Franke: Farm Subsidies — A Better Way
by Mark Franke
One of the reasons I look forward to our monthly Socratic discussion group is the opportunity to learn something new. Regardless of what knowledge I have of the designated topic going in, two hours of rigorous discussion later and I leave knowing much more.
Last month the topic was agricultural subsidies and how taxpayer money could be better spent for the common good and, this is important too, for the benefit of our dwindling number of farmers. Our two hours together was hardly adequate to understand all the programs funded through the farm bill, formally entitled the Agricultural Improvement Act.
Even though we are all conservatives of one stripe or another, we did not discuss philosophical questions such as whether a limited government should be involved in influencing choices made by farmers. Subsidizing farmers, by which the government actually subsidizes consumers, is a policy as old as recorded history. Remember ancient Rome’s free grain handout to all residents under its “bread and circuses” strategy to keep the populace somnolent.
Nor did we spend any time on the fact that 80 percent of the farm bill funds food stamps and similar programs under its nutritional title. About 50 percent of Indiana school children receive free lunches under this program so it benefits a substantial voting block.
Rather, we focused on sections of the farm bill where subsidies could be redirected for more effective results. Here again there are historical subsidies that are well-entrenched. We Hoosiers can rail against the payments made to rice, sugar and cotton growers in the South, but the highest subsidized crop is corn grown you know where. Forty percent of corn production goes toward ethanol, that nasty fuel additive which plugs our lawn mower and snow blower carburetors. If there is one issue that can unite Midwestern senators from both parties, unfortunately it is funding ethanol production.
So where did that leave us? One of our members brought a proposal to redirect just 10 percent of current crop insurance payments from row crops like corn and soybeans to hay and grass acreage. This would reallocate about $14M in the crop-insurance program, pennies in the overall federal profligacy. Note that this a redirection of current funding, not an increase in spending.
The idea is to apply crop rotation theory in a new way. Instead of the traditional three-year rotation approach, one that goes back to the Middle Ages, designated fields would be planted with hay or another grass crop and harvested for up to seven years before returning to traditional row crops.
Benefits would accrue through nutrient efficiency and better erosion control. The ground would serve as a water sponge and have reduced need for synthetic fertilizers. Soil organic matter would improve. More hay means more feed for cattle, which should help control the rising cost of beef.
So what could go wrong here? Several things. The increase in hay production will affect the supply curve for hay, which may drop the price to where it no longer is economical for farmers to participate in the program. And there is the premise that hay can be harvested productively for seven years. A farmer who was invited to our group as a guest expert thought three to five years would be the maximum life for a hay field.
Again, we didn’t challenge the whole concept of agricultural subsidies as we grudgingly acknowledged that they are here to stay for several reasons. For one, they tend to level out wild price swings at the producer and ultimately the retail levels. Stable prices at the grocery store are essential for overall economic stability, as my wife, the director of purchasing at Franke Inc., constantly reminds me. Much of our current political turmoil is due to excessive inflation at the grocery store.
Second, they remove some of the risk that goes with farming. Weather, export quotas, cost of inputs — all these affect the farmer’s margin and hence his net income. It is no coincidence that the family farm is becoming a thing of the past as only large corporate farming entities have the financial resources to smooth out the good and bad years.
Which leads to the third reason for farm subsidies. Foodstuffs are strategic commodities. A nation requires a reliable and stable food supply during peacetime and even more so during war. Relying on food imports places a nation at risk of those imports being cut off. Japan, for example, allows only minimal imports of rice as it has determined that self-sufficiency in rice production is a requirement for national survival.
“Politics is the art of the possible, the attainable — the art of the next best,” as the political mastermind Otto von Bismarck claimed. If taxpayer money must be spent on agricultural support, our group just hopes it can be spent smarter.
Mark Franke, M.B.A., an adjunct scholar of the Indiana Policy Review and its book reviewer, is formerly an associate vice-chancellor at Indiana University-Purdue University Fort Wayne.
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