Editore"s Note
Tilting at Windmills

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May 2, 2008
By: Kevin Drum

AGRIBUSINESS UPDATE....I haven't vetted these numbers from Stephen Spruiell at The Corner, but they sound about right to me:

Ninety-two percent of farm-dwellers derive either all or most of their income from sources other than farming or subsidies....The other 8 percent — commercial farmers who derive most of their income from farming and subsidies — earned an average of $200,000 last year — an increase of 22 percent from 2006. This year, income for this group is projected to hit $230,000 — another 9.3-percent increase. The USDA, which calculated these estimates, reported last year that the windfall for commercial farmers is due in large part to "demand from the rapid expansion of ethanol production."

....Right now, Congress is attempting to renew farm subsidies for five more years, even though the vast majority of the payments go to farmers who are making six figures a year. The chief obstacle is President Bush, who has threatened to veto the bill in its current form. Bush, who signed the massive 2002 farm bill, has set an unbelievably low bar for Congress to clear, calling only for modest spending restraint in the wake of record farm incomes. Yet Congress cannot even bring itself to cap payments to millionaires, among other simple reforms.

Hell, I'm willing to be bipartisan once in a while. This is one of those once in a whiles. Maybe next week, after the Indiana primary is over, we can all sign up for this.

Kevin Drum 2:24 PM Permalink | Trackbacks | Comments (30)

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Comments

What part would you be bipartison for, the decrease in ethanol subsidies?

Posted by: Matt on May 2, 2008 at 2:32 PM | PERMALINK

For corn farmers, it's a big triple-dip.

First, high-fructose corn syrup has a price floor being set by the embargo on Cuban sugar.

Second, there's the 51 (soon to be 45) cent per gallon ethanol subsidy.

Third, there's the farm bill price supports for the same rich farmers.

Posted by: SocraticGadfly on May 2, 2008 at 2:34 PM | PERMALINK

Kevin, you should know better than to use the average, rather than a median, in a story like this. If you have five farmers, one of whom makes $1 million and four of whom make zero profit, the average profit is $200K.

I suspect that my contrived example isn't that far off from reality: there are many farmers who are barely making it.

Posted by: Joe Buck on May 2, 2008 at 2:48 PM | PERMALINK

In advance of Kevin having his catblogging post up yet, it’s time for Friday SCATblogging with some pricey dinoscat.

Posted by: SocraticGadfly on May 2, 2008 at 2:51 PM | PERMALINK

SocGad:
$960 for dino poo? Shit, I've got a couple of those on my living room shelves. I'm rich wahoo!

What do you think Kevin would get for some petrified Inkblotosaurus pebbles?

Posted by: optical weenie on May 2, 2008 at 2:55 PM | PERMALINK

Optical Weenie.... hmm, I could do Cat-Scat-blogging next Friday!

Posted by: SocraticGadfly on May 2, 2008 at 3:06 PM | PERMALINK

>"Kevin, you should know better than to use the average, rather than a median"

Joe is correct... distribution is everything.

Still, I don't doubt for a moment that the farm subsidy system is broken to the point where it's basically a pork-barrel distribtion of money for political purposes.

The big dilemma is the only way to fix a 'structurally corrupt' system is to tear it down and start over.

That usually requires angry people in the streets... and the American people aren't angry enough yet.

Posted by: Buford on May 2, 2008 at 3:52 PM | PERMALINK

the median appears to be six figures as well...at least in MN.

http://wcco.com/local/farm.income.minnesota.2.685932.html

Posted by: Nathan on May 2, 2008 at 3:57 PM | PERMALINK

Farmers are like actors. Most are barely getting by on some other income. A few are gazillionaires living on the coasts.

Posted by: Tripp on May 2, 2008 at 4:00 PM | PERMALINK

How is an increase from $200,000 to $230,000 a 9.3% increase? That should be a 15% increase, should it not?

Posted by: Ian on May 2, 2008 at 4:08 PM | PERMALINK

Kevin

You need to look closer at the dispersion.

There are small number of corporate farmers making huge money.

But 200k a year for the amount of capital and 'sweat' equity involved is not actually a huge return. I would bet most of those farmers have at least $2m tied up in land, buildings and equipment-- maybe more.

In any case, even amongst those wealthy full time farmers, there will be huge dispersion.

