The Agriculture Reform, Food and Jobs Act of 2012 is a massive piece of legislation that covers everything from crop insurance and rural broadband installation to school lunches, local food, and SNAP benefits. This year’s bill, currently under debate in the Senate, has a big change that is being hotly debated.
The biggest change in this year’s bill, and the current focus of many farmers, is the elimination of direct payments. Since the first farm bill, passed during the New Deal Era, farmers have been paid per acre in the effort to control the prices of commodity crops like corn, wheat, and soy beans. Direct payments currently account for about $15 billion in spending across all agriculture programs. The new bill eliminates these payments in favor of improved crop insurance programs. The provision has set up a brouhaha between peanut and cotton farmers in the South and the corn, wheat, and soybean farmers in the Midwest.
The major sticking point has to do with how the different crops are marketed. The Southern crops are sold directly to processors, such as peanut butter makers and cotton gins, while the Midwestern crops are traded on the open market. The Midwestern crops, reliant on market conditions as they are, are seen as having more stable and predictable prices while the prices for Southern crops are set by the relatively few processors that purchase them and are more subject to random price swings. This volatility is the reason that Southern farmers are worried about the bill.
A look at the payment data on the USDA ERS website shows that peanut farmers, at least, are currently getting a pretty good deal under the direct payment system compared to their corn growing compatriots. While corn growers receive $0.28 per bushel for their crop, peanut growers average about $.47 per bushel. Southern farmers are worried that the expanded crop insurance program will not provide them with a reasonable enough safety net to maintain their incomes should prices drop precipitously. One farmer quoted that it costs him $1000 per acre to plant. He plants on 450 acres. You do the math. Farmers are worried that crop insurance programs may not return a high enough percentage of the initial investment in the event of a price drop which could lead farmers to switch to crops that occupy a more stable market as a hedge or to quit farming altogether.
While the economics of the farm bill are difficult to navigate, one thing is certain. In this age of shrinking budgets and high debt, there is little support for continued large subsidy payments to farmers. The hope, for Midwestern and Southern farmers alike, is that some compromise can be worked out that can address the concerns of Southern farmers while reducing the amount paid out directly to farmers.