 billion in calendar 2000.
After the hearing, Collins told reporters some farmers are getting as much as 75% of their revenue from government payments. "That defines overly dependent," he said.
Rep. Charlie Stenholm, D-TX, admitted he had no idea of how to go about weaning farmers from the high levels of government payments that they have become accustomed to without wreaking havoc on the farm economy.
Farmers are getting a total of $4.13 billion in regular Agricultural Marketing Transition Act payments this fiscal year, and that amount is scheduled to drop to $4.008 billion in fiscal 2002. Generally, AMTA levels have fallen since the program was created in 1996, when USDA paid out $5.57 billion to producers.
Up to this point, farm program spending has not been a strain on U.S. budgets or a political problem for U.S. lawmakers. But this is likely to change if the economy fails to respond to fiscal and monetary stimulus and if budget deficits begin to disappear, several analysts said this week.
Finding a way to cut taxes and increase Medicare, military and other government spending amid declining revenues is likely to heighten the scrutiny on farm program spending, they said.
Collins' comments about farmer dependency will be reinforced by private-sector economists at the USDA outlook conference next week, commented Rich Feltes, grain analyst at Refco.
There is growing awareness by the private sector that farmers are becoming welfare-dependent, he said.
It is imperative the U.S. agricultural industry keep an open mind about any potential program changes floated in the next several months and ignore the prairie populous rhetoric that tries to humiliate the economists delivering the message, Feltes warned.
"It is time to try something different," he said.
The first step is to rebalance the loan rates. And that means lowering soybean loan rates and not raising grain loan rates, he said.
He also noted the loan deficiency payment program has proved to make farmers less responsive to market signals.
"Farmers are more focused on maximizing government payments than they are on maximizing their overall returns per acre," he said about the program's failure to increase farmer marketing skills.
"The rising agricultural budget is a much bigger issue than a lot of farmers and farm organizations realize," added another analyst. He noted there are already hints that the Bush Administration is looking for USDA to cut spending by at least $1.0 billion this year. "No agency will be immune to budget cuts to finance the planned tax cuts," he added.
The 1996 farm bill was designed to wean farmers off government program payments, and all it has done is increase their dependency, he added.
More important, the 1996 program has really only benefited the absentee landlords and increased corporate mergers, consolidation and hog feeders, he argued.
The government payments to landowners have merely pushed up the cost of producing farm commodities by raising farmland and rent costs.
Rising land costs are the big reason why the 1996 farm program is failing and not helping to bring down production overseas as envisioned by program architects.
Assuming the average price of highly productive U.S. farmland is $2,000 per acre, it is no wonder South American production continues to rise with land costs averaging about $1,000 to $11,000.
Refco's Feltes agrees the 1996 farm bill payments have merely been capitalized into higher land coasts and supported the mega-farm creation. This has effectively shut down expansion among mid-size farming operations because they simply cannot remain profitable if they pay for the higher land or rent costs.
The day of reckoning is quickly approaching.
"What we need to do is accomplish the same goals the 1996 farm bill outlined but in a much different and cheaper design," a farm market advisor said.
"I think Collins is right, but is that a political reality," added Sid Love, a grain analyst for Kropf and Love Consulting in Kansas City. At this point, Love does not see much momentum in Congress to change the large government program payment structure, especially with low prices expected to stay around for another year.
"The only cure for low prices is low prices," he said.
And with world demand for corn, wheat, soybeans and soybean products at record highs and end-users maintaining a hand-to-mouth buying pattern, just a few weather problems could quickly reduce government program payments very quickly, Love warned.