Largely unpopular, direct payment subsidies persist

Sep 29, 2013

A scene in the county agent's office in San Augustine, TX of a farmer receiving his AAA check in 1939. The Agricultural Adjustment Act (AAA) of 1933 was the start of a long series of “farm bills” to provide federal support to agriculture. The current system of direct and countercyclical payments dates to the 1996 Farm Bill.
Credit Russell Lee/ Farm Security Administration /LOC

Congress is bitterly divided on food stamps and other issues contained in the farm bill, but both political parties agree on something: the $5 billion-a-year farm subsidy called Direct and Countercyclical Payments has got to go.

The program shells out to farmers and land owners regardless of need or loss. It’s a hold-out from a farm bill that promised an end to subsidies and it’s holding on only because Congress is so dysfunctional.  

David McKee raises corn, soybeans and cattle on the green, rolling land near Harrisonville, Mo. Farm policy is not his thing, but he can see why people would be upset about direct payments.

Missouri farmer David McKee says he understands why direct payments are unpopular, especially with farm incomes generally high.
Credit Frank Morris/Harvest Public Media

“The average working man who is struggling right now, paying his taxes, wonders why are we giving farmers payments for, really nothing,” McKee said.

Closer to Pleasant Hill, Mo., farmer Bill Wendel says the subsidy has become a public relations liability.

“’Welfare for farmers,’” Wendel said. “That’s what they call it.” 

Wendel says he doesn’t need his Direct and Countercyclical Payment (DCP). His expenses are huge, but he says his farm is grossing about $1 million annually. Swings in the price of corn or soybeans can cut, or boost, his income by hundreds of thousands of dollars.

“So, that little $10,000 DCP payment don’t mean nothing,” Wendel says with a laugh.

The markets are important to Wendel, as is federally-subsidized crop insurance.

At the Farm Service Agency office in Harrisonville, the guy in charge, Ron Highley, says he remembers a time not that long ago when farmers were much more dependent on subsidies like direct payments. Highley says a lot of good farms would have gone under in the late-‘90s if not for subsidies.

“I mean, that’s how we paid for farm payments, that’s how we paid for fertilizer,” Highley said. “It was kind of the money the farmers made.”

And in 1996 a new idea called Direct and Countercyclical Payments was the latest and greatest thing in farm subsidies. 

Farmer Bill Wendel says he doesn’t need his direct payments, sometimes known as “welfare for farmers.” Federally subsidized crop insurance and swings in the market affect his bottom line far more than direct payments.
Credit Frank Morris/Harvest Public Media

“At the time, direct payments looked like the best of all possible worlds,” said Keith Collins, who was the chief economist at USDA at the time. 

Back then, Collins says, U.S. farm subsidies were breaking international trade rules by prompting farmers to plant specific crops. Direct payments come with almost no strings attached.

“So, (direct payments) were independent of production,” Collins said. “They were not trade distorting and they could control the (federal) budget exposure because they were no longer a variable payment that got very large when prices declined.”

On top of all that, direct payments were supposed to phase out and stop more than a decade ago, heralding a new age free from federal farm subsidies. That didn’t happen. 

The subsidy-free plan is stalled partly because Southern farmers – most growing cotton, rice or peanuts – came to rely more on direct payments. They haven’t seen the big gains in crop prices that corn and soybean farmers have and don’t glean as much benefit from subsidized crop insurance. Still, Collins says, overall farm income has soared while the federal budget deficit has mushroomed.

“I don’t think most people expected that direct payments would be made in 2013,” Collins said. “But alas, here we are, they are being made.”

Craig Cox, with the advocacy group Environmental Working Group, says that paying direct subsidies this year shows a breakdown in the system.

“It’s bad farm policy on autopilot,” Cox said. “It doesn’t matter if farmers are doing well – prices are high, prices are low – the cash just flows and it flows to people who aren’t even farmers.”

Cox is right. Ron Highley, with the Farm Service Agency, explains that a good number of those receiving direct payments in the Kansas City-area, for instance, don’t actually farm at all.

“We do quite a bit of business for people who live in the city but own land somewhere else in the United States,” Highley said. “Millionaires, ball players, actors that own land.”

In 2012, $24 million in direct payments went to people in larger cities, according to Cox. That means, Cox says, direct payments are benefiting land owners, not necessarily farmers.  That has contributed to eroding support for the program.

“It looks like, if we ever get a farm bill done, that direct payments will finely, finely go away,”  Cox said. “That’s the good news.

The bad news?  If Congress can’t agree on new farm policy this fall, the outdated, discredited subsidy called direct payments might just survive anyway.

Franklin D. Roosevelt signing the Agricultural Adjustment Act in 1933.