The spread of subsidy recipients will be huge, too. It is cotton, and sugar, that are particularly egregiously favoured by US farm policies (also rice by irrigation policies: water in the west is given to US farmers for a fraction of the price municipalities and industry would pay for it).

2 Cuban American families in Florida are the main beneficiaries of a domestic sugar price which is, for example, 4 times the Canadian one, due to trade barriers.

US wheat is actually a world competitive industry, ditto soybeans and maize (corn). High farm incomes there is simply a sign of the success of the American farmer.

US cattle and pig and chicken farmers are effectively the serfs of the Big 3 meat packing companies, which completely control their markets. Read Eric Schlosser in Fast Food Nation on this.

The average, and even the median, don't tell the story.

Posted by: Valuethinker on May 2, 2008 at 4:49 PM | PERMALINK

Somehow I am not bothered by ag subsidies the way I am about defense/weapons subsidies.

I challenge the readers of this thread to wrap their brains around the vast giveaways and incentives that the military industrial establishment enjoys.

In other words.... butter is better.

We fool ourselves in thinking that we can ignore the
real reason our economy is going down the tubes.

It ain't because of ethanol, it's the war stupid, and the military.

Lay off the farmers.

Posted by: Tom Nicholson on May 2, 2008 at 4:53 PM | PERMALINK

Valuethinker, you are saying that someone who has a lot of really valuable real estate is even more entitled to government subsidy than someone who just earns it by working? Whatever, dude.

And for those who want to use median income, I basically agree. Let's cut off subsidies only for the farmers with incomes over $200,000. Does anyone think that either the farm lobby or either of the Democratic candidates will sign on for that? Bwa-ha-ha. (McCain is a little better, though he's not going to get out in front during the campaign season.)

Posted by: y81 on May 2, 2008 at 4:55 PM | PERMALINK

"McCain is a little better, though he's not going to get out in front during the campaign season."

He just said he'd veto the current Farm Bill. And he said it in Iowa, of all places. That takes some guts, although Obama probably will win Iowa anyway, so maybe not. But I still think it represents an unusual break from his typical pandering and horrible ideas. Score one for McCain. Now he's only down 54,797 to 1.

Posted by: fostert on May 2, 2008 at 5:34 PM | PERMALINK

I just returned from buying eggs at my neighbors. The idea that these farmers are living in luxury is absurd. From other business and personal relationships here in rural Norther New England, I can say with complete confidence that very few receive six figure incomes. Through extended family and annual expeditions, I have a pretty clear understanding of the basic economics of farming in the upper Mid-West (Minnesota and the Dakotas). Again, most barely squeak by, living in old houses or trailers, driving old trucks, and working 80 hour weeks for less than starting wages at WalMart. Making the system work for these people would be a very good thing. That having been said, it is also true that the vast majority of the farm subsidies distributed in my county go to the one farmer I know to be relatively wealthy and well connected.

Posted by: Eric on May 2, 2008 at 5:39 PM | PERMALINK

Joe:

Kevin ONLY used the median for the 8 percent of farmers who primarily get their money from farming.

Valuethinker, I know what a combine can cost; nonetheless, that's amortized over many years.

As for land? Farmers who are primarily paid by their farming usually own a fair chunk of their land; all they're having to do is pay property taxes. True, they may lease a fair amount from people giving up on farming, but if you think rural America's per-acre lease fees for farmland are that high... can I sell you some swampland as farmland somewhere?

Y81 is right... and not the farmers as much as Cargill and ADM, will be fighting that.

Posted by: SocraticGadfly on May 2, 2008 at 5:44 PM | PERMALINK

Eric, you have to distinguish farmers. Nobody here said ALL farmers are "living in luxury" or even close.

Valuethinker, per your comments about net income, the Minnesota story linked by Nathan covers exactly that:

Farms reporting for the survey had a median net farm income of more than $105,000 in 2007.

I don't know what all they were allowed to "net out," but I'm sure that amortized depreciation on machinery, installment payments on machinery, price for renting non-owned land, and probably property taxes on owned land were all netted out. Perhaps fuel costs, and fertilizer/herbicide/pesticide costs may have been netted out, too.

