Why Pay Farmers to Not Farm?
Well, we don’t anymore. We used to, although only partially, and it made for a lot of envious jokes from non-farmers who thought getting paid to not work was a pretty good gig. Some people still think farmers can get paid to not grow corn or wheat, which is no longer true.
Why did we do that? Well, during the Great Depression when mostly everyone was broke, Congress determined it was in the national interest to keep farmers in business. They assumed fewer farmers meant less food, and no one wanted to go hungry. European countries that had experienced famine were even more fiercely protective of their farmers. It seems to be a logical assumption: once a farmer goes broke and exits farming, it is difficult to raise enough capital to re-enter the industry. As we are finding out with this year’s drought, farm production can be influenced more by weather conditions than by price signals. So, there was a plausible argument to help farmers stay in farming through difficult times. And thanks to farmers’ political skills, Congress has been convinced times are hard on the farm every year since 1930.
So, back in 1929 our representatives in Washington D.C. determined the proper price levels for various commodities. Proper prices (remember the word “parity”?) were set at levels that guaranteed profits for all but the most incompetent, inefficient or unlucky farmers. The result was predictable: farmers maximized production and flooded the country with food and feed. Commodity prices plummeted, costs increased, and farmers continued to go broke. Dairy farmers dumped milk into rivers (no EPA back then) and livestock farmers considered shooting animals rather than lose more money feeding them.
Congress did not simply dictate the price of corn. USDA made payments to farmers to make up for the “deficiency” in the prices in the free market. The more farmers over-produced, the lower the market price and the greater the government payments. Congress, after getting an education in basic supply economics, decided they needed to tell farmers how much they should produce, as well as what price they should receive.
In the 1950’s through the 1980’s, we tried to reduce overproduction through acreage reductions, i.e. we paid farmers to not farm all their acres. The nomenclature varied through the years—the Land Bank, Soil Bank, Diverted Acres, Acreage Reduction Program… If a farmer had a wet corner of a field, or an eroded hillside, or an airplane runway, that land went into the acres that were not farmed. As a result, paying farmers to not farm 10% of their acres resulted in less than a 10% production reduction.
As I write this, Congress is attempting a fix for the farm bill one more time. It may be enacted by the time you read this, and it will probably not include direct payments to farmers for the first time in 84 years. Note that I said “direct payments”. Indirect payments are different. For the last few years, the subsidized crop insurance program has become more significant to farmers than subsidies. Farmers get insurance money only when they have a loss, either through lower prices or reduced yields, or both. The policies’ options are complicated, and expensive even with the subsidy. But revenue insurance works beautifully, from the farmer’s perspective. Banks are more comfortable making operating loans to farmers with income insurance. Farmers grow as much of any crop they want to grow. Insurance eliminates the need for disaster payments; except it takes away our elected representatives’ ability to swoop in with rescue money.
So, do we pay farmers to not farm? The Conservation Reserve Program pays farmers to take environmentally sensitive floodplain acres out of production, to help states meet the standards of the Clean Water Act. By planting prairie grasses and trees next to rivers and streams, we have less sedimentation and chemicals in our water and more wildlife habitat. At this point, we could discuss the annual 26,000 reported Illinois vehicle-deer collisions, but I’m running out of room.
Just a couple more thoughts:
Farm subsidies have been expensive and encouraged overproduction. But how much of a problem was it to have too much food in this country for over three-quarters of a century? I mean, really, compared to the alternative?
Despite some pretty severe budget cuts, probably two-thirds of the agriculture budget is the food stamp program, not for paying farmers to not farm.
For the last three or four generations, we as a country have been trying to reduce the amount of food our farmers produce to keep supply from swamping demand. The surpluses are now gone, and future farm programs may have to shift gears and focus on increasing our food security.