Farmers pay a high price for government subsidies
It is impossible not to be impressed with the economic productivity of American farmers. Less than 3 percent of our population produces enough food and other agricultural products to provision several hundred million people around the globe. But equally inspiring over the years has been the cultural output of our farmyards.
Agriculture is an occupation like no other. It fosters private discipline and self-reliance in ways not easily replicated by office work or assembly lines. Each independently owned farm is like a miniature frontier, where individuals must face nature, solve problems alone, and rely on both their wits and their strength to earn a living. Farming is a supremely entrepreneurial activity—self-employment with special character-building twists.
One of the remarkable things about American farm culture has been its ability to adapt and apply the miracles of modernism and technology to achieve a productive revolution without destroying older ethics and living patterns. Farming has become very much a high-tech industry, with advanced equipment, computerized information, and lots of science in place. Yet even with the bioengineered seeds and the big bank deals, most American farmers have retained remarkably simple, straightforward values. They continue to get up every morning at 6 A.M.; they work hard; they stay pretty humble; common sense and stamina are in abundant supply; family ties are strong, psychotherapy bills low.
Farm families have long replenished our society with sturdy lessons in self-reliance and realism. Millions of Americans value the agricultural sector for that. But there is a perverse danger to be avoided in any embrace of family farming. Farms must stand on their own strengths. If they are adopted as public charities, lap-fed on fatty government largess, they will cease to exist as the independent, strong, and diverse social institutions that inspired us in the first place. Farmers do not make good pets.
M.E. Bradford is an enormous man, the son and grandson of cattle ranchers. Himself, he is a philosopher and writer, a proponent of southern agrarianism, the intellectual school descended from Thomas Jefferson's argument that free and self-governing small farmers are the very roots and stem of American democracy. "The regular difficulties of agricultural life," Bradford has written, have "very positive effects in the formation of character." Indeed, he concludes, "the most important crop of a sound agriculture" is "solid freemen."
America's agricultural sector, Bradford argues, will always be built around the family farm and exist somewhat uneasily outside the nation's industrial structure. "Commercial, corporate America wants a proletariat—a wealthy one, mind you, but pliable. The thorny individualism of independent farmers—who have never surrendered a sort of artisan like autonomy, with whom many separate negotiations and personal contracts are necessary—has always sat uneasily with corporate business solutions," he says.
This aspect of agricultural life has to be interpreted carefully. The distinctiveness of farm communities is often sugarcoated and crudely romanticized. "We've got farmers who are drunks, farmers who won't pay their bills, won't work, you name it," states Missouri corn grower Blake Hurst.
"Farmers have been patronized forever as hearty souls, but there are as many whiners there as anywhere," argues one Farm Bureau official. Even genuine yeoman independence can, and occasionally does, spill over into an unproductive cussedness. Several of the more venomous populist demagogues of past and present have sprung from farm-state bases.
Just the same, there are some valuable differences in rural life. Earlier this year, American Farm Bureau President Dean Kleckner worried over the fact that this country's urban majority is increasingly cut off from the land, from mechanical processes, from any first-hand experience of the relationship of human beings to the natural world. "There are people out there who think milk comes out of a carton and peas out of cans," as one observer put it.
This alienation of many Americans from the physical universe has sometimes led to morbid and exaggerated fears (for instance, about food safety). Or to unrealistic expectations of the possible (like simultaneous demands for no pesticides, no migrant labor, lower prices, more salad bars, and heaven forbid anyone should ever find a horny caterpillar in their lettuce). Occasionally it results in Luddism, damaging ignorance, or just simple kookiness (as in the movement which urges that cows be pastured where they have ocean views). If an effete fussiness has crept into American life, certainly farms continue to be great places to learn to repair an engine or figure a cubic volume, to discover how to tell a ground wire from one that will stop your heart, to develop the ability to keep a sick animal alive, even to find out how a fellow can get by without a hairdryer.
