Will lawmakers cotton to subsidies?

By Chris Casteel

Published: July 14, 2007

WASHINGTON — Some supporters of federal farm programs say taxpayer subsidies are necessary to preserve a safe, affordable and reliable food supply in the United States.

But the largest federal payments in Oklahoma in the last few years haven't gone to wheat or corn farmers. They've gone to producers of cotton. And most of the cotton grown in the state is sold to foreign buyers.

Of the top 20 recipients of federal farm subsidies in Oklahoma from 2003 to 2005, 17 received most of the payments on cotton, according to a database compiled by the Environmental Working Group, using U.S. Department of Agriculture records.

Two Altus farmers who grow cotton were among the top 10 recipients in the nation of federal farm subsidies from 2003 to 2005. Each collected about $1.5 million in that period, with the largest portion of the money coming from programs that compensated cotton growers when prices plummeted.

Because the average world price for cotton was well below benchmark prices set by Congress in 2002, U.S. taxpayers were required to spend billions of dollars over the last few years to subsidize domestic cotton producers.

That same "safety net” exists for certain other crops grown in the United States, including corn, wheat and rice. And, under the 2002 farm bill, taxpayers can be exposed to billions of dollars of payments in any year that prices of those commodities drop below Congress' targets.

That's billions of dollars on top of the guaranteed billions distributed annually to farmers because they had grown crops before and the billions paid to farmers who have agreed to idle environmentally sensitive land. It's on top of the federal subsidies to help farmers buy crop insurance. And it's on top of the billions in disaster relief payments made to compensate farmers for severe weather damage.

When members of the House Agriculture Committee meet next week to approve their version of the 2007 farm bill, they're expected to call for five more years of the current programs, which have proven quite popular out in farm country.

Lawmakers on the committee — many of whom represent rural areas heavily dependent on the farm economy — are expected to resist attempts to scale back Depression-era crop subsidies that pump hundreds of millions of dollars into their districts.

But the going could get tougher when the bill moves to the full House later this year.

Farm groups say producers don't want to "farm the government.”

Oklahoma farmers "will tell you that they would prefer to get their income from the marketplace, rather than from government payments,” Steve Kouplen, president of the Oklahoma Farm Bureau, told members of the U.S. House Agriculture Committee in El Reno last fall. "This ideal could become a reality if all trade barriers are removed and the playing field is leveled for U.S. agriculture producers.”

Kouplen's complaint about unfair foreign competition is a common one used by farm groups and farm state lawmakers. It's also one that foreign countries use against the United States. The nation's farm policy is often accused of distorting world markets and harming producers in other countries.

Cotton in particular has been the subject of controversy, and Congress recently was forced to repeal one type of subsidy — used to encourage exporters and domestic mills to buy American cotton — because of a World Trade Organization ruling.

Cotton producers are among those pushing hardest against a Bush administration proposal to cut off subsidies to any farmer whose adjusted gross income tops $200,000 for three tax years. They also oppose proposed limits on how much individual farmers can receive in federal aid in a given year.

Harvey Schroeder, executive director of the Oklahoma Cotton Council, said the $200,000 income limit was misguided.

"They're trying to say it's corporate farming” that is responsible for high subsidy payments, Schroeder said. "We don't have a tremendous amount of corporate farming. It takes that high income in order to meet the bills and pay the high expenses.”

The USDA counters that the tax form used by farmers has 25 categories of expenses that can be deducted before the adjusted gross income is calculated.

Danny Robbins, an Altus cotton producer, has argued at USDA and House Agriculture Committee forums in the last two years against any kind of payment limits.

"Sound farm policy is of little value to the cotton industry if arbitrary unworkable payment limits are placed on benefits,” he told the House committee members. "We believe limitations on benefits should be eliminated. At the very least, limitations in future laws should not be more restrictive or disruptive than they currently are.”

Currently, no subsidies are given to people with adjusted gross income of $2.5 million or more a year, and the 2002 farm bill stipulated that no can receive more than $360,000 per year in federal farm benefits.

