-"Farm" Subsidies: Who Really Benefits?
- Agribusiness Subsidies Defined
- Agribusiness Cashes In On Subsidies
- Time For Change In U.S. Farm Policy
RESOURCE, EVENTS
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"FARM" SUBSIDIES: WHO REALLY BENEFITS?
Amidst the details of the farm bill and budget debate over
agriculture programs, one startling fact remains at the forefront:
America is losing almost 600 farmers per week. Clearly, our nation's
farm programs aren't working for the majority of family farmers.
Instead, these programs are in effect subsidizing other members of
the agriculture community - namely agribusiness corporations.
Agribusiness wins billions of dollars worth of subsidies from
taxpayers every year directly in the form of export and promotional
"bonuses", and indirectly in the form of cheap commodity prices. In
fact, the food system currently in place rewards large agribusinesses
at the expense of family farmers. Understanding who really
benefits from U.S. agriculture subsidies is crucial to creating new
policies that truly do support America's farmers and their ability to
feed the nation.
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AGRIBUSINESS SUBSIDIES DEFINED
A variety of federally-funded programs fall under the category of
agriculture subsidies. The U.S. government allocates tax dollars
every year through the agriculture budget toward export,
environmental, and income and price support programs. The
recipients of these funds who qualify for government programs
include the academic community, low-income families and farmers.
However, the biggest recipients of subsidies under current
agriculture programs are agribusiness corporations. These
corporations benefit mainly through two types of policies which the
USDA calls "income support" and "export promotion" programs.
Income Support. Deficiency payments are the primary form of
income support. They were set in place during the 1970s when the
country experienced a sharp contraction in export sales. At the
prompting of agribusiness corporations, the Nixon administration and
Congress responded to the export crisis by implementing policies that
artificially lowered the price paid for crops; allowing agribusiness
corporations to buy bulk commodities at below-market prices.
Because this new focus on exports resulted in lower crop prices for
farmers, Nixon also approved deficiency payments; subsidies paid
out annually to farmers on a per bushel basis. While these programs
have led to cheap commodity prices and profitability for
agribusinesses, they have done little to maintain a living wage for
farmers.
In 1994, for example, farmers who spent $3.00 to produce one
bushel of corn, received on average, only $2.20 from agribusiness
corporations at the market. To offset some of farmers' 80 cent per
bushel income loss, the government paid them 55 cents per bushel in
deficiency payments. However, this still left farmers with a 25 cent
per bushel shortfall. On average, farmers earned $4,750 in farm
income in 1994, with 22 percent of the farm families reporting
income levels below the poverty line. In effect, the deficiency
payment system only served to indirectly subsidize and bolster
agribusiness profits.
Export Promotion. Agribusiness corporations also receive "bonus"
subsidies for sales and promotion of designated commodities
overseas. Under the Export Enhancement Program (EEP), for
example, designed to create new export markets, the Commodity
Credit Corporation awards a bonus to agribusiness companies
offering to export grain at the cheapest price. Under EEP,
agribusinesses ship crops abroad at approximately one-third of the
market price, while profiting on the balance. Through another
program, the Market Promotion Program, the federal government
spends millions of dollars annually to cover agribusiness' marketing
costs associated with advertising and promoting their products
abroad.
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AGRIBUSINESS CASHES IN ON SUBSIDIES
The federal government has spent an average of 10.5 billion dollars
on subsidies annually since 1990, including $6.9 billion for
deficiency payments and $1.6 billion in export subsidies to
agribusiness corporations. The remainder went to pay for disaster
aid, the Conservation Reserve Program and on-farm commodity
storage.
Under the Export Enhancement Program, U.S. taxpayers provided
agribusiness subsidies exceeding $7 billion from 1985 to 1994 to
profitable U.S. and foreign-owned agribusiness corporations.
According to USDA records, Cargill, Inc., alone, has collected $1.29
billion in export subsidies through the EEP over the past 10 years.
More importantly, cheap commodity prices, maintained below
farmers' costs of production through taxpayer-funded deficiency
payments, have enabled companies like General Mills to average a
return on equity of 38 percent between 1990-94. Likewise, Kellogg
registered a 33 percent return; Quaker Oats a 27 percent return; and
Con Agra an 18 percent return.
Meanwhile, farmers' average return on equity for the same period
was just 3.4 percent. This is the result of the combination of steadily
declining crop prices and the rapid surge in production input costs.
Since 1982, the index of prices received by farmers has risen only
7.5 percent, while the index of prices paid by farmers for production
inputs, such as fertilizer, seed, and equipment, has jumped over 23
percent. In effect, farmers pay retail for their inputs while selling
their crops wholesale to agribusiness corporations.
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TIME FOR CHANGE IN U.S. FARM POLICY
Media and Congressional attention has focused recently on the
prospect of eliminating deficiency payments and other agriculture
programs as the FY 1996 budget discussions and 1995 farm bill
debate get underway.
For over a decade, farm organizations, like the National Family Farm
Coalition, the National Farmers Union and the American Corn Growers
Association have been calling for changes in our nation's farm
programs to benefit family farmers. These include the establishment
of policies that raise artificially low commodity market prices and
farm income, while reducing taxpayer costs and eliminating
agribusiness subsidies.
If agribusiness corporations are allowed to continue paying farmers
below their costs of production, then the nation can expect to lose
another 400,000 farmers by the year 2002, according to USDA
projections. However, if agribusiness corporations are forced to pay
farmers a minimum price for their crops, then farmers would not
need government deficiency payments to barely survive.
"If they (Congress) would re-structure the farm program so it
supports a higher market price, we could live with lower deficiency
payments and lower taxpayer costs," said Nebraska Wheat Growers
Association President Brad Hansen.
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RESOURCES
"U.S. Agriculture: Status of the Farm Sector," General Accounting
Office, March 1995. GAO/RCED-95-104FS. 43 pages. Free. U.S.
General Accounting Office, P.O. Box 6015, Gaithersburg, MD 20884-
6015. (202) 512-6000. Fax (301) 258-4066.
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EVENTS
June 14-18 "One People, One Planet: Replanting the Community,"
Window Rock, AZ. Join the Rural Coalition at its Annual Assemble
when they will discuss, among other issues, "agriculture and rural
development in poor, minority and indigenous communities."
Registration is $90 for Coalition members and $175 for all others.
Call the Coalition for more information: 703-534-1845.
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Next Edition of Farm Aid News: "Defining Principles for the 1995
Farm Bill That Benefit America's Farmers."
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We welcome comments and suggestions: contact Harry Smith at
FARM AID, (617) 354-2922. We encourage the reproduction of
FARM AID NEWS. Produced by The Institute for Agriculture and
Trade Policy (IATP) for FARM AID. Editors: Gigi DiGiacomo and
Harry Smith. For information on other agriculture bulletins, contact
IATP: (612) 379-5980.
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