05/17/1995

Cutting Farm Programs is a Double-Edged Sword

AUBURN, Ala. - Cutting federal farm programs is one way politicians are proposing to balance the federal budget. According to an Auburn University agricultural economist, those cuts could be a double-edged sword that may slice into consumers' billfolds and cause hardship for some farmers, but also may bring positive changes to agriculture.

Robert Taylor, ALFA Eminent Scholar and Professor of Agriculture and Public Policy at Auburn, has been crunching the numbers related to potential Farm Bill cuts. According to Taylor, who conducts research through the Alabama Agricultural Experiment Station at Auburn University, the rhetoric about the farm bill is fraught with misconceptions and media hype.

One of the greatest misconceptions is that cutting farm programs will save taxpayers a lot of money. Some advocates of farm program cuts claim that farm programs cost about $60 billion tax dollars a year. However, said Taylor, that figure is greatly exaggerated.

"The USDA budget is more than $60 billion annually, but the farm programs (programs that provide funding for price and income support, loans and emergency and disaster assistance) actually cost about $10 billion, with about $40 billion going to the food stamp program and the remaining $10 billion going to other miscellaneous programs," said Taylor. "The food stamp program is a welfare program, not a farm program, even though it is in the USDA budget," Taylor continued.

"If farm programs are eliminated, the treasury cost will go down some, but food prices will go up somewhat. When you factor that in, the net cost to society of the farm programs is less than the gross cost of $10 billion," Taylor said.

Taylor believes that eliminating farm programs will cause hardship to some farmers, but also may help agriculture in the long run, and he notes many farmers agree. "Surveys of farmers show that about one-half don't want the government involved in agriculture," he said. "I suspect that almost all farmers would basically like to see agriculture out of government control. I think many people believe, as I do, that by eliminating farm programs, those farmers who are left will be better off in the future than they are now," Taylor said.

Taylor noted that crops directly affected by farm programs account for only about 20 percent of the value of all agricultural commodities. For example, there are no programs for fruit and vegetables, horticultural crops and most livestock (excluding dairy). He also noted that there is not 100 percent participation in farm programs, even for eligible producers.

"In Alabama and the Southeast, dairy, cotton and peanut farmers all could be affected, however, the greatest negative impact probably will be felt by the peanut industry. Elimination of the peanut program would reduce net agricultural income by $195 million annually in the tri-states peanut area. Because of multiplier effects, the full economic impact of elimination of the peanut program in the region would be $775 million annually," Taylor said.

On the other hand, Taylor said that the Alabama cotton industry may benefit from elimination of farm programs. He explained that cotton now being grown in the High Plains of Texas and Oklahoma may shift to the Southeast, where it can be grown more economically because of the region's growing conditions. He added that the Boll Weevil Eradication Program already has caused a resurgence of cotton production in the South. The negative side of cotton program elimination is that producers will face more downside price risk.

Taylor also noted that sudden, drastic changes in farm programs will cause extreme hardships for those farmers whose operations hinge on program support. He said phasing out farm programs gradually is the best way to soften the financial blows to farmers.

According to Taylor, a phase-out in essence began a decade ago. "The 1985 Farm Bill legislated decreases in target prices (in current dollars, the expense of the program has decreased from $34 billion in 1986 to about $10 billion now). The 1990 Farm Bill held target prices constant in nominal terms, but three to four percent inflation has reduced real target prices. The combined effects of legislated decreases in price supports and inflation has reduced real target prices by over one-third over the last 10 years. So, the last two Farm Bills have been phasing out price supports."

That's one reason many farmers resent the budget attack on farm programs. "Farmers who support the government being involved in agriculture argue that agriculture already has taken big hits -- much, much larger that other items in the federal budget -- so they think the government should pick on somebody else for a while," said Taylor.

Taylor explained that farming is an easy target for a variety of reasons. A major reason is the declining numbers of farmers, who no longer wield the political power they once held. (The number of farms declined by more than 10 percent since the 1985 Farm Bill was enacted.) Another factor that makes agriculture an easy target is the claim that farm programs lead to environmental problems.

"Some of the big environmental players argue that farm programs cause excessive application of fertilizers and pesticides because they keep farmers from rotating crops and limit acreage," he said. Taylor said there is little truth in these claims, but environmental organizations and lobbyists hype them to further their cause.

"Environmental and conservation groups now appear interested in taking the money spent on farm programs and turning it into something called ‘green payments,'" he said. "In the past, farm bill policy makers and environmental organizations were not very interested in paying farmers to ‘do the right thing' environmentally," he said. "This attitude seems to be changing. Farmers attitudes also seem to be changing and more and more farmers are willing to accept a shift from commodity-oriented payments to conservation-oriented payments," Taylor continued.

Green payments would pay farmers to adopt certain practices that are perceived to have environmental benefits. While green payments sound good to many, Taylor said no clear strategy for using green payments has been offered by farmers or environmental groups. "They won't define green payment well enough to implement them or for people like me to analyze them," he said.

Taylor also noted that several other ideas have been offered for revamping farm programs, but policy makers and farm lobbyists all are unsure which, if any, will be adopted. "No one seems to know what will happen with this year's Farm Bill," he said. "Even those who have been involved in farm policy decisions for many years say that this is the first time they have experienced so much uncertainty about the outcome."

"Whatever the outcome is, it will affect more than just farmers," he said. "Consumers will eventually feel the impact. Historically, farm programs and federally funded agricultural research and extension efforts have helped provide Americans with cheaper food (American's use about 11 percent of their disposable income to buy food, the lowest percentage in the world). Although the last two Farm Bills have had more of a market orientation than older programs, consumers will still feel the impact of elimination of farm programs and reduction in funding for agricultural research and extension. To some extent, we can pay for food through the IRS or we can pay for food at the grocery store," he added.

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Auburn University College of Agriculture
Alabama Agricultural Experiment Station
3 Comer Hall, Auburn University
Auburn, AL 36849
334-844-4877 (PHONE) 334-844-5892 (FAX)

Contact Jamie Creamer, 334-844-2783 or jcreamer@auburn.edu
Contact Katie Jackson, 334-844-5886 or smithcl@auburn.edu

05/17/95