Bumper Crops Spell Trouble for Farmers
Barring a last-minute weather disaster, this is going to be the biggest harvest in Thomas T. Noll’s 30 years of farming the northeastern Kansas land.
Noll, like other farmers who grow corn, is looking at his biggest crop ever. His crops of soybeans and sorghum could also set farm records.
This summer’s wheat yield was so big around John E. Wise’s farm in Linwood, Kan., that the giant grain elevators in which he and other farmers store their crops are almost full. Elevator managers worry about space for the corn, soybeans and sorghum that await reaping in seemingly endless fields of gold and green.
‘Straining at the Seams’
“We’re going to be straining at the seams,” said Darl Rader, manager of a grain storage facility in Larned, Kan.
From the broad Midwest prairie to the dusty plains of Texas to the fields of California, the nation’s farmers are warming up their combines for one of America’s largest harvests. It is a bounty that normally would be cause for great celebration. But the giant crops promise only more trouble for the country’s economically distressed and slowly vanishing family farmers.
“There’s no question that . . . this giant crop is a real disaster,” said C. H. Fields, the American Farm Bureau Federation’s assistant director of national affairs. “No one knows what they’re going to do with the stuff.”
This summer’s large crops will mean low commodity prices for farmers who are already struggling to survive. Low commodity prices will put additional downward pressure on the value of already deflated farm land, reducing farm asset value, increasing farmers’ debts and pushing more farmers to the brink of failure.
For the taxpayer, the big harvest means huge expenditures as farmers turn their crops over to the government for guaranteed prices that are higher than those on the open market, albeit not high enough to salvage failing farms.
Estimates of the cost of government price support programs for this summer’s crops now approach $18 billion, up from a January estimate of $13.2 billion. Privately, some Agriculture Department officials told The Times that this could be the most expensive year in history, topping the $18.9 billion that the government spent for farm subsidy programs in 1983.
Prospects of Glut
Prospects of a new grain glut and government warehouses bulging with grain, cotton and dairy surpluses will fuel this month’s debate in Congress over the size, value, necessity and purpose of farm price support and subsidy programs. Lawmakers, faced with a Sept. 30 deadline, are wrestling with the seemingly impossible task of agreeing on a national farm policy for the next five years.
Farmers, in a dramatic about-face from earlier positions, are responding to the glut by advocating mandatory production controls, a move that would increase government costs and government involvement in farming.
Federal farm subsidies, a combination of price guarantees and payments designed to make up the difference between low market prices and higher costs of production, have been at the center of the controversy surrounding this year’s efforts to draft new farm legislation.
Subsidies take a variety of forms, varying from direct payments and loans to government funding for research designed to improve production and, at least in theory, profits. The most common and costliest programs are:
--Loans. These form the primary market price-support device. Under this program, there is no limit to the amount of their crop that farmers may put in government-approved storage facilities in exchange for a guaranteed “loan price.” If, during the next nine months, the price of that commodity rises above the government loan rate, the farmer may sell his commodity on the open market. But, if the commodity price stays low, the farmer can forfeit his commodity as a repayment for the loan.
This is how the government often ends up owning huge supplies of surplus grain, which, by law, it cannot sell until the price rises above the original loan level. Farmers who produce wheat, corn, sorghum, cotton, soybeans, rice, peanuts, honey, tobacco and several other goods are eligible for commodity loans.
--Target prices. These are designed as income supplements for farmers, a kind of welfare payment or minimum wage guarantee. Target prices are calculated to reflect the national average cost of producing a crop. If the market price for that crop fails to reach the target price, farmers are entitled to collect a “deficiency payment” for each bushel of the commodity that they produce.
The payment represents the difference between the target price and either the market price or loan rate, whichever is smaller. The maximum that an individual farmer can collect under this program is $50,000. But, in the case of farm partnerships, each partner can collect up to $50,000. A farm run by a father and three sons would be eligible for $200,000 in deficiency payments. Eligible crops include wheat, corn, barley, rice, cotton, oats and sorghum.
For example, the loan rate for corn this summer is $2.55, and the target price is $3.03. Corn is expected to sell below the loan rate so that farmers will be able to get loans of $2.55 for each bushel they grow and at least another 48 cents in deficiency payments.
Because not all farmers participate in these programs and because during the year prices can rise above the loan level, a considerable quantity of corn is sold on the open market by farmers and by the government.
10% of Land Unplanted
--Production limits. These are occasionally used in conjunction with other programs. For example, to be eligible for a corn loan and a deficiency payment this year, farmers agreed to leave 10% of their land unplanted. With 66% of the nation’s corn farmers agreeing to this restriction, a record crop still awaits harvesting. Wheat farmers, to qualify for loans, agreed to leave 30% of their land idle.
--Direct subsidies. These now benefit only dairy farmers. Under this program, the government agrees to buy, at a fixed price, everything that the dairy industry cannot sell on the open market. As a result, there are government warehouses filled with 80-pound bags of dried milk, 40-pound blocks of butter and blocks and barrels of cheese.
Farm aid programs were initiated during the depths of the Great Depression as a temporary measure to keep family farmers solvent, to control surpluses and to ensure a reliable supply of food for consumers and, in time of war, for the military.
These “temporary measures” turned out to be more of a narcotic than a cure. Without anyone wanting it to happen--not farmers, not Congress, not presidential administrations--America’s farm economy became addicted to federal aid.
‘Cutting the Throat’
Today, most farmers believe that they cannot survive without government farm subsidies. To take them away now would be “like cutting the throat of a man who’s bleeding,” said A. G. Crane, who with three sons farms 5,000 acres in west-central Kansas.
Yet, on all fronts, federal subsidies to farmers appear to be a costly failure.
