Bonus Subsidy

$1.5 Billion Bonus Subsidy In Emergency Spending Bill Is Unfair, Wasteful Response To Agriculture's Increased Energy Costs

April 26, 2006

Bonus Subsidy: Who Will Get The Subsidy Bonus

The 2002 Farm Bill authorized "fixed direct payments" to commodity subsidy recipients as a partial replacement for the "agricultural marketing transition assistance" (AMTA) contract payments that subsidized farmers received under the 1996 "Freedom to Farm" law. As with the "Freedom to Farm" payments, taxpayers are obligated to make fixed direct payments automatically each year, even when farm prices and incomes are high, without regard to other subsidies the beneficiary may receive, and whether the recipient is an active farmer or an absentee landowner. Citing high energy costs in 2005, the Senate Appropriations Committee's $3.9 billion package of disaster assistance to agriculture includes a 30 percent increase in all "fixed direct payments" made in the 2005. This bonus subsidy will add $1.56 billion to the $5.2 billion in fixed direct payments already made to 1,120,525 recipients in 2005.

Congress has acted before to preferentially boost subsidies to a select group of subsidized farmers by increasing payments that were meant to be "fixed." In fiscal years 1999-2001, Congress provided $21.4 billion in "market loss payments" to farmers by essentially doubling the "Freedom to Farm" payments that had been "fixed", and originally set on a declining schedule, in the 1996 Farm Bill.

EWG obtained the fixed direct payments made in "program year" 2005 through a Freedom of Information Act request to USDA. We multiplied those fixed direct payments by 30 percent to estimate the bonus subsidy in the Senate bill. Our analysis of the payments shows:

  • A total of 1,120,525 recipients will be eligible for the bonus subsidy, which will cost $1.56 billion.
  • Just ten percentof the bonus subsidy recipients will collect nearly 60 percent of the money, or about $8,277 each. Bonus subsidies would be concentrated to an even greater degree among very large commercial farms were it not not for the payment limitation that governs fixed direct payments.
  • The top 1 percent of bonus subsidy recipients will collect 15 percent of the payments, totaling $238 million, or over $21,000 each on average. Again, without the payment limit on fixed direct payments, the bonus subsidy would be even more concentrated.
  • Some 54 large crop operations (including 1 State Agency and six Indian Tribes) will receive more than $100,000, and 476 recipients will collect over $50,000.
  • The bottom 80 percent of recipients (896,420 of them) will receive a total of $330 million, or about $369 each on average.
  • USDA records indicate that at least 10 percent of the bonus subsidy will go to recipients who own land but do not farm it themselves. These landowners, including absentee owners, have not incurred increased energy costs-the farm operators who rent their land have.
  • The top five states for the bonus subsidy are Iowa, Illinois, Texas, Nebraska and Kansas, which together will receive 40 percent of the money. California, the number one state one farm state in terms of production value, will rank 12th in bonus subsidy payments, and Florida, ranked ninth for value of farm production, will rank 36th in bonus subsidy payments.
  • Corn producers will account for the biggest share of bonus subidies, with $626 million (795,673 recipients). Wheat will follow, with $338 million (673,463 recipients), and upland cotton will account for $181 million (123,690 recipients).
  • A minimum of $139 million in this bonus subsidy — 9 percent of the total — will be paid to landowners who do not farm the land, and thus did not incur the increased energy costs in 2005. Farm owners, as distinct from farmers who rent and operate their land, will likely collect a much larger share of the bonus subsidy as a result of USDA's expansive definition of "owner-operator" and "operator."
  • Millions of dollars will be paid to absentee owners who live in or near major cities.

Questions of fairness and equity. The subsidy bonus for "high energy costs" that is contained in the Senate Appropriations Committee's emergency supplemental spending bill raises important questions of fairness.