The Priesmeyers are a farm family. Eldest son A.J. is a small, wiry man with sharp-featured sunburnt good looks and an outgoing directness. His brother Terry is fair and burlier, a classic quiet and thoughtful younger sibling. There is an obvious bond between the brothers, a genuine friendship to match the close-quarters working relationship. A third brother, Lester, is younger, unmarried, and inclined to do a little more running around before he pulls on his farm business cap for good. But three-and-three-quarters Priesmeyer men are already hard at the task of growing rice, and it's taken some hustling to size up their El Campo, Texas, farm to support four families.
Arthur Priesmeyer, Sr., clearly admired by his sons, is the man at the top. He is roaring around, dust flying, in a massive earthmover when I meet him, regrading and leveling a rice field. "He likes to drive anything with Caterpillar on it," A.J. says, winking at me. In the course of expanding his operation to its current base of 1,200 acres, Arthur stepped in a few of the pitfalls that swallowed a lot of farmers in the early 1980s. Some land bought on credit with no down payment has scurried off into the arms of creditors.
But the family has made do. "We're shade tree mechanics," says A.J., indicating they do most equipment repairs themselves right at the farm. Their wives work in town, supplementing the family income. The Priesmeyers buy most of their farm machinery used, and the old man has a reputation for having skinned more than one auctioneer. "The way we look at it," Terry explains, "we can buy a neighbor's 80-acre farm for the cost of one $75,000 tractor." And land is what a four-family farming operation needs.
In any event, the tight finances haven't prevented the Priesmeyers from enjoying meaningful lives. Day long, kids wearing grimy grins and scrub haircuts putter barefoot in the powdery dust of the yard, circulating through shifting groups of relatives who come to gather around the kitchen table. In this farm family, as in many, much of the essential business takes place there—"the marketing gets done where the electricity runs," goes a common saying.
A.J. keeps a 1946 single-engine airplane with deep vee wings, a dual tail, and gorgeous showgirl curves, flying it out of a barn for pure fun. And the whole lot are hunting and firearms nuts. Piles of deer antlers and other trophies lie around the house, including two stuffed bobcats father and son shot on the farm a few years past. The one vacation every year takes the family to Colorado to camp and stalk elk.
This passion for wildlife and the outdoors has led to some very unconventional farming practices. With its flowing water and heavy grain yields, rice farming attracts birds and animals in great number. To avoid pilfering losses, most growers keep their boundary land clear of nesting and hiding spots. The Priesmeyers, on the other hand, have for years let their turnrows, canal banks, and hedges grow up in lush wildness. Scrub trees, junglegrass, ducksalad, hemps, hedges, smartweed, and bushes of all sorts flourish improbably.
There is a price to be paid for this—blackbirds can easily destroy 15 percent of a crop, even when farmers fight them off with shotguns. But there is also a benefit—one that helps make agriculture a worthwhile way of life for these men: The farm is rich with geese, ducks, ibises, dowitchers, doves, and pheasants, plus the bobcats and foxes that feed off them. There are deer. There are cottonmouths, and even a few alligators, in the drainage basins.
The Mennonite who owns the adjoining farm, with its clear-mowed and sprayed-down field margins, is undoubtedly astonished by this riot of unruly subtropical habitat, but for the Priesmeyers it is a reasonably cheap joy-producing fringe benefit of being a farmer. For most of its practitioners, agriculture has value and importance beyond its ability to provide an income. Part of the compensation is in the fabric of rural living, the satisfactions of owning land, and the freedom to set one's own course. For some there is even a payoff in letting things go to seed.
Unfastidious and incautiously fond of guns, Caterpillars, planes, and pheasants as they are, Arthur, A.J., and Terry Priesmeyer are nonetheless impressively resourceful, hardworking, and free-living Americans. As individuals they have tremendous personal vitality, and their family allows a great collective strength. It is very hard to imagine these men beaten down. Even in a scientific society, those are qualities that count for something.
Even if one accepts the view, dear to many Americans of varied persuasions, that our nation's farms are to be valued for important social contributions, one hard fact remains: Those benefits simply cannot be purchased with money. A half century of copiously flowing funds has not been able to prevent a decline in the size of America's agricultural sector. That shrinkage is powerfully driven by technology—it simply doesn't take many farmers nowadays to produce tremendous bounty—and it is inexorable.
