Peanuts, Politicians, and 'the Train Wreck of Farm Subsidies'
In today's Commentary section of The Washington Times, James Bovard says, The peanut program is trypical of the train wreck of farm subsidies." The lede paragraph to his comments about "politicians and peanut pilfering" says:
"The history of federal peanut policy is the perfect antidote to anyone who still believes that Congress could competently manage a lemonade stand. Federal spending for peanut subsidies will rise eight-fold between last year and next year — reaching almost a billion dollars and approaching the total value of the peanut harvest. This debacle is only the latest pratfall in a long history of horrendous federal mismanagement."
Bovard is "a libertarian author and lecturer whose political commentary targets examples of waste, failures, corruption, cronyism and abuses of power in government," according to Wikipedia.
Here is how he begins his explanation of why peanut subsidies are "the train wreck of farm subsidies:"
"The peanut program long combined the worst traits of feudalism and central economic planning. In 1949, to curtail subsidy outlays, Congress made it a federal crime to grow peanuts for fellow Americans without a federal license. The feds closed off the peanut industry, distributing licenses to existing farmers and prohibiting anyone else from entering the business.
"The federal government maintained draconian controls to prevent any unlicensed peanuts from entering Americans’ stomachs. The Washington Post noted in 1993, “USDA employees study aerial photographs to help identify farmers who are planting more than their allotted amount of peanuts. Violators are heavily fined. USDA also issues each farmer a card imbedded with a computer chip that lists his quota. The farmer must present that card before he can sell his peanuts at a buying point.”
"The peanut program was created to help save family farms. But the number of peanut farmers plunged by more than 75 percent after the licensing scheme began. The program also sharply decreased productivity since the licenses were long locked into the same area (peanuts are a soil depleting crop). Many farmers sold their licenses to investors. The program sharply inflated the cost of production because most farmers had to rent the license to raise their crop. The General Accounting Office estimated in 1993 that the program cost consumers more than half a billion dollars a year in higher prices.
"Strict controls on farmers were complimented by draconian import restrictions. Americans were long permitted to annually buy only 1.7 million pounds of foreign peanuts — roughly two foreign peanuts per year for each American citizen. That quota ended thanks to a 1990s-era trade agreement. Unfortunately, the Clinton administration placated U.S. peanut growers by slapping a 155 percent tariff on peanut butter imports — a sneak attack on the mainstay of freelance writers’ diets. The peanut program guaranteed American farmers prices that are roughly double world market levels, thereby forcing every person who bought a bag of Jumbo goobers to pay tribute to Congress’s favorites.
"Congress ended the peanut licensing scheme in 2002 with a $4 billion buyout that provided a windfall to license-holders. The largest “peanut buyout” payment went to the John Hancock Insurance Company, which collected $2 million. There was no more justification for “bailing out” peanut license holders than there was for compensating slaveowners after Lincoln’s Emancipation Proclamation but the payouts bred generosity that redounded on congressional candidates." (emphasis added)
Bovard isn't done explaining about this "train wreck of farm subsidies," however. Read the rest here.
Now the government, apparently, does not want to sully its image by providing subsidies to peanut farmer. Rather, according to Wikipedia, there is a "peanut price support program," which Wikipedia described as follows:
"The 2002 farm bill (P.L. 107-171, Sec. 1301-1310) replaced the longtime (65-year) support program for peanuts with a framework identical in structure to the program for the so-called covered commodities (wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans, and other oilseeds). The three components of the Peanut Price Support Program are fixed direct payments (at $36/ton), counter-cyclical payments (based on a target price of $495/ton), and marketing assistance loans or loan deficiency payments (LDPs) (based on a loan rate of $355/ton). The peanut poundage quota and the two-tiered pricing features of the old program were repealed. Only historic peanut producers are eligible for the Direct and Counter-cyclical Program (DCP). All current production is eligible for marketing assistance loans and LDPs. Previous owners of peanut quota were compensated through a buy-out program at a rate of 55¢/lb. ($1,100/ton) over a 5-year period."(see original for links to source materials)
In a November 2015 op-ed at CNS News, Dan Mitchell writes that "Department of Agriculture's Soviet-style nonsense is a welfare scam," explaining:
"But the more I read about the bizarre handouts and subsidies showered on big agribusiness producers by the Department of Agriculture, the more I think there’s a very compelling argument that (the Department of Agriculture) should be at top of my list (of federal departments to close).
"Indeed, these giveaways are so disgusting and corrupt that not only should the department be abolished, but the headquarters should be razed and then the ground should be covered by a foot of salt to make sure nothing ever springs back to life.