First, to the extent that the subsidy bonus is rationalized as "relief" to farmers for high energy prices, it is manifestly unfair to hundreds of thousands of American farmers who also have experienced steep increases in energy costs during the past year, but who will be ineligible for the subsidy bonus for the simple reason that they have never received the "fixed direct payment" to which the bonus is pegged. The vast majority of America's farmers raise their crops and livestock for the marketplace, not the government. Once again, Washington will reward their independence by writing yet another check--for $1.5 billion--to the subsidy-dependent. What's more, a substantial share of the bonus subsidy will go not to the farm operators who actually incurred the higher energy costs last year, but to the farm owners from whom active farmers rent land.

Second, is it fair to single out for a bonus subsidy the same farmers who have been given near-record subsidies, projected at $23 billion in 2005, while other American workers and small businesses will have to absorb high energy costs that they, like farmers, cannot pass through to customers or recoup through increased wages and salaries that they do not control? In particular, is it fair for Congress to provide this $1.5 billion bonus subsidy to defray high energy costs just months after Congress stripped from the defense appropriations bill $2 billion in funding that was provided for the Low-Income Home Energy Assistance Program in the defense appropriations bill?9

Third, is it fair for the farm lobby to claim that the 2002 Farm Bill is a sacred 6-year contract with the public that must not be broken when it comes to prospective benefit cuts, but which readily can be breached in order to increase the "fixed direct payment" to subsidized crop farmers by 30 percent? The farm lobby and many in Congress invoked the "farm bill contract" argument to defend the status quo during the budget reconciliation process in 2005. Farm subsidy programs emerged unscathed, and a proposal to limit payments to large commercial farms was rebuffed, while significant budget cuts were imposed on health care for low-income children, rural development, agricultural research, highly popular farm conservation programs, and many other federal programs.

Finally, is it fair to provide 60 percent of the direct payment bonus-an estimated $936 million-to just 10 percent of the recipients? Should this bonus subsidy be capped, if it is provided at all, to save taxpayers money? Should it be modified to allow for assistance to a broader range of farmers, ranchers, or perhaps needy rural residents who frequently face higher than average transportation costs?

Conclusion: EWG Supports Emergency Disaster Aid, Opposes Bonus Subsidy

EWG supports the provisions in the pending Senate supplemental appropriations that provide disaster aid to farmers, ranchers, and other prospective beneficiaries who will be required to demonstrate that they actually suffered hurricane or other weather-related losses to crops, livestock, trees, or farmland in 2005. The only concern with this aid is a concern EWG has raised before: namely, that a substantial share of the funds will once again go to "disaster-prone"crop growing operations and regions that have habitually received aid through ad hoc disaster legislation year after year for the past decade or longer.10

However, EWG opposes the Senate provision to provide a $1.5 billion "economic loss" payment to commodity crop producers that is characterized by its sponsors as aid to defray higher farm costs in 2005 for fuel, electricity, natural gas, fertilizer and other energy-related expenses. By its very design, this measure is an unfair and ineffective response to rising energy prices in agriculture.


9According to the Center on Budget and Policy Priorities: "The defense appropriations bill contained two provisions related to LIHEAP funding. One would have provided $2 billion in additional funding for LIHEAP this winter. The second provision would, starting in 2008, have dedicated to LIHEAP a small percentage of federal receipts from the Arctic drilling. The second LIHEAP provision was tied to the oil drilling. The first provision was not. The Congressional Leadership elected to strip out both of the LIHEAP provisions when the ANWR provision was removed from the bill, a step that was unnecessary with regard to the $2 billion in funding for this winter." See Greenstein, Robert. December 23, 2005. "Congressional Leaders Misrepresent Why Energy Assistance Funds Were Stripped in Senate." Center on Budget and Policy Priorities.>

10EWG has recommended a comprehensive review of the underlying economic and agronomic conditions that perpetually give rise to disaster assistance in these disaster-prone regions, and an assessment of policy options that could help farmers and ranchers make the transition to more sustainable agricultural production.