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Feature Story

Do farm subsidies work?

3/3/2021

Since 1995, the top 1 percent of American farm subsidy recipients have received 26 percent of subsidy payments, and the top 10 percent have been handed 78 percent of the total. The top 1 percent of wealth earners in the country got 26 percent of those. Fifty members of the Forbes 400 wealthiest Americans garnered some form of farm subsidy. Does this mean that farm subsidies are unfair? Or are they necessary to make food affordable to everyone?

Government subsidies to ag have taken myriad forms over history. Armies were the first and greatest of these. The Roman Empire’s famous grandeur was sustained by the feeding grounds of Egypt and Asia Minor. Slavery, enforced by military might, became the greatest ag subsidy of history.

The most dramatic example of government managing agriculture by the sword is Afghanistan over the last 40 years. The Taliban made the growing of poppies punishable by death, and heroin became very expensive all over the world. At the same time, synthetic opiates hit their designer stage with new and far more powerful drugs becoming popular on both the pharmaceutical and black markets. That made poppies far less valuable and punished the farmers of Afghanistan, where considerably more than half the world’s heroin, opium and morphine originate.

Into that needle eye came Al Qaida, originally with U.S. support. Once the Taliban was vanquished from power, the streets of Amsterdam,
New York and Des Moines were flooded with cheap heroin, and the poppy farmer was flush again.

The most tragic example of how government can mess up the world by playing favorites in agriculture came from the early Soviet Union. A genetic genius named Nikolai Vavilov was the head of the USSR Academy of Agricultural Science in the 1930s. Vavilov traveled the world collecting the first seed bank. He based his genetic studies on wheat, corn and other grains that comprised the base of the world’s fight against hunger. He bred new hybrids that suited different climates. He increased the production of wheat harvests.

Prep Iowa

Then a jealous young protegee named Tofim Lysenko began speaking out against Vavilov and Mendelian genetics in general. That pleased Soviet dictator Joe Stalin, who resented the respect that scientists had with the public. Vavilov and all his followers were arrested or executed, and Lysenko was made the head of Soviet Agriculture. Basically, this took European plant science back to where it was at the time of the Irish potato famine, and where Native American plant science in Peru was a half millennium earlier. It led to lots of Stalin jokes on the lines of “Most people believe in either science or religion or both. Stalin despised them all and executed believers in either.” That is probably why the end of Stalin was celebrated in Russia like no other event.

Vavilov’s name is mostly forgotten today but Lysenko’s lives on, in an ironic way. Farm subsidies are often based on irony as much as on applied science. Unintended consequences reveal that, but rarely is much done about it.

Farm subsidies, from the payments of cash to grow certain things or to not farm anything, to tax breaks and tariffs, are supposed to make food cheap and safe for everyone including the unborn. That is why farmers can get reimbursed for fuel taxes in Iowa and why farms can deduct fertilizers and chemicals but golf courses cannot.

Do farm subsidies work?

Leopold Center Director Mark
Rasmussen, a cattleman, says every time politicians talk about cutting ag costs, conservation is the first thing to go.

Farm subsidies, from the payments of cash to grow certain things or to not farm anything, to tax breaks and tariffs, are supposed to make food cheap and safe for everyone including the unborn. That is why farmers can get reimbursed for fuel taxes in Iowa and why farms can deduct fertilizers and chemicals but golf courses cannot. That is also how they have been sold since Richard Nixon made cheaper meat a priority during an inflation spiral in the 1970s. He dispatched Agriculture Secretary Earl Butz on a mission to make food more affordable, for humans and livestock.

Butz delivered like the good boilermaker he was. He came up with huge subsidies for corn and other grains that flooded the sweetener market with high fructose corn syrup, which virtually replaced cane and beet sugar in many American foods. Its popularity coincided with a big spike in diabetes and obesity, particularly among children. Medical scientists think that is far more than coincidence, as high fructose corn syrup does not inspire satiety as cane sugar does; hence people can drink far more colas without feeling full. Interestingly, George W.
Bush would end his tenure in office with a deal with Mexico to open their market to tariff free high fructose corn syrup while the U.S. allowed Mexican cane sugar to be tariff free. That’s why so many “real sugar” soft drinks are on supermarket shelves again, and perhaps why Mexico’s rate of child obesity is growing faster than the U.S.

Subsidies, mainly corn, made feed cheap for livestock. It is believed that was the end of Iowa as the nation’s leading cattle and beef state, which it had been for many decades. Cheap corn meant that cattle were more profitable to raise out west where land is much cheaper because it is unsuitable for corn farming. Texas, Kansas, Nebraska, Oklahoma and California all raise more cattle now than Iowa.

Leopold Center Director Mark Rasmussen, a cattleman, has observed this.

