Des Moines Register
07-15-07
Beware unintended consequences of enacting well-intended reforms
By CAROL HUNTER
REGISTER EDITORIAL PAGE EDITOR
The $242,787 in federal farm payments collected by Lee Bass from 2003 to 2005
for several Texas spreads was small change for the oil billionaire.
The names of the ultra-rich that pop up in the Environmental Working Group's
database of farm subsidies have fueled cries for reform. So has the database's
documentation that payments go disproportionately to large operations instead of
the idealized small family farm.
OK, so the next farm bill should rule out taxpayer handouts for billionaires.
Beyond that, though, it gets complicated. Farm policy can't turn on a dime.
Subsidies are imbedded in the economics of today's farming, figured into cash
flows, rent and land values.
To be sure, most Iowa farmers work the system to get every government dollar to
which they're entitled. At the same time, for most, government payments are
neither pure profit nor extravagance. They cover costs of production and help
pay for daily living expenses.
Here's a brief look at how payments work for three Iowa farmers, their views
toward proposed reforms and the ever-present possibility of unintended
consequences.
Ron Litterer farms about 1,500 acres of corn and soybeans near Greene, about
half owned and half rented. From 1995 through 2005, he received $657,467 in
payments, according to the Environmental Working Group's figures.
The highest-payment year was $117,167 in 2005, and the lowest was $16,435 in
2002.
Almost all the payments involved price, loan or marketing subsidies for crops. He
received $6,598 in conservation-related payments, for setting aside land in
waterways and for a multi-year program involving soil testing and monitoring of
use of hog manure for fertilizer.
He's not been affected by previous payment limits, but dramatic changes could
affect him, he said.
As an officer of the National Corn Growers Association, Litterer is behind a
movement to tie payments to revenue rather than low prices. Sometimes, even
when prices are low, farmers can earn good revenues if yields are high. Yet they
still receive a government check. Conversely, in a drought year, farmers might
produce little or no crop. Yet if tight supplies result in high prices, they wouldn't
get payments.
Litterer recalled that his 2005 payments were inflated by the aftermath of
Hurricane Katrina. Grain shipments couldn't get down the Mississippi, and prices
plummeted. The situation was temporary, but the structure of payments allowed
Iowa farmers to capture a windfall of dollars.
That reflects the problem, he said. "Sometimes payments are made when they
shouldn't be." Instead, "We need a program that reflects market conditions."
He also believes that commodities payments, crop insurance and ad-hoc disaster
payments should be linked and reworked together. With a well-crafted insurance
program, disaster payments shouldn't be needed year after year, he said,
although they might be needed in the event of multi-year losses, such as severe
drought.
--Kevin Miskell of Stanhope farms about 700 acres, all rented from family. From
1995 through 2005, he received $232,888 in payments.
Like Litterer, his highest-payment year was 2005, when he, too, benefited from
the Katrina-related price spread. Payments totaled $62,720. His lowest year was
$425, in 2002.
Miskell is vice president of the Iowa Farmers Union. The National Farmers Union
advocates tying payments to the cost of production, to help address soaring
costs for fertilizer and fuel.
The money he gets from government payments goes toward covering expenses,
he said, ticking off costs for seed, fertilizer, fuel, equipment and storage, in
addition to land. Even with higher corn prices, higher input costs will squeeze
profits.
He's intrigued by the idea of revenue-based payments, but fears they could push
up the price of cash rents and land.
Feeding additional money into the system pushes up costs, he said. "It's why
we're better off with safety nets instead of subsidies."
He also thinks crop-insurance premiums should be tied to a farm's production
history. Otherwise, U.S. taxpayers and Iowa farmers subsidize cheap premiums,
encouraging planting in places where crop failures are more likely.
Matt Devore rents a 360-acre farm in Appanoose County, and works with his
father to farm an additional 640 acres. All told, that's about 700 acres of row
crops, plus some pasture and hay fields. From 1995 through 2005, he received
$85,029 in payments.
His highest-payment year was 2005, when he received $16,050. His lowest:
$1,879, in 1996.
Now 32, he started farming when he was just out of high school. He grew up in
the area, and his father, an uncle and his grandfather have all been farmers. It's
what he wanted to do, too.
He rents his ground from Neil and Darlene Harl. Neil Harl is professor emeritus
in economics from Iowa State University. It's a 50-50 crop-share and
livestock-share arrangement. They co-own a herd of 55 Maine-Anjou/Anguscross cattle.
"I never would have made it" without the crop- and livestock-share arrangement,
Devore said. Paying cash rent would be too expensive and entail too much risk.
Federal payments help Devore meet basic expenses. "I make my machinery
payments. I put food on the table," he said. "I'm not scraping for a buck. I'm
making just a living."
He doesn't yet foresee a point where he'd be able to swing buying land, other
than perhaps 40 acres or so. "Right now, I don't see putting my neck out. It would
break me."
Devore's situation points up a possible downside to payment limits. Agriculture
Secretary Mike Johanns has proposed eliminating commodity payments for
anyone with an adjusted gross income of $200,000 or above. Johanns points out
that among all tax filers, only 2.3 percent have incomes that high. That seems
only fair.
But if a landowner can no longer collect farm payments, there's less incentive to
give a young fellow a break and crop-share with him. More landowners would
demand cash rents, and the barrier to entering farming would raise still higher.
EDITORIAL PAGE EDITOR CAROL HUNTER can be reached at (515) 284-8020
or chunter@dmreg.com.