Farm Subsidies

Washington: Bummer Crop

"Freedom to Farm" meets the tyranny of the status quo.

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Rep. Dick Armey of Texas, now the House Majority Leader, once called American farm policy "Moscow on the Mississippi." But as the 104th Congress rewrites the farm bill, perestroika on the Potomac doesn't look too likely.

The GOP's attempt to reform farm policy may become an example of what Milton and Rose Friedman called "the tyranny of the status quo"–the difficulty of making radical changes in a democracy. Although the Republicans are so far sticking to their promises to cut subsidies, a combination of interest-group politics and institutional inertia threatens to block more fundamental reforms.

That didn't have to be the case. House Agriculture Committee Chairman Pat Roberts, an affable Kansan, began the term as an unapologetic defender of existing farm programs. That changed after the House leadership started making noises about disbanding the Agriculture Committee. Facing the threat of extinction, Roberts convinced GOP leaders to keep the committee. He argued that only he had the expertise to craft reforms to provide an orderly transition to the free market.

Roberts kept his word: His Freedom to Farm Act not only met the Republicans' mandate to cut $13.4 billion from projected subsidies over the next seven years, it also swept away much of a regulatory system so arcane and esoteric that Armey once called its advocates "esoterrorists." The plan, which had the blessing of Armey and the Republican leaders, even prompted the previously skeptical Wall Street Journal editorial page to declare, "the Kansan has joined the revolution."

Under Freedom to Farm, subsidies would drop from $10 billion now to $6 billion next year to $4.3 billion in 2002. The bill would phase out most farm loan guarantees, price supports, and property set-asides. Rather than basing subsidies on the number of acres planted (or kept out of production) or the amount of crops harvested, the bill would offer existing farmers fixed but declining payments. Meanwhile, farmers could plant any crop in any quantity. Or nothing at all.

The regulatory changes would be even more significant than the money saved. Take cotton, which the General Accounting Office says cost taxpayers $1.5 billion in subsidies in 1993.

If you've noticed clothing made with "microfiber" (a.k.a. polyester) filling department store racks, here's why: There's a worldwide cotton shortage. Enterprising American cotton farmers haven't rushed to ease the crunch, in part because federal regulations restrict cotton supplies, guaranteeing hefty profits for growers. Farmers get money for leaving some acres idle. They also benefit from "deficiency payments," subsidies offered to growers when the market price for cotton falls below an arbitrary, often inflated "target price" set by government regulators.

And when U.S. farmers grow "too much" cotton, the feds pay growers to keep it off the market. If a banner harvest threatens to drive down world prices, farmers can store their cotton at taxpayer expense for as long as 10 months. Freedom to Farm would end these practices, which gave 295 cotton growers more than $250,000 each in subsidies in 1993.

Freedom to Farm got support from farmers, particularly in the Midwest and West. Such farm-state newspapers as The Chicago Tribune, The Kansas City Star, and the Des Moines Register endorsed it. Articles in these and other papers quote farmers willing to give independence a try. And while the Washington Association of Wheat Growers took no position on the bill, one official told Spokane's Spokesman-Review that many of his members favored the plan.

The reason is simple: With Asian economies growing and trade restrictions falling, demand for grain will increase. Acres kept idle by subsidies could be profitably tilled. In a Hudson Institute study, Dennis Avery and Dave Juday conclude that American farmers lose $65 billion a year–more than five times the amount they receive in farm subsidies–because of agricultural regulations.

But Roberts' bill has run into trouble. Freedom to Farm pits the Midwest against the South, rice paddies against corn fields, dairy farmers in Wisconsin against their colleagues in Louisiana making the politics of passage tricky.

In the South, for example, cotton is no longer king. Rice and dairy farming are popular, too. Except for storage subsidies, rice growers receive many of the same benefits that go to cotton growers. And dairy farmers get price supports that vary between regions. Thanks to those subsidies, it's possible to profitably milk 150 head of dairy cattle in North Carolina; in states like Wisconsin, which receive lower subsidies, a viable dairy farm would need to be several times that large. Resistance to changes in these commodity programs has been strongest in Dixie.