More to the point, as even Bradford acknowledges, "sustained government help…is self-defeating. It saps the very vitality we value." A deep embrace of subsidization, protection, and coddling threatens the loved one with suffocation.
A large portion of government assistance for farmers today can't be considered anything more than welfare (or to be more precise, "workfare"), and it is having many of welfare's characteristic effects. One is dependency. Once you've bought land and equipment counting on the regular check, you're hooked. It's no accident discussions of farm programs often use the image of the addict.
"The programs are 'voluntary,' but the penalties for non-participation are so great that a farmer who wishes to be self-reliant is nevertheless virtually forced to sign up," says former Assistant Secretary of Agriculture Don Paarlberg. "This subversion of formerly independent farmers is one of the worst attributes of government farm programs."
Bay City, Texas, farmer Loy Sneary is just one of many who expressed worry to me that the great run-up of farm subsidies during the 1980s has cost farmers a measure of self-respect. University of Missouri sociologist William Heffernan, who has surveyed the attitudes of farmers for years, confirms that the trait traditionally tied most closely to farmers—a strong sense of self-worth—has begun to be eroded by guilt. Heavy costs and unwieldy surpluses in government programs have led some farmers to "see themselves as liabilities." Heffernan reports that some farmers "are willing to forgo their subsidies to get back in society's good graces. Others just want their independence back."
"My wife's father is of German extraction and he keeps up with events there," Blake Hurst says as he drives me around his farm in Tarkio, Missouri. "He tells me the German government pays farmers to keep Bavarian farm houses 'typical,' to keep neat fields along the autobahn, things like that. That seems pretty artificial, even a little humiliating, to me."
The approach of "farm as theme park" also has a foothold in this country. The state of Vermont recently disposed of part of a budget surplus by establishing a special payment to dairy farmers. According to a Farm Bureau official, its general intent was "to keep the barns painted red and the calves in the fields in a state where image is important."
The programs also encourage underhandedness. Schemes like the "Mississippi Christmas Tree," "PIK and roll," and the "Dakota shuffle"—some illegal, some merely unseemly—feature prominently in coffee shop conversations in farm counties these days. The thicket of constantly changing government provisions makes arbitrage, asset shifting, inventory shuffling, and creative bookkeeping not only profitable but necessary.
Sometimes the result is outright scammery. Delaware farmer Charles West recounts the case of a local farmer who had planted more acres of barley than he was allowed. The authorities ordered him to plow under the area that exceeded his allotment. He did. Problem is, he harvested it first, by night. "We had neighbors who saw the combines, and we knew the cab drivers, but he denied it to the bitter end," says West. "We had to have agronomists come in and analyze the plow-under. The whole thing was an embarrassing mess."
Unvarnished fraud is probably pretty rare, but as Paarlberg points out, "farmers talk frankly with equal parts of cynicism, humor and guilt" about even the milder, very common, varieties of fiddling. Yet so long as government programs set the baseline on available returns, most farmers of the major government-regulated crops feel as if they must get a piece of the action.
As Hurst says, "We don't really like accepting subsidies. But if we didn't enroll in government farm programs, our corn would be worth $1.80 a bushel; because we participate, we receive $3.00. Everybody has his price. Now you know ours."
And it is not only on farmers themselves that the government programs have eaten away. The transfer, season after season, of tens of billions of dollars in aid (more, recently, than has gone to food stamp recipients, who are nearly 20 times as numerous) has also changed the public's view of the agricultural sector. Much good feeling has been squandered. If the notion ever roots that agriculture is peopled with free riders, farmers will pay a terrible price.
Already this may be happening. Farm Bureau officials report that in debates over how farms ought to be treated when they are handed down to heirs, they sometimes hear the argument that since government subsidies helped farmers get rich, it's only fair that estate taxes should take a big hunk back at the time of inheritance. Similar logic is increasingly applied on environmental questions and development issues. Activists argue: "We've been paying farmers all these years. Now we can start demanding they give us some say in how their operations proceed, and how their land is used."
