Farm Policies Are Costly in Money, Water

Here’s a little quiz. Which of the following do your tax dollars support?

a) Higher food prices;

b) Gross farm overproduction;

c) Shipping California water overseas.

Actually, the answer is all of them. If five years of drought in California teach us anything, it is that huge government subsidies to farmers have made a bad situation worse. By promoting the misallocation of resources, government farm policies waste water, hurt the environment and cost all of us a fortune.

Besides exacerbating the drought, those policies have enriched a group--California farmers--whose average net worth exceeds $690,000. The good news is that the drought may finally make us see all this.

It’s hard to see because food in America seems cheap and bountiful. But it would be a lot cheaper if not for government intervention to support artificially high prices and overproduction. Furthermore, the price of things at Ralphs and Vons or wherever doesn’t reflect the true costs of the tax outlays and other benefits our society annually bestows on farmers.

California is America’s No. 2 rice state, for example, thanks to virtually free water for rice farmers who have had river rights north of Sacramento for years. U.S. growers rightly note that agriculture is subsidized all over the world; Japan’s rice growers are especially sheltered.

But that’s small comfort when water and government money are in such short supply, especially when you consider that now Sacramento has to offer state money to get farmers not to grow rice that only gets planted because Washington pays them so much to grow it in the first place.

Here’s how it works. First the federal government gives rice growers low-interest loans (the rate now is 6.375%) and lets them forfeit the crop if they can’t sell it profitably. Since the government is forever getting stuck with tons of grain, it often lets growers repay the loans at a discount as an incentive to sell their own crop. (We lost 72 cents per 100 pounds this way in 1989). If they do, Uncle Sam thoughtfully guarantees a minimum price; for the current crop year, it’s about 50% above the anticipated market price. Taxpayers will make up the difference.

We don’t stop there. In one of the most defensible (if not particularly cost-effective) farm programs, we give poor countries cheap long-term loans to buy U.S. rice (which is more expensive than, say, Thai rice). We also give U.S. rice growers tax money to advertise their crops overseas.

The result, though, is that we pay for the privilege of exporting our own water--in the form of subsidized rice--at a time of historic drought. This year, in fact, we’ll export more than 400,000 acre-feet this way; that’s more than half of Los Angeles’ annual water needs, and almost as much as the L.A. Aqueduct System normally brings us from the Owens Valley.

Now Gov. Pete Wilson’s new water bank is offering growers $437.50 for every acre on which they don’t grow rice. Assume that’s the water’s value to society, and compare: Economist Charles Moore at the UC Davis Center for Cooperatives says average profit for an acre of California rice is just $213.50.

All this for a $263-million rice crop that requires four inches of standing water all season long. The California Rice Industry Committee, which of course has a political action committee, says nearly 30% is exported and much of the rest goes into Rice Krispies and the like. “All your puffed rice cereals are California rice,” says committee manager Mel Androus.

What a system. I hate waste, but farmers account for 83% of California water use, so you can pile all the bricks you want in your toilet tank and it won’t make much difference.

Growing all this rice, alfalfa, cotton and irrigated pasture in a place this dry makes little more sense than the ridiculous lawns that consume so much water across the Sunbelt.

The basic argument for federal farm programs is that they assure a stable supply of cheap and wholesome food while assuring fair returns to farmers and helping preserve rural communities.

But the main result is chronic overproduction and an upward transfer of wealth. Jim Bovard, whose book “Farm Fiasco” is an indictment of U.S. farm programs, says these programs are especially hard on the poor. He estimates that U.S. farm subsidies from taxpayers and consumers cost $260 billion from 1980 to 1989--enough to buy every farm, barn and tractor in 33 states.

Government farm and water programs are so pervasive and complex that it’s almost impossible to know what the market really is or how much water it would rightly allocate to agriculture. For example, much of the alfalfa and pasture is consumed by dairy cows. But federal farm programs sop up 2% of California’s massive dairy output, the state sets milk prices and the federal government keeps the business Balkanized. So who knows how much alfalfa we really need?

Government farm policies don’t even help California farmers proportionately. In 1988, our farmers ranked first in revenue (with $16.6 billion) but 15th in federal farm subsidies.

These programs also keep California products from competing unfettered elsewhere in the nation.

Make no mistake, farmers are affluent. In California, the average farmer’s net worth is between $690,000 and $800,000, the U.S. Department of Agriculture says.

In California, let’s hope that the government is better at buying water than overseeing agriculture. Otherwise, the months ahead will be dry and expensive both.