And, while $105,000 might be chicken feed to Kevin in pricey Irvine, in Minnesota, you can live pretty high on the hog for that amount, I'm sure. (Both puns highly intentional.)

Posted by: SocraticGadfly on May 2, 2008 at 5:50 PM | PERMALINK

Median schmedia. The commodities subsidies program is broken and should be fixed. When a corn-state Senator like Harkin thinks its hogwash, it must be pretty bad.

Iowa caucuses are a problem. Newly elected Democratic Congressfolk from the Farm Belt are a problem. Business as usual is a problem. Overplanting of commodity crops is a problem. (Cotton? in the dry Central Valley of California? WTF? Ditto rice in the Central Valley. But I can understand it as there is no subsidy and darned little help for vegetable growers here.)

It's politics and "I've got mine" to the nth.

Thus no limit on the subsidies, as would be the case if this were really to keep "family farmers" on the land.

Posted by: CalGal on May 2, 2008 at 6:08 PM | PERMALINK

Can't even cap payments to millionaires ... Pitiful, but are those income states based on true net income, after the considerable expenses (and not so straightforward to calculate anyway, no?) most farmers have?

Posted by: NB on May 2, 2008 at 6:20 PM | PERMALINK

What is the verdict. Are we cutting out the biofuel supports?

Posted by: Matt on May 2, 2008 at 8:27 PM | PERMALINK

Since farmers are always running to the government for emergency relief when it rains too much or its too hot or they stub their toe, why not ask them to pay a windfall profits tax this year on their ethanol bonanza?

Posted by: loki the mischief maker on May 2, 2008 at 9:13 PM | PERMALINK

"Ninety-two percent of farm-dwellers derive either all or most of their income from sources other than farming or subsidies."

A lot of them are making money by manufacturing and selling meth. Easy access to anhydrous ammonia.

Posted by: Pocket Rocket on May 3, 2008 at 1:27 AM | PERMALINK

Maybe I'm a clueless eco-noob, but "income" isn't the same thing as "profit" where I'm from.

If the average farmer has a PROFIT of $230,000 per year (ignoring the fatal flaw of median averages pointed out above), that's one thing. But it takes a HELL of a lot of money to run a farm. An INCOME of $230,000 isn't even going to pay back the feed and equipment costs, nevermind profit.

So while you're clarifying the median-average thing, you might want to choose better language to make clear that you're talking about profit (after expenses) rather than just income.

Posted by: Charles Martin on May 3, 2008 at 3:49 AM | PERMALINK

y81

The point is farming is a business, full time. It's not a salaried job. Given the volatility, the returns on capital in farming are just not impressive.

Farmers may be asset rich, but for the money at stake, they are not coining it. If a similar amount of money (with leverage) were invested in commercial real estate, say, it would produce a far higher return with much lower risk.

Note how you finance equipment (land etc.) in this calculation is irrelevant: a cost is a cost, whether you expense it this year or amortise it over 20 years.

Socratic Gadfly

The question as to what defines net income is interesting. I don't know what definition they are using.

I know enough farmers and enough about farming to know that they are not coining it, for the hours they put in and the amount of capital they have at risk. It's a risky (high industrial accident rate) hard grinding job.

The point about US farm subsidies is that they are accruing to a relatively small number of mega farms and mega farmers: effectively corporate entities-- without checking the data, I would bet these get at least 60% of the subsidies, if not 80%. We've come full circle back to the 18th century super landowners of the US deep South and England. Or the Kohlkolz and Sovkholz (sp?) of Soviet Russia

It isn't the $200k, which in no way is comparable to $200k in a corporate job (a corporate job doesn't require you to invest $4m of capital). It's the right tail of the dispersion.

If you look at the historic volatility of farm income, it's also no picnic.

Posted by: Valuethinker on May 3, 2008 at 3:50 AM | PERMALINK

Back in the days of Iran/Contra I remember some on the pro-contra side tried to argue that Reagan was just being flexible with legal interpretation in the same manner as Democrats. One of the talking points to support this argument was a law on the books, dating from the 1880's, requiring water rights [possibly other subsidies too] from federal projects be limited to farms of 180 acres or less, yet Democrats have forced the Dept of Agriculture to eviserate this statute whenever someone brings up an enforcement proposal. Perhaps Kevin and his confreres at The Corner could review this legend.

