We're in the Wrong Business

We’ve mentioned before that Southern elected representatives (plus California) are the biggest obstacle to strong, effective payment limitations. The single most important reason for this is that the primary Southern crops- cotton and rice- receive much higher per-acre payments than the other three big program crops (corn, soybeans, wheat). How much higher is something that is not always clear. The EWG database that details payments to producers is great, but it doesn’t get into the differences in farm program payments between commodities. Cotton and rice advocates generally argue that they have higher costs, so they should receive larger payments.

A few weeks ago the Congressional Reasearch Service put out a report entitled “Measuring Equity in Farm Support Levels” (pdf). As policy wonks, we love CRS reports and many can be found at the National Agriculture Law Center’s website. Researchers Jasper Womach and Randy Schnepf lay out the numbers- and they are astonishing.

In the past three years, on per acre basis, rice has received an average of $270 per acre and cotton has received an average of $213 per acre (peanuts clock in at $192, but they are covered by an entirely different support program). On a per acre basis, the next highest is corn- at $66.

per acre chart

In the home office yesterday, we decided that we are in the wrong business. $270 per acre is astonishing. And of that $270, an average of $96 is from direct payments. While eligibility for those payments is based on historical production, today they are paid regardless of production. In other words, you could receive a check from the government for $96 per acre for sitting on your couch and watching TV. Those eligible for direct payments own what is known as “base acres”; acres that at one time were planted in a specific crop. Payments are based on 85% of base acres. So at the time that direct payments were instituted, if a producer owned, say, 500 base acres, they have received approximately $40,000 every year, without having to do anything at all. And if you had 1,000 rice base acres, you’ll get $80,000, which is the current nominal limit on direct payments. But if you exploit the loopholes, you can receive an unlimited direct payment check. And the higher cost argument doesn't work here, because you don't even have to plant to get the check.

Another shocking chart is “Commodity Payments as a Share of Crop Market Values”. For the past 3 years, commodity payments have made up 58% of rice market value and 57% of cotton market value. I don’t know how anyone thinks the government providing more than half of the market value for these crops indefinitely could possible be sustainable. Corn is 21%, which still seems high, but it isn't 58%.  

market share chart

These numbers will only get more astonishing now that the ethanol craze has driven up the price of corn, wheat and soybeans. Cotton and rice have not enjoyed the recent price increases, and it is expected that their levels of per-acre payments will remain basically the same. Corn will drop down to the level of its direct payment (again, those are paid regardless of production or price), which is about $27. Soybeans and wheat will fall as well. (To be fair, much of the price run-up in corn is a result of government market incentives such as the ethanol tax credit). It will be interesting to see if this trend isolates cotton and rice advocates or if they succeed in making the “commodity agriculture must stick together” argument and keep big ag unified during the farm bill. But it will be hard for cotton and rice advocates to avoid the perception of greed.

Get The Newsletter?