But the bill left open a loophole that has allowed farmers to avoid any real limits when market prices are low.

The marketing loan program has a mechanism that allows farmers to use "commodity certificates” to get back all of the crop they put under loan, along with an unlimited amount of money when the market price is below the loan rate established by Congress in 2002.

According to the Environmental Working Group's database of USDA payment data, one Oklahoma cotton farmer used certificates to collect more than $600,000 in federal money in 2004. The farmer then got to sell his crop. In all, cotton growers in Oklahoma used certificates to collect $17 million in federal money from 2003 to 2005.

A special commission set up by the USDA to study payment limitations concluded that the use of certificates had little net impact for taxpayers or farmers. If they weren't allowed, the commission stated, the farmers would have just reached the payment limits and forfeited to the government the rest of their crop.

But the use of the certificates as a way around payment limitations has fueled more criticism from those who contend the current farm subsidy system disproportionately helps large operations and is tantamount to corporate welfare.

Cotton and rice farmers tend to have larger operations than the producers of other crops eligible for federal subsidies.

"You pretty much have to be a large scale to be profitable,” said Schroeder, with the Oklahoma Cotton Council.

The larger producers contend that the new farm bill shouldn't penalize them for being big and efficient.

Farm-state lawmakers face mounting pressures from a loose coalition of free-market advocates, environmentalists, taxpayer watchdog groups and others to reform federal farm programs. There are also budget pressures, not to mention competing priorities of a House Democratic leadership team composed of urban lawmakers.

"We are prepared for an onslaught of the heathens,” Rep. Frank Lucas, a Republican who represents much of Oklahoma's farm country and supports the current system, joked in an interview last week.

Lucas wasn't joking, however, when he said a proposal by Rep. Ron Kind, D-Wis., that would essentially wipe out commodity subsidies and replace them with farm-based savings accounts could succeed when the full House takes up the 2007 farm bill.

"It's a pretty frightening scenario,” Lucas said.

Brian M. Reidl, a federal budget expert with the conservative Heritage Foundation, doesn't think it's so scary. He is among those who believes strongly that farm subsidies do more harm than good.

"The proper role of government is to help farmers handle year-to-year risk, not to ensure a permanent subsidy for millionaires,” Reidl said.

Schroeder said the elimination of cotton subsidies would likely drive many producers out of business, but Reidl said most farmers in America exist without subsidies because they're only available for a few crops. Fruit and vegetable growers aren't eligible. Most of the payments go to the growers of wheat, corn, cotton, rice and soybeans.

"There is absolutely no justification for the current farm subsidy system,” Reidl said. "It hurts consumers, taxpayers, international trade, our health and the environment.”

Farm subsidies have long had their critics — even among farmers. But Reidl said farm subsidy proponents have been able to beat back reform efforts by painting a "Norman Rockwell” picture of the struggling family farmer who would go under without the federal help. It's not a true picture, he said.

"Overall, the average farmer earns an income that's 29 percent above the national average,” he said.

Moreover, he said, "The majority of the farm subsidy dollar goes to the commercial farms.”

The latest analysis by the Environmental Working Group of USDA data shows that the federal government paid out $35 billion for farm programs from 2003 to 2005, and the top 10 percent of recipients received two-thirds of the total.

The same proportion held true for Oklahoma, which received $538 million in federal farm payments from 2003 to 2005, and two-thirds went to the top 10 percent of recipients.

Lucas gave an impassioned speech at a recent farm bill meeting, exhorting his colleagues to "circle the wagons” to protect the subsidies.

He said he was trying to remind members of the Agriculture Committee that scrapping the system could lead to shortages of food in the United States and the rest of the world.

"That would lead to higher costs and human tragedy,” he said.

Farm-state lawmakers, he said, have spent the last 10 years trying to refine farm programs to give farmers the flexibility to plant for the market while also providing them a safety net for low prices.

"Let's not mess it up,” he said.

"There is absolutely no justification for the current farm subsidy system. It hurts consumers, taxpayers, international trade, our health and the environment.”

Brian M. Reidl, a federal budget expert with the conservative Heritage Foundation