Posted by: loki on May 3, 2008 at 8:08 AM | PERMALINK

I am in the ag business... farmers are making good money right now, using averages is flawed, expenses for farmers are high, ethanol has caused the price of all crops to go up....

small farmers probably do not make all their money from farming. The deceptive part of this is that the majority of farm production now comes from the consolidated large farms(to call them "corporate" is generally not accurate, many of them are family held farms with 2 or 3 brothers and their families farming 10,000 acres or more, the turnover is corporate, but the structure is not akin to a Fortune 500 company), economies of scale rule in the farming business as well. So while the larger farmers make more money, the fact is they produce the majority of the crops. They also have higher expenses. Nonetheless they have made alot in the past 2 years. (of course as some of my friend who are farmers admit, they dont make much on the AGI on their 1040 due to all the farmer friendly tax benefits, which goes along with all the subsidies and of course as noted the 0.54 per gallon duty on imported ethanol)

Personally I hate to admit it, but I am with the boyking on this farm bill, it is a travesty of pandering, once again skewed as usual in America, to short term thinking, just like everything from Wall Street earnings plans to our foreign and energy policy.

Serious money needs to be put into developing non grain/oilseed based biofuels, into wind and solar energy development. But in an election year, it is unlikely you will see that as farm and coal/oil producing state senators load up the sweet gifts to get re-elected.

Posted by: leftymn on May 3, 2008 at 8:37 AM | PERMALINK

Just remember that the whole payment limits is just a canard. The 2002 farm bill was written by the Bush USDA and approved by the Republican House and Senate and it limited payments to incomes of under 2 million.....now the Dem version is at what 1 million and the Bushies are screaming oh the horror....Dems are giving payments to millionaires.....these things take time to work through....I also think it should be pointed out that 2/3 of the money in the farm bill goes to nutritional programs.
Also the bit about rich farmers is just crap...this entire country has benefited from the farm programs encouraging over production in the past that has kept food prices in the store artificially low....and b/c of that farmers never netted much even with gov't programs.....now farmers have 1-2 good years out of 10 and folks scream bloody murder...

Posted by: Duane on May 4, 2008 at 10:57 AM | PERMALINK

We own a small farm in southeast missouri, and I promise you,we are not living in the lap of luxury. We recieve a grand total of about $12,000 a year and that amount is quickly eaten up with payments for land, equipment, fertilizer, crop insurance, fuel, storage, trucking, etc.

Posted by: kim p on May 4, 2008 at 6:22 PM | PERMALINK

Most of my ancestors were farmers, so I learned a long time ago that successful farming requires good business sense, an economic support system to average out the bad and good years (which includes bankers and the government), a passion for the land, and a lot of luck.

Let's put a few things in perspective. Total USDA commodity support was $14 Billion last year. That's for everything, cotton, rice, tobacco, corn, etc. What's that - less than a month of Iraq? A week's worth of the DoD.

Recent story in the Minneapolis Star Tribune says that while corn ethanol is consuming 24% of our production (3.1 billion bushels), production has gone up 2.5 billion bushels in the last 20 years. Therefore the amount of corn available for food has only gone down by 6% - and that's only US corn. The US produces less than half the world's corn, so that's a 3% worldwide reduction due to ethanol.

Another analysis by Iowa State says corn ethanol is supressing gasoline prices by $.29 to $.40. Other analyses estimate that biofuels are responsible for only 4%-20% of food price increases. Oil prices are much more responsible for food price increases than biofuels.

So - yes we need to take the crap out of the next farm bill, but biofuels are not evil, and neither are farmers.

Posted by: LiberalPercy on May 4, 2008 at 8:31 PM | PERMALINK

LiberalPercy,

Biofuels may not be evil, but burning food in our gas guzzlers while people are starving is a sin.

Are you saying the amount of US corn available for food is 6% down compared to twenty years ago? Why is that a fair comparison? Why not compare it to 100 years ago and say that is is up?

Ethanol is consuming 24% of our corn crop and it is incredibly water intensive to produce. We are burning our food and depleting our fresh water supplies so Joe Sixpack can drive an Extinction FUV. Meanwhile people are starving while Joe looks the other way.

Posted by: Tripp on May 5, 2008 at 3:01 PM | PERMALINK
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