Growing numbers of farmers recognize the grave dangers in the subsidy route. Still, there is a reality rub that mutes their response. As Iowa Cooperative Extension agent Mike Duffy puts it, thousands of midwestern farmers look at their income statements these days and say, "Look, of every $100 profit I made last year, $75 came from Uncle Sam. How can I say the programs hurt me?" Answers to that question, many people who follow farm programs now realize, lie somewhat below the surface.
For one thing, a lot of money spent in the name of tillers actually ends up in the pockets of various hangers-on. The U.S. Department of Agriculture pays generous salaries and benefits to 120,000 full-time employees (there are only about 500,000 full-time farmers in the country). The department's annual budget was $51 billion last year—more than the total net income of American farmers.
Nor is there any reason to assume that the market prices currently supplying 25 percent of our composite farmer's income would stay that low in the absence of government programs. Subsidies create chronic surpluses. These, in turn, depress trading prices. Under a freed-up market in equilibrium, payments to farmers for many agricultural products would be higher than they are today.
Other prices would be about the same. Some would be lower, but even this wouldn't necessarily hurt farmers. Many farm products—such as, dairy products—would be consumed in greater quantities by Americans if prices fell. That obviously would be a nice thing for moderate-income consumers. It would also give growers a chance to gain in increased sales what they gave up in high prices.
As we pointed out in the first article in this series, there is ample evidence that unsubsidized agriculture can be profitable for farmers—most farm production (beef, pork, chickens, most vegetables, most fruits, minor grains, soybeans) already exists more or less free of government aid. (See "Plowing Under Subsidies," Oct.) Indeed, unentangled sectors tend to be more lucrative. Bankruptcy rates over the last decade have been higher among farmers of program crops than for free-market farmers.
And of course government funds come with a price tag—in interference and surrendered decision-making power. "Other than a few choices in what land we'll use to meet 'set-aside' requirements, we're totally locked in as far as production," says corn grower Hurst. "We make almost no cropping decisions, they're all made for us. We can't drain wet spots or change the location of drainage ditches. The USDA tells us what to plant, how much to plant, where to plant."
Very few Americans realize how utterly fettered and unfree the government-overseen part of our agricultural economy is. There are about 2,800 agricultural counties in this country, and each one has an office of the Agricultural Stabilization and Conservation Service, the Ag-police. Every single enrolled farmer must present for approval a marketing plan, multiyear crop rotation reports, detailed field surveys, and so forth. An industry has sprung up just to help farmers understand and comply with the requirements.
"There is only one other organization in the world that has anything like the supply control powers of our Commodity Credit Corporation, and that's the Soviet Union's central planning agency, GOSPLAN," states Robert Thompson, dean of the Purdue University School of Agriculture. European governments, he says, are amazed by the level of grassroots-to-treetops authority the USDA exercises over the farm economy. "For all their love of manipulation and interference in their farm sectors, they couldn't micromanage the way we do if they wanted to."
And American politicians—Republicans and Democrats alike—show no hesitancy in making use of this control network. "It's not just every five years in the farm bill that our politicians tinker with the flow of farm commodities," declares John Hosemann, senior economist of the American Farm Bureau Federation, "they do it by the hour." A vigorous man with no appetite for minced words and a copy of The Wealth of Nations on his desk, Hosemann bemoans the constant manipulation of stocks, the annual dart-throw by which target prices are set, and the other intrusions that prevent farm commodities markets from achieving any long-term balance.
But the constantly changing ground rules are unavoidable, given the assignment. When Congress writes a five-year plan, it just sketches in general outlines, aware that such variables as world economic conditions, weather, and political events will regularly destroy its initial assumptions. To allow for adjustments, Congress gives the secretary of agriculture astonishing powers to reorder his fiefdom. Without question, the agriculture secretary has more personal discretion and authority over his segment of American society than any other cabinet officer. Not even close.
Administratively matching buyers' and sellers' interests as efficiently as markets can would be impossible even under the best of conditions. And U.S. farm policy is further twisted by the confusion of conflicting purposes. Politicians have never decided exactly what they want to accomplish with farm programs. Some measures increase production. Others attempt to hold it down. A costly and confusing tug-of-war is the result.
