Freedom to Farm in Iowa

1996 Subsidy Program Leaves Most Iowa Farmers Behind

Wednesday, January 12, 2000

Freedom to Farm in Iowa

1996 Subsidy Program Leaves Most Iowa Farmers Behind

View and Download the report here: Freedom to Farm in Iowa

The first analysis of Freedom to Farm payments in Iowa shows that the program provided the vast majority of recipients with financially meaningless amounts of aid, often just a few hundred dollars per farm, just as a major economic crisis was tightening its grip on the farm belt. At the same time, a handful of Iowa's largest farming operations came away with hundreds of thousands of dollars in payments during the program's first three years.

The analysis, the first in a series of computer investigations by the Environmental Working Group, found that half of the $2 billion in Freedom to Farm subsidies that came to the state between 1996 and 1998 was collected by 12 percent of the recipients-about 14,000 individuals, partnerships, corporations and other entities (Table 1 and Table 2). The analysis did not include crop insurance, conservation or other forms of subsidy.

The EWG review found that, contrary to expectations when Freedom to Farm was enacted, overall taxpayer subsidies to Iowa farms actually increased during the first three years of the new program, compared to the $1.7 billion in subsidies provided in the final three years (1993 through 1995) of the programs that Freedom to Farm replaced. Freedom to Farm payments were generous by design in 1996 and 1997, even though farm prices remained relatively robust, because Congress committed to phasing down payments thereafter. As the farm economy deteriorated, however, Congress departed from the phase-down schedule and boosted Freedom to Farm assistance, first in 1998 and again last year.

Although Congress justified the supplemental funds on grounds of economic emergency, significant additional aid in fact went only to a relatively small number recipients--the very same ones who were already getting the most government farm money. Top recipients automatically received emergency bonuses of tens of thousands of dollars in 1998. Yet most Iowa farms got very little as the economic crisis deepened. Even with additional subsidies paid in 1998, the median annual payment to an Iowa recipient during the program's first three years was just $2,818. Government records show that 420 Iowa farmers received annual payments of less than $10 per year under Freedom to Farm, and total payments averaging eight dollars ($8) between 1996 and 1998 (Table 4 and Table 5).

Some defenders of Freedom to Farm claim it is unfair to criticize the program because it was always intended as part of a broader package of farm assistance measures that were not acted upon, including tax breaks, policies to boost exports, and relaxation of environmental regulations.

But Iowa's bigger farmers have not had to wait (Table 3). The relative few at the top of the Freedom to Farm pyramid received far more in government subsidies alone than the average Iowa family earns from all sources in a year (according to U.S. Census data, in 1998 the median household income in Iowa was $37,019). Seventeen Iowa recipients collected an average of more than $100,000 each year, and averaged $322,515 each in total subsidy payments over the first three years of Freedom to Farm. Another 35 recipients took in between $75,000 and $100,000, claiming an average of $232,952 in subsidies over the three years.

At the opposite end, thousands of Iowa farms received less than a welfare recipient-and far less than would make a difference in the finances of even a small-sized farming operation.

Freedom to Farm locked in the payment inequities that characterized the programs it replaced. Congress has compounded those inequities with supplemental assistance prorated to automatically favor larger recipients.

Freedom to Farm, like the programs that preceded it, provides subsidies to farmers without regard to their income or any measure of their financial need. Ownership of land that received subsidies in the past is the determining factor. The analysis raises the question of whether it makes sense for the government to continue to provide billions of dollars in economic assistance without any attempt to direct the aid to the Iowa farmers most in need of help.

Total Farm Subsidy Payments in Iowa, 1996-1998

From 1996 through 1998, USDA paid more than $2 billion in farm subsidies to recipients in Iowa (Table 1). Subsidies to Iowa recipients increased over the period, totaling $441 million in 1996, $646 million in 1997, and $929 million in 1998.

More than 118,000 individuals, corporations, joint ventures and other entities participated in farm programs in Iowa over the period studied. There were 106,765 participants in Iowa in 1996, 107,713 participants in 1997, and 106,017 participants in 1998.

According to USDA's Census of Agriculture, there were 90,792 farms in Iowa in 1997 - meaning that there were nearly 17,000 more farm subsidy recipients in Iowa in 1997 than there were farms.

