Are All Farm Subsidies Giveaways to Corporate Farmers? Nope, Here's a Rundown on Both Good and Bad Subsidies
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With the 2012 farm bill less than a year away, farmers and eaters alike are already thinking about the changes they would like to see in it. Unfortunately, the subsidies that dominate much of the debate are complex and, for many, confusing.
Furthermore, in the past few decades, the issues have become even more complex, as commodity subsidies are now subject to rules set by the World Trade Organization (WTO) that prohibit trade-distorting subsidies and price supports. But understanding the farm bill is not impossible. And, while many subsidies seem like baseless giveaways to corporate farmers, there are others that can actually help improve the sustainability of our food system. Here's a sample of both the bad and the good.
Direct payments are perhaps the easiest subsidies to understand, and they are also the primary reason why farm subsidies come under such criticism during times of high commodity prices. In 2011, prices for commodities like corn and soy have reached record highs. Corn, which once sold for $2/bushel, now goes for over $7. It appears that farmers are making a killing, although with high fuel prices eating into their profits, many -- particularly small and mid-sized farmers -- are not. The reason for the high prices is a combination of factors such as ethanol, speculation and weather. Surely, in such a strong market, farmers do not need subsidies, and yet they still receive them.
The subsidies they are receiving are direct payments. This is money given to farmers based on their historic acreage and yield whether they need the money or not. In fact, farmers receive their direct payments whether or not they are growing anything on their land. Direct payments are purely calculated based on historic acreage and yield (referred to as a farmer's "base"), with no relation to current yield, price or need. Base is tied to a piece of land, not a farmer, so if a farmer sells 1,000 acres where he or she historically yielded an average of 160 bushels of corn per acre, the new owner of the land receives the direct payment calculated for that base.
Direct payments were first passed into law in the 1996 farm bill. The WTO went into effect in 1995 and in joining the WTO, as Institute for Agriculture and Trade Policy's Sophia Murphy puts it, the White House "did a bit of an end run around Congress." The United States was now bound by the rules of the WTO, which did not allow our traditional subsidy system, but there was no Congressional buy-in to end all farm subsidies. Direct payments were instituted as the solution. They still gave farmers a safety net of sorts, but they were not determined by current prices or yields, and thus would not impact a farmer's planting decisions.
Dan Imhoff, author of Food Fight: The Citizen's Guide to a Food and Farm Bill, notes that even though direct payments comply with WTO guidelines, "the average person looking at $5 billion in taxpayer money that goes right into the hands of landowners whether they are farming or not, whether they have an economic need or not, with commodity markets and farm assets as strong as they are, has to really why there aren't stricter income caps and eligibility requirements."
He adds that if direct payments are eliminated, "one real fear is that those $5 billion in direct payments will just be eliminated from the overall budget rather than being redirected to something with real social benefit--like feeding school kids more fruits and vegetables and grass-fed local animal products or revitalizing local food systems."