Centering all this power in one place has another effect: It creates a lobbying explosion. Early on in the life of our farm programs, William Faulkner wrote, "Our economy is not agricultural any longer. Our economy is the federal government. We no longer till in Mississippi cotton fields, but in Washington corridors and Congressional committee rooms." With stakes recently rising into the billions of dollars, influence-mongering has ratcheted up in turn. Many farmers' associations now find that trying to influence the federal programs has become their single most important undertaking.
"If they didn't scream, we didn't worry about them," one individual involved in drafting the Senate version of the 1985 farm bill told me in explaining how bill writers had set priorities. Such a process is ill-suited to most farmers, and custom-made instead for the various processors, suppliers, and other agribusinesses that feed off of agriculture. "There are now more people employed in the industries that supply farmers with inputs than there are on farms," reports Purdue Dean Thompson, and seven times as many in the food processing sector.
When Congress lays its wallet on the table, all these groups dive for it, and farmers sometimes come out short. "Chemical people want us to farm as many acres as possible, for obvious reasons, and they have better lobbyists," observed one farmer to me over breakfast. Another pointed out that warehousers—who make their money storing surpluses—are all for subsidies. The six big grain processors are thrilled that the government holds down the market prices of cereals and guarantees their supplies.
Rather than negotiating the terms of their living in an open economic market where their output would give them leverage, farmers are forced to scrabble in a political arena, to their disadvantage. The marketplace is right next door, the political arena is far away. The marketplace looks only at the value of your specific product. In the political arena, farmers of one crop are pitted against farmers of another. The marketplace demands your attention only when you enter it. The political arena passes its judgments even if you are not paying attention. Like many small business owners, farmers are ill-equipped for such demands. Running an influence-seeking show is not their forte. And even if farmers could master the political game, one discombobulating certainty would remain: The rules all change again in five years—next time in 1990.
Perhaps it shouldn't surprise us, then, that relatively little of farm spending goes to cultivators who could be considered poor or threatened. The 1986 Economic Report of the President, released when farm aid was nearing its all-time peak, reported that farmers falling in the USDA's "most financially troubled" category received just 11 percent of all direct government payments. The next most distressed group received only another 13 percent.
Congress has never been able to mount a program of narrow assistance to the heavily indebted farmers in whose name it claims to mercifully act. And even if it could, one might well wonder why the nation would want to underwrite its least efficient growers.
And as I've already hinted, the tubbiest of the over-eaters at the farm subsidy trough aren't even farmers at all. The favorite fat guy for most waste-watchers is the Archer-Daniels-Midland Company, based in Decatur, Illinois. There is no worse example of a corporate welfare queen in North America. ADM President Dwayne Andreas hands out political donations like Ronald McDonald flings french fries. His beneficiaries include everyone from Bob Dole to Mikhail Gorbachev.
The company makes most of its money from corn sweeteners (beneficiaries of a massive farm-aid boondoggle too depressing to get into here) and corn-distilled ethanol—the ultimate government-made product, an alcohol motor fuel about which you are going to hear a lot more in the future. Ethanol production is underwritten twice—once through the $5 billion America spends to keep corn prices low and once via a 60-cents-a-gallon federal tax break. (The feds have also donated free grain and even paid for one plant; plus 28 states provide subsidies.)
ADM controls nearly 70 percent of the U.S. ethanol market and earns almost half its income from the stuff. Total value of the federal chits it has pocketed over the last four years, according the House Ways and Means Trade Subcommittee—over $4 billion. Amidst a boozy reek, I journeyed through the grim maze of rail sidings, elevators, and chain link fences in Decatur to ask ADM's vice president, very politely, what it all meant. He threw me out. Farm aid boosters: Meet your local salt of the earth.
There are two more, very fundamental, reasons why farm programs hurt American farmers. One is that the programs make what farmers have to sell too expensive for one of their most important markets—foreign buyers. The other is that government programs make what farmers need to buy too expensive.
First the exports problem. It is conventional today to state how important foreign sales are becoming to U.S. producers. In agriculture this is gospel truth. In 1981, before damage was done by two successive farm bills, U.S. farmers exported the production of two out of every five acres, bringing in $44 billion dollars in foreign currency. Agricultural exports provided about a fifth of the country's total trade earnings.