"That’s a bit of hyperbole, I realize, but you’ll hopefully feel the same way after today. That’s because we’re going to look at a few examples of the bad results caused by government intervention.
"To get an idea of the Soviet-style nonsense of American agricultural programs, a Reuters report on the peanut programs reveals how subsidies and intervention are bad news for taxpayers and consumers. Here’s the big picture:
“A mountain of peanuts is piling up in the U.S. south, threatening to hand American taxpayers a near $2-billion bailout bill over the next three years, and leaving the government with a big chunk of the crop on its books. … experts say it is the unintended consequence of recent changes in farm policies that create incentives for farmers to keep adding to excess supply.”
"And here’s a description of the perverse and contradictory interventions that have been created in Washington."Gee, what a nice scam. Uncle Sam tells these farmers welfare recipients that they can take out loans and then not pay back the money if peanut prices aren’t at some arbitrary level decided by the commissars politicians and bureaucrats in Washington.
“First, the U.S. Department of Agriculture (USDA) is paying farmers most of the difference between the “reference price” of $535 per ton (26.75 cents per lb) and market prices, now below $400 per ton. A Nov. 18 report to Congress estimates such payments this year for peanuts exceed those for corn and soybeans by more than $100 per acre. Secondly, government loan guarantees mean once prices fall below levels used to value their crops as collateral, farmers have an incentive to default on the loans and hand over the peanuts to the USDA rather than sell them to make the payments.”
"In other words, assuming the peanut lobbyists have cleverly worked the system (and unfortunately they have), it’s a license to steal money from the general population by over-producing peanuts. And we’re talking a lot of peanuts.
“Through forfeitures, the USDA amassed 145,000 tons of peanuts from last year’s crop, its largest stockpile in at least nine years, according to data compiled by Reuters. … That stockpile is enough to satisfy the average annual consumption of over 20 million Americans – more than the population of Florida – and puts the administration in a bind. … As peanut carryover inventories are forecast to hit a record of 1.4 million tons by end-July 2016 and as loans begin to come due next summer, farmers are expected to fork over more peanuts to the USDA.”
"Moreover, because the perverse interaction of the various handouts, there’s no solution (other than … gasp! … allowing a free market to operate).
"Storing the peanuts in shellers’ and growers’ warehouses comes at a cost. Selling them could depress the market further and in turn would add to the price subsidy bill.”
And, in a January 2014 op-ed at CNS News, Adam Andrzejewski comments:
"The historic purpose of the farm bill was to "ensure a stable food supply" and "to preserve the family farm." But, when issuing our The Federal Transfer ReportTM- Farm Subsidies & The Big Dogs, OpenTheBooks.com found that some of the largest subsidies were received by government in fiscal years 2008-2011. Federal farm subsidies have grown to such an extent that Uncle Sam's smaller cousins -- who aren't traditional farmers, but smaller units of government -- are receiving millions."
He then cites examples of $8.5 million going to the Montana Department of Natural Resources and $3.7 million going to the Washington Department of Natural Resources. Even the "Grissom Municipal Airport, in Bedford, IN of Lawrence County, has received over $15,000 in subsidy in just three years."
Finally, let's look at two reports from Congress' General Accountability Office (GAO). First, from the 41-page report, "Considerations in Reducing Federal Premium Subsidies," (GAO-14-700. published August 8, 2014), we learn:
"The cost of the federal crop insurance program and farm sector income and wealth grew significantly from 2003 through 2012. The cost of crop insurance averaged $3.4 billion a year from fiscal years 2003 through 2007, but it increased to $8.4 billion a year for fiscal years 2008 through 2012. According to the U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA), the agency that administers the crop insurance program, subsidies for crop insurance premiums accounted for $42.1 billion─or about 72 percent─of the $58.7 billion total program costs from 2003 through 2012. Revenue policies, the most frequently purchased crop insurance option, accounted for $30.9 billion of the total premium subsidy costs for 2003 through 2012. Crop insurance premium subsidy rates—the percentage of premiums paid by the government—are set by Congress and would require congressional action to be changed. For most policies, the rates range from 38 to 80 percent, depending on the policy type, coverage level chosen, and geographic diversity of crops insured. As premium subsidy costs increased, farm sector income and wealth indicators also increased. For example, for each year from 2003 through 2012, median farm household income exceeded median U.S. household income. Specifically, on average, median farm household income was $7,205, or 13.8 percent, greater each year than U.S. household income, in constant 2012 dollars. Farm sector income also grew from $73.8 billion in 2003 to $113.8 billion in 2012, in constant 2012 dollars. Farm real estate values, another measure of farm prosperity, increased by 72 percent from 2003 through 2012, in constant 2012 dollars, and farmers relied less on borrowed funds to finance their holdings.
