Pursuing Parity for Small and Mid-Sized Farmers by Amending Farm Bill Subsidy Distribution

The situation of small and mid-sized farmers is really interesting, so I was happy to delve into how the Farm Bill affects them, this past summer during my Food Policy and Law class. The group National Young Farmers Coalition has recently launched the strategy “Farming is public service.” I’m not sure this is a winning tack, but I’m also not sure what is. Farming is a business—maybe a nonprofit in some cases, but still a business. Capitalism is the true issue, but solving that is beyond the reach of the Farm Bill. Read on to learn a bit about the profit conundrum in America’s farmland.

The Agricultural Act of 2014 (Farm Bill) is the latest in a colorful history of the nation’s attempts to meet the needs of its agriculture industry. The Farm Bill addresses the following areas: Commodities, Conservation, Trade, Nutrition, Credit, and Rural Development. Title I, Commodities, has been criticized for increasingly distributing its direct payouts (now defunct) and insurance-premium subsidies unfairly, with the top producers in the United States netting the majority of the funds (The Economist, 2014). This paper explores the possibility of creating parity and enhancing diversity within agriculture by inverting the existing subsidy formula to benefit the country’s smallest farms first.

Due to 20th-century federal and state agriculture policies that favored larger and larger operations while ignoring their environmental and social-justice casualties, American farmers have been called to “get big or get out” (Philpott, 2013). The result: “Although most cropland was operated by farms with less than 600 crop acres in the early 1980s, today most cropland is on farms with at least 1,100 acres, and many farms are five and ten times that size” (MacDonald et al., 2013).

While young rural people tend to leave the farm after graduating high school, many young urban people (two or more generations removed from their closest agrarian ancestor) are “re-discovering” farming and launching small operations. The growing awareness of food systems issues and popularity of alternative food institutions such as community-supported agriculture, farmers markets, and community gardens has made possible micro-operations that sell specialty crops directly to upscale restaurants and to the public. In fact, the number of small farms in the United States has grown significantly—by nearly 300,000 since 2002 (Pullman and Wu, p. 8). This may help to rectify the “aging-out” of farmers with which the United States is currently struggling.

However, most of these farms are not sustainably profitable. Newcomers struggle with inflated land prices, equipment purchases that may never fully amortize, college loan payments, and paper-thin profit margins—in addition to implementing a skill set they “book-learned,” instead of having grown up with, and negotiating a complicated marketplace. The USDA estimates that a farm needs to generate $100,000 of annual sales to be solvent; 83 percent of small-acreage farms (10 or fewer acres) make $10,000 or less (Newton, 2014).

In a 2009 study of non-corporate organic farms in California, farmers are shown to address marketing challenges with strategies involving “values-based” purchasing decisions. “Successful small and mid-sized organic farms … are emphasizing the values that make their farms unique and are competing on these values, rather than low prices, where they cannot compete” (Cantor and Strochlic).

Why can they not compete on price? Pullman and Wu hint at the root cause of this problem: “While midsized farms are often too big to benefit from direct sales models … they are also too small to build partnerships with larger supply chain partners. Thus, declines in this sector are not expected to change without policy interventions” (emphasis mine, 2013, p. 9).

So, which policy? While figures are not yet available for the 2014 Farm Bill regarding the disbursement of insurance-premium subsidies, estimates are that they will benefit the top tier of U.S. agribusiness firms in approximately the same manner that previous, late 20th-century Farm Bills have (Dayden, 2014). As of the 2008 Farm Bill, approximately 62 percent of U.S. farmers received no federal subsidies while 10 percent collected 74 percent of all the subsidy funds (Pullman and Wu, 2013). The top four recipients of subsidies in 2012 each received more than $700,000 (Environmental Working Group, n.d.).

This is in addition to crop-insurance subsidies. Federal subsidies for crop-loss insurance have increased, and the profit-loss insurance program is controlled by price “floors” (United States Congress, 2014, p.12) that are written into the legislation (Dayden, 2014). “Overall, of the $40 billion in projected savings over ten years from ending direct payments, $27 billion go … back into these insurance programs” (Dayden, 2014).

Amendment of Existing Provision

One might consider these beginning farmers on small operations engaged in on-the-job training. An apprenticeship, if you will. In order to encourage them to continue, so they can gain experience and knowledge in order to increase the capacity, and thereby the profitability, of their operations, they need to be supported financially. Federally funded insurance-premium support can protect their investments, encourage them to innovate, and aid them in receiving loans (Shields, 2012, p. 2).

There is indirect precedent for this idea: A proposal to the 2014 Farm Bill to reduce subsidies for producers with incomes of more than $750,000 (the limit is currently $900,000) was stripped out of the final version (Casteel, 2014). A number of legislative proposals have been introduced to address the need for insurance of specialty crops, which are grown on most small farms, such as the Local Farms, Food, and Jobs Act of 2011 (H.R. 3286/S. 1773); the Rural Economic Farm and Ranch Sustainability and Hunger (REFRESH) Act of 2011 (S. 1658 and H.R. 3111); and the Specialty Crop Insurance Act of 2011 (Shields, 2012).

The Farm Bill includes a 10-percent insurance-premium discount for “beginning farmers” in their first five years of farming (NSAC, 2014), but this is insufficient. An across-the-board full insurance-premium subsidy might also make up some of the loss from a 33-percent budget cut to socially disadvantaged producers (ibid.).

The proposed change to re-engineer insurance-premium subsidies would be addressed in Title I, Part II, Subsection F, Section 1605 (d), “Conforming Amendments,” which is a series of edits to the Food Security Act of 1985, Section 1001D(b). It’s beyond the scope of this paper to create an exact formula to achieve this goal within the existing budget; an actuary (or, most likely, a team of them) would need to be consulted. That said, the amendment would feature an inverse proportion.

Proposed language (in English, not Legalese): “All producers with gross income receipts of less than $100,000 shall have their crop-insurance premiums subsidized at 100 percent. Producers with income between $100,000 and $249,999 shall have their crop-insurance premiums subsidized at 90 percent. Producers with income between $250,000 and $499,999 shall have their crop-insurance premiums subsidized at 80 percent. Producers with income between $500,000 and $749,999 shall have their crop-insurance premiums subsidized at 70 percent. Producers with income between $750,000 and $999,999 shall have their crop-insurance premiums subsidized at 60 percent. Producers with income at or exceeding $1,000,000 shall have their crop-insurance premiums subsidized at 50 percent.”

The total amount allocated in the budget for insurance-premium subsidies could remain the same, or it could be reduced to accommodate the likely increase in administrative cost, as the number of policies issued would increase. Increasing the number of policies might be the impetus for new insurance companies that specialize in small and mid-sized farms. This proposed amendment to the Farm Bill would move the country toward a goal of creating parity and enhancing diversity within agriculture by inverting the existing subsidy formulas to benefit the country’s smallest farms first.

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