THE VINE FEBRUARY 26, 2009
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In addition to sketching the course of future climate legislation, Obama's budget proposal today also dropped some hints about the direction he plans to take on farm policy. Most notably, the White House budget proposes the elimination of direct subsidy payments to farmers making more than $500,000 per year. This makes a lot of sense from the perspective of eliminating government waste, given that the government spends billions each year on “direct payment” subsidies to farmers growing commodity grains and pulses—and much of that money goes to large corporate farms. On the other hand, curbing these direct payments won't actually do much to stop the overproduction of commodity crops like corn–a problem that has arguably contributed to everything from obesity (because it makes processed food so cheap) to the death of the family farm at home and abroad.
That’s because the direct-payments program, unlike some other agricultural subsidies, doesn’t really give farmers an incentive to overproduce. Farmers get a lump sum of money each year that’s calculated by multiplying their “base acreage”—the number of acres they historically planted in a certain crop—by the number of bushels of that crop they could expect to produce per acre times a fixed per-bushel subsidy rate. They get that lump-sum payment even if they plant a different crop, or no crop at all. The one big restriction on what they can do with the land is that they can’t use it to grow fruits or vegetables. (There’s a pilot program to lift this restriction for some farmers, but only on the condition that they sell their vegetables to a processing company, rather than letting them be consumed fresh—apparently the American public needs to be protected from eating too many fresh veggies.)
So while the direct-payments program is by all means a wasteful giveaway, it’s hard to see how it’s massively distorting the markets for agricultural commodities. Getting rid of it isn’t going to transform U.S. agriculture. In fact, the really transformative idea in Obama’s Department of Agriculture budget proposal—redirecting the money that would otherwise go to agricultural subsidies to pay farmers for the ecosystem services they provide—gets only a passing mention. It will be interesting to see the Obama administration flesh out its ideas for ecosystem-services payments—something it will hopefully do sooner rather than later.
--Rob Inglis
3 comments
Bonus points for anyone who can name the one large-cap stock on the NYSE that's been increasing ever since it became clear in October that the economy would tank and Obama would win the election.
Hint: it's a poster child for corporate welfare, shoveling junk food into obese American guts, dumping corn into Mexico (!), and paying off pols in both parties.
Answer here: finance.yahoo.com/echarts
- teplukhin2you
February 27, 2009 at 11:44am
Up in northeastern Missouri along the Mississippi, my dad still sells his sweet corn on the honor system by the side of the road. The corn is piled up in the back of the wagon, covered by a burlap tarp to protect it from the sun, and there is a metal box with a slot for people to leave their money. I don't recall anyone ever taking advantage of the system.
And he produces some of the best sweet corn you'll every eat. I always thought it was too bad he couldn't devote more of his property to sweet corn, but many people produce small amounts of sweet corn, so I suppose on average when added altogether, it is a rather large amouny. But by and large hardly any of this superior product ever makes it into the supermarkets in most places. Which is a shame, especially when you consider the poor quality products that are constantly being dumped in our supermarkets. I suspect there are many people across the United States who hardly ever get a chance to taste really good sweet corn, and that's a shame, because it is a true delicacy.
I never thought that the subsidy system made any sense to anybody, some years my dad and uncle would plow up a percentage of crops they had planted in certain fields, because it was over the estimate, and apparently they could be penalized and lose money for planting too much, If I remember correctly. Sometimes it with soybeans, other times it was alfalfa. Always seemed like a waste to me.
These days dad subsidizes his income by spending the spring and summer going to the Farmer's market to sell directly to consumers over in Illinois. That is where the best produces can be found across much of America.
- AaronBBrown
March 1, 2009 at 4:41am
As we noted last week, the new White House budget contains a proposal to end “direct payment” subsidies
- Anonymous
March 3, 2009 at 5:11pm