"Reducing premium subsidies for revenue policies could potentially result in hundreds of millions of dollars in annual budgetary savings with limited costs to individual farmers . . . ."
In a second report -- 75 pages, this time -- on USDA farm programs in 2014, "Farmers Have Been Eligible for Multiple Programs and Further Efforts Could Help Prevent Duplicative Payments (GAO-14-428, published July 8, 2014), GAO found:
"From fiscal years 2008 through 2012, the U.S. Department of Agriculture (USDA) reported spending about $114 billion on 60 programs providing financial assistance to farmers, including about $28 billion in crop insurance subsidies. Those programs existed during the effective period of the Food, Conservation, and Energy Act of 2008 (2008 farm bill). Most were administered by the Farm Service Agency (FSA), Natural Resources Conservation Service (NRCS), and Risk Management Agency (RMA). The 2014 farm bill eliminated some programs covered by this report, including FSA's Direct Payments Program, and added or expanded other programs. Under the 2008 farm bill, farmers were eligible for multiple programs depending on the commodities they produce and other factors. Some of these programs were overlapping, meaning they have similar goals, engage in similar activities or strategies, or target similar beneficiaries. However, based on a review of the programs, GAO did not find sufficient evidence to conclude that these programs were duplicative, meaning that they engaged in the same activities or provided the same services to the same beneficiaries.
"Annually, USDA surveys individual farm costs and returns, including government payments. The survey among other things is aimed at estimating the farm sector's financial condition. The survey allows linking payments to farm characteristics, but it does not account for all payments in a given fiscal year. Based on these survey data, except crop insurance subsidies, most of the estimated 2.2 million farms reported receiving no program payments from 2008 through 2011, and about 37 percent (800,000) received a payment from at least one farm program. Farms receiving payments reported receiving $11,293 on average (median payment of $3,719) annually from various programs. Payments were higher if a farm received assistance from multiple farm programs—less than 1 percent of farms received payments of $57,899 on average (median payment of $27,412) annually from multiple programs. Larger farms or farms producing cash grains such as corn were more likely to receive payments from multiple programs than small farms or farms producing other crops. Larger farms also received more crop insurance premium subsidies than other farms.
"The three largest USDA programs that pay for crop losses are FSA's Noninsured Crop Disaster Assistance Program (NAP), FSA's Supplemental Revenue Assistance Payments (SURE) Program, and RMA's Federal Crop Insurance Program. SURE and NAP assist farmers with losses due to natural disasters. Crop insurance, the largest program covering losses, makes payments based on revenue and production losses. These programs have controls to help prevent duplicative payments; however, GAO asked FSA to conduct data matching to compare payment data for RMA's Adjusted Gross Revenue crop insurance policy and FSA's NAP from 2010 through 2012, and that effort, with RMA analyses, identified 13 duplicative payments that may amount to about $188,000. It is possible there were other duplicative payments made by NAP and other crop insurance policies, but USDA has not taken steps to compare or monitor these payments. Without monitoring by engaging in activities such as data matching, agencies will find it difficult to identify such payments. In addition, a 2013 FSA decision to allow farmers in six states to have coverage for forage under both NAP and a pilot RMA crop insurance policy could result in duplicative payments in the 2014 crop year. FSA officials said they estimated potential duplicative payments to be less than $10 million resulting from this decision. RMA and FSA officials told GAO that they had not developed a plan to prevent or recover duplicative payments that may result from FSA's decision."
For background information about the U.S. Department of Agriculture (USDA), which says USDA "will spend $154 billion in 2016, or $1,230 for every U.S. household," visit the Cato Institute's Downsizing the Federal Government project. Note, too, the three charts depicting how USDA spends taxpayer money.
Americans should be ashamed of the train wreck of farm subsidies designed by the Congress, not to mention the members of Congress who put it together.
So, take some time, and write to one of your Congressional representative to tell them your thoughts about the need for an agricultural bureaucracy such as the U.S. Department of Agriculture (USDA). Contact information is available at the Library of Congress' Congress.gov website. Taxpayers living in Virginia's Arlington County can contact:
- Senator Mark Warner (D) -- write to him or call (202) 224-2023
- Senator Tim Kaine (D) -- write to him or call (202) 224-4024
- Representative Don Beyer (D) -- write to him or call (202) 225-4376
Ask for a written response. And tell them ACTA sent you.