Associated Press
07-19-06
Farmers get federal government crop payments even in good years
EDEN, Md. (AP) — After harvesting his corn last summer, Roger L. Richardson
stored 190,000 bushels in silos and waited for prices to rise.
Meanwhile, prices in the Midwest briefly dropped to their lowest level in five years
after Hurricane Katrina. That drop brought a federal government safety net — the
loan deficiency payment — into play. The LDP is cash paid to farmers when
market prices dip below a government-set minimum, if only for a single day.
Richardson, 72, applied for the subsidy for different portions of his crop on
several days through the fall at a U.S. Department of Agriculture office in Snow
Hill. The subsidy hovered at around 48 cents for several months during that time.
When feed mills on Maryland's Eastern Shore began running short of corn in
December, the Worcester County farmer sold his crop at an average of $2.60 a
bushel. With the LDP subsidy he had booked, his take rose to more than $3 a
bushel.
Despite having a good year on his 1,500 acres of prime Eastern Shore farmland,
the government had treated Richardson as if he needed help. He grossed
$500,000 for his crop — making $75,000 from the LDP alone.
The LDP is intended to boost farmers' incomes when prices are low. Despite its
name, it's not a loan and in many cases, it's not a payment for a deficiency.
Farmers don't have to sell at distressed prices to collect the money. As
Richardson did, they can bank the government payments and sell when prices
go up.
According to an analysis of USDA payment data by The Washington Post, the
program has cost taxpayers $29 billion since 1998 and $4.8 billion since
September. Of the latter amount, $3.8 billion went to farmers who sold at higher
prices.
"Most smart farmers are cashing in on it," said Bruce A. Babcock, director of
the Center for Agricultural and Rural Development at Iowa State University.
"It shows me that farmers are being overcompensated."
Richardson said the LDP helps keep him and other farmers in business by
offsetting increasing energy costs.
"Without the LDP last year, farmers would have been in deep water," he said. As
a large farmer, "you handle a lot of dollars, but that's no panacea."
The government created a price-support system in 1938 to help millions of
farmers during the Depression. It propped up prices by buying grain and cotton
whenever the market dipped below a government-set floor.
But by the 1980s, the government had accumulated stockpiles of commodities
that it could not sell abroad. Congress came up with the LDP in 1985 as a way to
protect farmers from low prices, encouraging farmers to sell their crops on the
market and paying them cash when prices fell below the floor.
This reduced the stockpiles and made U.S. farm products a better buy abroad,
and when corn prices fell in the late 1990s, the cash payments to farmers
soared.
In one of the oddities of the system, the government pays roughly equal
subsidies regardless of local conditions. That was a deliberate policy devised by
Congress. In 2002, it directed the USDA to "minimize" the difference in LDP
subsidies across states and between counties — and, in effect, across the
country.
"We were trying to make certain that you wouldn't have a farmer receiving 5, 10,
15 cents less than another farmer across the river or the county line," said former
Rep. Charles W. Stenholm, D-Texas.
The USDA's Commodity Office sets the subsidies each workday, checking with
online services, grain elevators and major grain markets. Officials add a few
cents in one county and take away in another, when the research shows that
subsidies in different areas would be too far apart.
"Congress gave us conflicting requirements," said Bert Farrish, director of the
USDA's Commodity Office in Washington. "We have to minimize the difference in
benefits across state and county lines, but administer it in a way that reflects
local markets as closely as we can."
Farm price supports such as the LDP are under attack. The main objection to the
LDP is that it hurts world commodity prices by encouraging overproduction.
At the economic summit last year of the Group of Eight leading industrial nations
in Gleneagles, Scotland, President Bush shocked U.S. farm organizations by
proposing that certain farm subsidies by rich industrial nations be eliminated.
That would mean the end, or drastic scaling back, of the LDP.
Lawmakers from Midwestern farm states have vowed to defend the LDP.
Supporters say it has helped the U.S. trade balance and has encouraged the
efficient marketing of grain. Moreover, they say, European and Asian nations
subsidize their agriculture at even higher levels.
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