Even today, after some world-class blundering, we still export about three-fifths of our wheat, half of our rice, two-fifths of our cotton, soybeans, and tobacco, and one-fourth of our corn and sorghum. We provide half of the world's grain exports. For the last 20 years, the overall health of U.S. farm income has directly followed the level of our exports.
The damage done in the first half of the 1980s had two sources: prices pushed too high and too many controls on production. Both problems were caused by government programs. As the globe's most efficient producer, the United States stands to benefit greatly from an unfettered flow of farm products from low-cost to high-cost growing areas. But the 1981 farm bill pegged price supports high for most commodities. By buying up crops at artificially high prices, the government sheltered foreign growers from U.S. competition. Not surprisingly, a lot of marginal land around the globe that never would have been farmed under free markets suddenly came into production.
As Don Paarlberg puts it, we "held the umbrella for the cotton growers of Brazil, the wheat growers of Australia, the corn growers of Western Europe and the tobacco growers of Africa." Once the operations freeriding on our price supports are under way, they aren't easily displaced. As the penalty for a few years of elevated returns, American farmers then face a permanent new group of antagonists who were set up in the business by Uncle Sam.
The other way farm programs have hurt exports is through acreage use restrictions. To qualify for government payments, farmers must typically agree to retire a chunk of their land, usually around a fifth. This is intended to reduce output and force up prices. It does. And as Robert Thompson points out, it also "means in effect that we ask every firm in the industry to spread its total fixed costs over 80 percent of its potential output. This raises [our] cost of production relative to competitors, who suffer from no such constraints."
And there is an even more awkward problem. The government allocates rights to grow program crops in the future on the basis of how many acres each farmer grew in years past. Among other problems, this makes farmers very chary about pulling land out of safe "program crops" to grow something for the export market, even when the prices offered are very high. To do so means surrendering rights to shift back again easily.
The most tragic recent example of the damage this can do is seen in soybean exports. American farmers basically invented the soybean market, spending a small fortune promoting new uses for "the gold that grows." Soybeans are now used as ingredients in thousands of food and industrial products, and they are the nation's second-most-valuable crop. They have been an export cash machine for American farmers for decades.
Soybeans are by and large unsubsidized, but they compete directly for land with corn, which is heavily supported. Normally, farmers rotate between the two crops for disease-control and soil-conservation purposes. But in the last few years very high price guarantees on corn, combined with inflexible program regulations on crop shifting, made it so much more profitable to plant corn than soybeans that an astonishing 13 million acres switched production. Twenty U.S. crushing plants closed, and other soybean infrastructure collapsed.
With American farmers standing on the sidelines, locked into subsidized corn production, foreigners have jumped into the soybean supply breach. The Brazilians and Argentinians have increased their production by—you guessed it—13 million acres. American farmers' share of the soybean market fell from 75 percent to 45 percent in six years. The business we pushed offshore is worth about $2.5 billion annually, and even if Congress eliminated our production-warping subsidies tomorrow, that trade is probably gone for good. The Latin American investors who cut down rainforest to put in soybeans are in for the long haul.
And the double pity is, corn is a sluggishly traded, under-demanded feedgrain, with annual market growth of only 1 or 2 percent a year. Demand for soybeans, on the other hand, is exploding globally at 4 to 5 percent a year. "If you'd taken a guy on an island and asked him to design a set of government priorities, he would have done exactly the opposite of the current U.S. program," says Allen Johnson, director of the Iowa Soybean Association.
And soybeans are only the latest case in point. Price supports and related interference have regularly damaged other exports, including those of wheat, rice, cotton, tobacco, and other U.S. program crops. The same distortions that clobbered soybean production recently cut U.S. oats output, too. Oats are easy to grow, and drought resistant, require hardly any chemicals, and cost farmers only 30 percent as much as corn to raise. And thanks to recent findings of anti-cholesterol benefits, consumer demand is rising fast. Yet American farmers are not producing oats in sufficient quantities, because other subsidized crops are more lucrative and secure. Once again, the beneficiaries have been foreign growers, stepping in to take over markets that used to belong to American farmers—until their government decided to do them a favor.