Not surprisingly, those who take advantage of regulations to keep land idle, supplies low, and prices high oppose Freedom to Farm. Rep. Richard Baker (R-La.), an Ag Committee member, argues that declining fixed payments would hurt cotton, rice, and dairy farmers in his district. It costs nearly four times as much to grow cotton in the Mississippi Delta as it does wheat or soybeans. If farmers in other regions could grow cotton profitably and more cheaply, Baker's constituents might have to grow less lucrative crops.

Ending agricultural protectionism would indeed punish people who undertake economically unsound farming practices. But current farm policies, which force farmers to grow the same crop on the same land year after year, also cause environmental damage. Perennially tilling the same soil strips the land of crucial nutrients. Farmers compensate by accelerating their use of fertilizers and pesticides, which leach into ground water–a major source of soil erosion and other environmental problems in the Mississippi Delta and the Everglades. An August study by the Competitive Enterprise Institute concludes that ending crop subsidies and other agricultural land-use regulations could end much of this damage, letting farmers use 35 percent less pesticides and 29 percent less fertilizers per acre.

And commodities that don't get direct subsidies clip consumers anyway. For instance, rather than deficiency payments, sugar producers get loans that are linked to a government-set target price. If prices fall below the target, a grower can simply give the sugar to the government and keep the money. And import quotas help the feds keep domestic sugar prices at about double the world level. The cost to consumers: $1.4 billion a year, says the GAO.

But Baker isn't alone. When the Ag Committee voted on Freedom to Farm, four of the 27 Republicans defected, including three of the five most senior members–leading to a 27­–22 defeat. Committee Democrats wanted to settle for smaller cuts, $4.4 billion, while the four dissident Republicans were willing to go along with the full $13.4 billion in cuts but couldn't stomach the regulatory reforms.

After six days of arm-twisting but little compromising, Roberts gave up, announcing that the Ag Committee couldn't pass anything. The Budget Committee–chaired by spending hawk John Kasich–and the Rules Committee would instead rewrite U.S. farm policy.

Kasich's committee can recommend that the spending and regulatory changes in Freedom to Farm appear in the budget reconciliation bill–a likely prospect, says Bruce Cuthbertson, Kasich's press secretary. But there's a catch: Since the Agriculture Committee didn't approve the farm bill, House procedures require the Rules Committee rather than Budget Committee to decide what farm policy changes go before the full House.

And Rules Committee Chairman Gerald Solomon hails from upstate New York, where his suburban district is surrounded by dairy-farm country. He faces pressure from fellow New York Republican Sherwood Boehlert and the state's Farm Bureau to preserve dairy price supports that favor small farmers. The committee might follow the Ag Committee's dissenters and craft a bill that cuts subsidies without threatening regulatory cartels. The Rules Committee won't decide what the House will vote on until mid-October, after this story goes to press.

Meanwhile, Rep. Dan Miller (R-Fla.) has introduced a bill to kill the sugar program. His nearly 100 cosponsors include Armey and Kasich, along with Democrats Charles Schumer (N.Y.), Barney Frank (Mass.), and Sam Gibbons (Fla.). Roberts also promised Miller that his bill, while not a part of Freedom to Farm, will come to the floor for a vote this fall.

Miller is also a member of the Budget Committee. And since his committee has determined how much savings will come from farm programs, in an interview he assures me there's no way fellow Republicans will back away from a seven-year balanced budget and vote against $13.4 billion in savings from farm subsidies.

What if the Rules Committee lets members vote for budget cuts and no regulatory reforms? Miller's primary concern is the money. "The vote on [budget] reconciliation may be the most important vote we'll make in our careers," Miller asserts. Gingrich, Armey, and Kasich have said nothing to contradict him.

But if Congress doesn't pass these regulatory reforms, agricultural bureaucrats and "esoterrorists" can continue to manipulate food prices, maintain unsound agricultural and ecological practices, and penalize consumers until 2002, when the next farm bill comes up. If Congress can't get agriculture policies right, balancing the budget could be little more than a short-term exercise in shuffling papers.

Rick Henderson (DCReason@aol.com) is Washington editor of REASON.