“Cheaper corn meant you could take corn to the cattle rather than raise cattle where corn was grown,” he says. “That avoids the muck of March. Subsidizing cheaper corn also led to more row cropping and drainage tiles, which were not good for conservation. Every time politicians talk about cutting ag costs, conservation is the first thing to go.”

Rasmussen praises the technological advances since the first Farm Bill.

“Iowa State has a collection of corn ears that were the biggest of their harvest,” he says. “The ears are now far smaller but corn harvests are far greater. The new 100 bushels an acre is 200 bushels.”

Into this quagmire of government interference came ethanol subsidies, the pitch for which was that it was a renewable fuel. Maybe, if you ignore the fact that farmers are prohibited from replanting genetically modified organism (GMO) seeds and most U.S. grain is now GMO. That created an irony as fascinating as the ouroboros, the ancient symbol of a snake swallowing itself from the tail up. Before Henry Ford changed the world, grains like corn were used to power livestock. Once horsepower moved from a real thing to a metaphoric thing, grain was for raising things to eat, not to fuel plows and carriages. Ethanol became the new head of the self-destructive snake, and corn is diverted to power tractors.

One main argument for farm subsidies is that agriculture is a worldwide game, and, to compete, you must do what others do. In order, the top nations for granting farm subsidies are China, Japan, South Korea, Indonesia, and the EU. They all paid farmers more than the world average of 12 percent of all farm income. The U.S. and Mexico were actually under the average, by quite a bit.

Since Jawaharlal Nehru’s time as Prime Minister, India exempts all farm income from taxation. The intention was to help out farmers, most of whom had been poor since the Vedas were written. The reality has been that rich people bought farmland for the tax break and poor farmers had to move to urban slums for the hope of work.

“Cheaper corn meant you could take corn to the cattle rather than raise cattle where corn was grown. That avoids the muck of March. Subsidizing cheaper corn also led to more row cropping and drainage tiles, which were not good for conservation.”
— Leopold Center Director Mark Rasmussen

Paying not to farm

Drake’s Agricultural Law Center Director Jennifer Zwagerman says international pressures changed the way government pays farm subsidies.

Nothing makes non-farmer taxpayers want to torch the USDA more than government paying farmers to not farm. How did that come to pass? Like many far reaching dreams of big government, it was originally a well-intentioned part of the New Deal. The Agriculture Adjustment Act was designed in Great Depression days to boost agricultural prices by reducing surpluses. The government paid farmers not to plant on part of their land. The money for these subsidies was generated through an exclusive tax on companies which processed farm products.

That has metastasized. In 2010, 34 million acres (an area the size of New York state) of former American farmland were producing brome grass, pheasants and ducks. That’s intended to protect soil, streams and wildlife habitat on farms, and it accounts for close to 10 percent of all farm subsidies. Its cost is $2 billion a year. This a new way of Congress selling subsidies. It’s “for the environment” now, supposedly reducing run offs of nitrogen and use of toxins to kill weeds and pests.

It’s too sweet a deal for most farmers to pass. They offer to enroll their land in the Conservation Reserve Program (CRP) of the U.S. Department of Agriculture. It must be land where crops previously grew. If the USDA accepts the offer, the farmer gets paid a fee, roughly equivalent to the rental value of the land, to stop growing crops on it. The USDA gives priority to land where halting cultivation offers environmental benefits: less erosion of soil, runoff into streams, or valuable habitat for wildlife.

In some areas, CRP land has delivered real benefits. U.S. Fish and Wildlife Service says CRP land has been the key to a dramatic recovery in duck populations in the Dakotas, for instance. It’s given some credit for keeping the Dust Bowl conditions from returning to the Great Plains, despite droughts that were as bad as in the 1930s.

Still the CRP is resented by businesses that sell farm products because it reduces demand for fertilizer, pesticides, tractors and fuel. Farmers feel disenfranchised being paid to not practice their profession. If they weren’t farmers, they would be too proud to accept welfare. And environment advocates think policy should focus on particular rivers or wildlife habitats, like the Turkey, Skunk, Des Moines and Iowa in Iowa, which pollute the Mississippi and Gulf of Mexico. Farmers though often have other things in mind. Some reports ponder whether farmers use the program to get rid of problems like land that is not profitable for various reasons.

Nothing makes non-farmer taxpayers want to torch the USDA more than government paying farmers to not farm. How did that come to pass?

A rising tide?

Subsidies, mainly corn, made feed cheap for livestock. It is believed that was the end of Iowa as the nation’s leading cattle and beef state, which it had been for many decades. Cheap corn meant that cattle were more profitable to raise out west where land is much cheaper because it is unsuitable for corn farming. Texas, Kansas, Nebraska, Oklahoma and California all raise more cattle now than Iowa.

Originally the farm subsidies of the Nixon era were justified as a rising tide that raises all ships, or win-win. Farm subsidies would reward non-farmer taxpayers with cheaper food prices. Cheaper corn made beef, pork and soft drinks much cheaper. So, in that sense, the subsidies worked. But they were paid on a system of acres planted in certain crops — mainly corn and soy beans.