“They don’t work,” said D. Gale Johnson, a University of Chicago economist. “Subsidies are not just an ineffective economic tool; I would call them harmful. They hurt the people they’re intended to help.”
Price supports and subsidies “can guarantee the prices, but they cannot guarantee the farmer’s rate of return or his solvency,” said Bruce L. Gardner, a University of Maryland agricultural economist.
Since their inception in 1933, farm programs have cost taxpayers $110 billion. Of that, 46%, a whopping $42 billion, was spent during the first four years of the Reagan Administration, which, ironically, is philosophically opposed to farm subsidies.
Despite their high costs, farm programs have done little to halt the decline in the number of family farms.
When farm programs were put in place half a century ago, 25% of the nation’s population lived on almost 7 million farms--most of them considered family farms. Today, less than 3% of the nation’s population lives on 2.3 million farms, including 679,000 that the Agriculture Department classifies as “family-size commercial farms.” Of that group more than a third are in danger of failing within the next 18 months.
One reason for the decline of family farms can be found in a government study released this summer, which reported that family farms do not share equally in farm subsidy programs. That survey found that 45% of total farm payments were going to the nation’s largest farms. Family-size commercial farms received only 33% of the total the government spent. The remainder went to the nation’s smaller farmers, who, generally, do not depend entirely on agriculture for all of their income.
“It’s the No. 1 contradiction (in farm policy),” said Barry L. Flinchbaugh, a Kansas State University agricultural economist. “We’re trying to save the family farm, and we spend most of our money on large farms, many of which are family-based but are not the traditional mid-sized farm that you see on the billboards.”
One of the problems smaller farms face is that they frequently do not have sufficient acreage to qualify for maximum government payments.
Other factors also have contributed to the decline of family farms, particularly the profound biological and technological changes that have resulted in revolutionary increases in production, allowing one farmer to produce more food per acre and to tend more acres.
But farm programs also contribute to the seemingly chronic overproduction problems.
In an effort to maximize the size of the crop they will have eligible for government loans and the size of their deficiency payments, farmers do everything possible to increase their annual yields--often defeating government efforts to reduce production.
For example, a 15% reduction in acres planted in recent years has resulted in only a 3% to 5% reduction in bushels produced, Flinchbaugh said.
This year, with 10% of the nation’s corn-producing land idle, farmers are going to harvest the largest corn crop in history: 8.47 billion bushels, up from the record 8.24 billion harvested in 1982.
“Price support programs have built-in mechanisms that are self-defeating,” said Desmond O’Rourke, Washington State University agricultural economist. “It’s like trying to drive with your foot on the brake and the accelerator at the same time. While they provide the farmer temporary income, they also provide an incentive for him to further increase production.”
No Alternative Seen
Farmers believe that they have no alternative to growing as much as they can.
“You can’t stand still,” said Crane, a fourth generation farmer. “If you don’t go along with production increases, your cost of production per bushel is higher. With the continual lowering of farm prices, we have to have a bumper crop every year just to break even,” Crane added.
“We already have the assets committed,” Noll said. “Interest is a fixed cost. Fixed expenses have to be paid, whether you grow a crop or not. There are taxes on land to be paid and money for the family to live on. You have to plant just to meet the fixed expenses.”
Subsidies are not working, Flinchbaugh said, “simply because they are distributed on the basis of production . . . price supports bring forth increased production. If the price of wheat ever gets high enough, there won’t be a lawn left in Kansas.”
This year’s expected grain glut, just three years after a similar economically painful glut, has increased rural calls for production controls. The Congressional Quarterly news service reported this month that there is “surprising grass-roots support” among farmers for mandatory production controls as part of the government’s new farm program. Farmers interviewed during a week of visiting Kansas farms echoed that support.
“If you’re going to be in business, you have to manage production,” said Noll, whose response was typical. “You don’t see General Motors out there with a field full of cars.”
Economists say effective production controls would raise domestic prices for agricultural commodities but probably force the government to subsidize export sales to maintain foreign markets.
Surpluses have been a chronic problem despite a variety of different production control programs--some of them mandatory--included in legislation Congress has adopted over the years.
Government farm programs are blamed for other ills in agriculture. Because the loan rate is a published floor for the price of grain in the United States, foreign governments have been able to increase their share of world trade by pricing their commodities below the loan rate.
Put another way, the loan rate makes American grain too expensive in foreign markets and, as a result, U.S. exports have dropped sharply, compounding the economic crisis on family farms. A bin-busting surplus of grain coupled with declining foreign markets tends to further depress the price of commodities and reduce the value of farm land, leaving farmers trapped in an economic whirlpool.
Flinchbaugh, the Kansas agricultural economist, believes that it will be impossible to end farm subsidy programs “in this century.”
“If we started now to begin to wean agriculture from government, we could eventually work our way out of it, but in my judgment it will just mean fewer and larger farms,” Flinchbaugh said.
Still, that appears to be the way agriculture is heading: toward fewer and fewer commercial family farms and toward larger and larger farming operations, a process that subsidies have slowed but not stopped.
“Eliminating subsidies would hasten the adjustment that’s going to happen anyway,” said Johnson, the University of Chicago economist.
Nevertheless, “farm programs have allowed farmers to stay in business who, without programs, would not have stayed in business,” said Daniel G. Amstuts, undersecretary of agriculture. “The programs have resulted in a disincentive to structural change that has to take place. Farm programs have tended to put off structural change.”
“This family farm is going to disappear,” said Lloyd E. Erickson, 62, a third-generation farmer in Clyde, Kan. “It’s going to disappear in the very near future if something doesn’t change. But, if we don’t have farm programs, people can’t survive farming.”
Researcher Wendy Leopold contributed to this article.