There is a final, giant, reason to doubt farm subsidies are actually in the best interests of most farmers: There is no evidence that the payments actually increase farmers' income, once all expenses are accounted for. The principal economic effect of farm subsidies, say economists, is not to make working farmers wealthier but to push up the price of land and other farm inputs. Most of the benefits are immediately, to use the technical term, "capitalized."
The economic returns offered by farming are set not by government schedules but by the willingness of individuals to stay out there working in the fields even when the money isn't great. "Farmers will keep hanging on with less profit than any business I know of," says Hurst. "The job is one of those powerful afflictions that not even failure can cure," states John Hosemann, only half in jest. The reluctance of practitioners to leave the occupation is the main cause of farming's narrow margins, a fact no flow of government checks can change.
In the first year that payments for a crop are initiated or increased, producers enjoy a brief uptick in income. Soon, though, the increased returns draw in new resources and new operators from an ever-eager pool. Returns fall. To recover the briefly experienced high income, subsidies must be ratcheted up again. Repeated several times, this cycle can consume enormous amounts of government aid without significantly improving farmers' welfare.
Where does the money go? Into the things that farmers buy, primarily land. "If they doubled the price of corn tomorrow, and guaranteed it for 10 years, the price of land would double or triple around here, and my margins would be the same," says Hurst. Iowa Cooperative Extension Agent Mike Duffy agrees. "Land costs jump directly with government programs. Anytime you put more cash in the pockets of Iowa farmers you see an increase in land prices."
The 1986 Economic Report of the President estimated that crop subsidies push up land costs by several hundred dollars an acre, depending on the crop grown. That makes land by far the farmer's biggest expense. And high land prices in turn spawn high equipment costs, as farmers push to get maximum production from each costly acre. Farmers spend three times as much on machinery, equipment, and buildings per unit of production as the average for all U.S. businesses.
In other words, payments supposedly for the benefit of farmers actually have their main effect in making the planter's "main ingredients" enormously expensive. Landowners, the people who build and sell farm equipment, and fertilizer and chemical merchants are the big gainers. The farmer's living wage eventually ends up at about the same level, only the table on which the transactions take place has been raised.
As economist Bruce Gardner puts it, the winners in the subsidy game are not those who produce the products, but those who possess the resources. "Farm operators themselves…serve primarily as conduits through which higher returns are passed back."
The high costs that subsidies bring have hurt farmers in many ways. For one, interest is now the biggest annual expense for most of them. Given the tendency of interest rates to swing sharply, this makes farming an even more insecure and unpredictable industry than its relation to weather and other factors already makes it.
Accelerating the substitution of capital and machinery for human labor also artificially hastens the shrinkage of the farm population. "If we want to maintain an agrarian sector in this nation, and we ought to, then we shouldn't push land prices up," says Duffy.
Another drawback is that farming has become one of the hardest of all occupations to enter. Quite simply, it takes a bundle of money to set yourself up today. Young people often have no chance. Many resort to methods like those used by David Magness. "When my father went into agriculture he bought his place, but that's hard now. I farm 2,000 acres, and the 5 acres under this house are all that I own. Half of my fields belong to people in Dallas, and half are in the hands of old farm families."
Landowners are by far the biggest beneficiaries of today's farm aid, and for all their virtues they are, to use Gardner's words, "not a class of poor people." A third of U.S. farmland is held by persons other than farm operators. Of the remainder in farmers' hands, much was acquired, and must be serviced, at high cost. The beneficiaries there are again nonfarmers—credit providers.
Chopping the work table down to a more human height would suit farmers like Magness just fine. Without subsidies, their revenues would be somewhat smaller, but their expenses would be a lot less gaudy, too. Their bottom line would stay pretty much the same. Only the whole act would take place a lot closer to earth, where the entries and the exits are a lot easier, and the falls aren't nearly so hard.
Contributing Editor Karl Zinsmeister is a Washington, D.C.-based writer and an adjunct research associate at the American Enterprise Institute. This article is the second in a four-part series. Next: farming, subsidies, and environmentalism.
This article originally appeared in print under the headline "Bitter Harvest".