By the Clinton years, a considerable lobby for more sustainable, conservative farming practices had the juice to get the system changed. In the 1990s, the formula for payments was changed to pay subsidies for base acres of previously planted corn and beans no matter what was planted on them. This allowed cover crops to be planted and for a break from the rotational practice of two years of corn and one year of beans. Rye and brome grass became things again in Iowa. So did many alternative crops that benefitted soil erosion and created new markets.

Drake’s Agricultural Law Center Director Jennifer Zwagerman says international pressures changed the way government pays farm subsidies.

“Brazil particularly challenged the cotton subsidies,” she says. “Now, a lot of subsidies are in the form of crop insurance rather than direct payments. Things are definitely getting better for sustainability and conservation. Those things give farm legislation wider support. The Food Safety Modernization Act of 2009 was quite proactive. The Farm Bills need to be less reactive.”

The belly of the ouroboros

The ouroboros is the ancient symbol of a snake swallowing itself from the tail up. Before Henry Ford changed the world, grains like corn were used to power livestock. Once horsepower moved from a real thing to a metaphoric thing, grain was for raising things to eat, not to fuel plows and carriages. Ethanol became the new head of the self-destructive snake, and corn is diverted to power tractors.

One thing that both haters and lovers agree upon is that the whole system of subsidies is ridiculously complicated and keeps becoming more so. For instance, subsidies that are paid to farmers are considered earned income that is fully taxable. That just creates far more paper work and benefits no one except the bureaucracy.
Confusion over what deductions a farmer can take is also rife. While researching this story, mostly reading myriad IRS and Iowa Tax Bureau publications, I discovered that farmers can deduct any necessary or ordinary expenses paid to carry on their business — like most all businesses. Another publication said that lawnmowers could only be deducted if they had the ability to turn.

Does that disqualify push mowers? There is no clear answer.

In agriculture, these ordinary and necessary expenses include car and truck expenses, fertilizer, seed, rent, insurance, fuel, and other costs of operating a farm.

Most all business owners are allowed to deduct their business expenses from their taxable income. All the costs of operating your for-profit farm are deductible on your income tax return. The IRS stipulates that you can typically claim three consecutive years of farm losses. In some situations, however, four consecutive years of claims may be possible. To claim expenses from hobby farming as a tax deduction,
you need to demonstrate that you turned a profit from your farming activities or were trying to.

You can begin the depreciation and farm tax write offs at the time an animal goes into service. With calves, you must wait until they are old enough to breed. Under the typical depreciation method, you can depreciate an animal for five years within your cattle business.

In order to get the tax breaks, you need to prove to the IRS that your farm is an actual business — not a hobby farm. A hobby farm is a “farm” — typically a few horses, other livestock or crops — used for leisure and enjoyment.

Farmers can deduct car repairs in the year in which they are made. Routine car maintenance is also currently deductible. For example, changing the oil, replacing air filters, installing new windshield wipers. One doesn’t have to be a fulltime farmer to take advantage of agricultural tax breaks that will help with property taxes. In some cases, all you need is a piece of land that’s not currently being used.
You can say that the land is preserved wilderness or put it to some kind of agricultural use to save on property taxes.

Some states base eligibility on the size of the property, while others set a minimum dollar amount for agricultural sales of goods produced on the property. Many use a combination of gross sales and acreage requirements. Grazing a single cow on your property can be enough to trigger tax breaks in some places.

If you qualify, an agricultural tax exemption could knock thousands off your property tax bill. Depending on your state’s rules, one way to execute this tax strategy is to offer use of your land to a local farmer. For example, you could allow a nearby farmer to harvest hay on acres you’re not using or rent your land to a farmer. You don’t necessarily have to do the work yourself to claim the exemption for your property. You may, however, have to renew your application for a farm assessment each year, depending on your local tax assessor’s rules and on state requirements.

“Brazil particularly challenged the cotton subsidies. Now, a lot of subsidies are in the form of crop insurance rather than direct payments. Things are definitely getting better for sustainability and conservation. Those things give farm legislation wider support. The Food Safety Modernization Act of 2009 was quite proactive. The Farm Bills need to be less reactive.”
— Drake’s Agricultural Law Center Director Jennifer Zwagerman

New this year

Coronavirus Food Assistance Program (CFAP) provides direct payments to producers of eligible agricultural commodities adversely affected by the coronavirus pandemic to help offset sales losses and increased marketing costs associated with the COVID-19 pandemic. CFAP payments are agricultural program payments that you must include in gross income. Report the full amount of your CFAP payments on
Schedule F. ♦

One Comment

  1. Tim Urban says:

    Very informative. In spite of positive impact of CRP we still have polluted waters.
    Why can’t CRP be targeted to particular drainage sheds?

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