Freedom to Farm subsidies in Iowa totaled $1.57 billion, or three-quarters of all farm subsidy payments in Iowa over the three-year period. Market Loss Assistance payments, which were authorized by Congress in 1998 to provide farmers with extra subsidies when market prices were low, totaled $266 million. Loan deficiency payments, which are made when market prices for a given commodity fall below a federally-guaranteed loan rate, totaled $160 million in 1998.

The Top of the Pyramid

Farm subsidy payments in Iowa were concentrated in the hands of a relatively small number of recipients. The top 10 percent of all farm subsidy recipients in Iowa - 11,885 individuals, corporations, joint ventures, partnerships, and other entities - received more than 44 percent of total subsidies in the state. (As noted above, half of the money went to just 12 percent of the recipients.) Seventeen (17) recipients in Iowa averaged more than $100,000 per year of participation in farm programs. A total of 1,134 Iowa recipients averaged $40,000 or more each year they participated in the programs. These subsidy payments are in addition to any receipts from selling crops or livestock on the market, income from off-farm jobs or investments, and are in addition to any conservation, disaster or loan benefits these recipients received from USDA.

Our analysis almost certainly underestimates the extent to which big farm operations capture most of the Federal farm payments. Some of the larger individual subsidy recipients may also have received subsidies indirectly, through corporations, joint ventures, partnerships or other entities in which they had a business interest. In addition, some recipients' families may have received subsidies through two or more family members (e.g., husband, wife and child). Large subsidy recipients often hire lawyers to help reorganize their farming operations into "paper farms," in order to maximize Federal farm subsidies while ostensibly complying with Federal "payment limitation" rules.

The Bottom of the Pyramid

In contrast with the subsidy recipients at the top of the income scale, there were a large number of recipients who were paid minimal amounts of money. In Iowa, 29,519 subsidy recipients (21 percent) were paid less than $1,000 per year of participation in the farm programs. Of these recipients, 4,041 received less than $100 per year of participation-enough to buy a single sack of high quality corn seed that would cover 2 to 3 acres, but not enough to plant, fertilize or harvest it.

Freedom to Farm Means Continued Subsidy Dependence

Prior to the enactment of Freedom to Farm legislation in 1996, the bulk of federal farm subsidies were paid out in the form of "deficiency payments" which paid farmers for the difference between the prevailing market price for a given commodity and a government-established "target" price for that commodity. One criticism that was leveled against deficiency payment programs was that, when commodity prices fell, federal outlays for the farm programs skyrocketed. In the view of some policy makers, the deficiency programs kept farmers dependent on agricultural subsidies, and kept farm policy in the hands of government agencies, rather than the free market. At the time that the Freedom to Farm legislation was signed into law, it was said that the new programs would reduce farmers' dependence on government payments, and help ease the transition to a more market-oriented farm economy.

By any measure, Freedom to Farm has failed to end farmers' dependence on government payments. In the 3 years prior to the enactment of Freedom to Farm, farm subsidy outlays in Iowa totaled $1.77 billion. In the first three years of Freedom to Farm, farm subsidy outlays totaled $2.02 billion - over $243 million more than the corresponding period prior to enactment of Freedom to Farm.

About EWG's Farm Subsidy Database

This report is based on original EWG analyses of more than 30 million computer records - a record of every check written to every farm subsidy recipient, from every county office of USDA's Farm Service Agency, from 1996 through 1998. These records were obtained by EWG through a series of Freedom of Information Act requests.

The farm subsidy payments from 1996 through 1999 that were analyzed in this report include "Production Flexibility Contract" payments (also known as Freedom to Farm payments), "Market Loss Assistance Payments," "Loan Deficiency Payments," and payments for a variety of smaller farm programs. The analysis does not include payments made for conservation programs, including the Conservation Reserve Program, or for disaster or emergency farm assistance programs.

Farm subsidies for the period 1993 through 1995 included deficiency payments, which are the precursors to the current Freedom to Farm and Market Loss Assistance programs, as well as other similar programs related to production of an agricultural commodity.

View and Download the report here: Freedom to Farm in Iowa

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