The national news media and environmental group Web sites have been rife with reports of multi-million-dollar government payments to “wealthy” cotton and rice farmers in recent months.
But little has been written or said about why payments should be higher for one group of farmers, primarily cotton and rice farmers in the Sun Belt, compared to those for another group, primarily corn and soybean growers in the Mid-West.
And even less has been written or said about the fact that production costs for cotton and rice farmers can be almost double those for the latter.
“One of the concerns about the current payment limitation structure regards some assumptions about who needs payments and who doesn't,” says Michael E. Salassi, professor of agricultural economics and agribusiness with the Louisiana State University AgCenter. “Some groups want to target payments to family farms,” he noted. “They say that larger farms are covering their expenses, they're making a profit, they really don't need government support.”
But the question they don't ask, he told persons attending the 2004 AgOutlook Conference in Monroe, La., is what constitutes a family farm?
“Is a 3,000-acre rice and cotton farm in the Delta a family farm or a large-scale commercial farm?” he asked. “I'll say that 99 times out of 100 it's probably a family farm. It might be supporting more than one family, but most of those farms that are hitting the payment limit and having to reorganize are family farms.
“Now there are always some extreme cases where they may not be, but, to a large extent, those are family farming operations.”
Some groups also say larger farms don't need additional payments or price supports because of economies of size. That is, their larger acreages allow them to operate more efficiently, lowering their cost per acre.
“Is the cost of production of a 500- to 600-acre rice farm or 2,000-acre cotton farm any lower per unit than a 1,000-acre cotton farm?” he said. “That may be true up to a certain point, but after that the cost of production flattens out and doesn't decline any more.”
Salassi said that was what he learned while surveying farms as a graduate student at Mississippi State University in the 1980s. He received his doctorate at MSU before becoming an agricultural economist with USDA's Economic Research Service. He returned to LSU to teach and conduct farm policy research in 1994.
“At that time (the 1980s), it was in the range of 500 to 600 acres for a rice farm, meaning that once those farms reached 500 to 600 acres, their cost per unit stopped declining and basically remained level,” he said. “So getting larger did not lower their costs.
“One of the reasons that's true is that as farms get larger, they have to invest in additional harvesting units, combines, cotton pickers, etc. Those are expensive pieces of equipment, and when you get to that point where you need another harvesting unit, you have to expand acres just to bring your fixed costs back down to where they were.”
Farm-size notwithstanding, USDA figures show that production costs for cotton and rice farms are significantly higher than those for corn and soybeans, Salassi noted.
The total per acre cost for a farm that primarily produces corn in the United States is $330 and for soybeans $266. The total cost for the “average” cotton farm is $529 per acre and the average rice farm $586 per acre.
Even though their production costs are significantly higher, the payment limit regulations in the current farm bill do not differentiate between Southern cotton and rice farmers and Mid-West corn and soybean producers.
“One of the problems we have with the single payment is that cotton and rice farmers hit that payment limit so early, which means that the acres that can be produced under one entity is much less than under other crops,” says Salassi.
Example: A soybean producer in Iowa, which has a program yield average of 35.7 bushels per acre, will hit the current law's $40,000 limit for direct payments at 2,564 acres. A rice farmer in Louisiana, which has an average program yield of 4,100 pounds per acre, will reach the $40,000 limit at 415 acres.
For the new counter-cyclical payments, an Iowa corn farmer will hit the farm bill's $65,000 limit at 1,567 acres; a Louisiana cotton farmer at 634 acres.
Salassi chose to compare farmers in Iowa and Louisiana, in part, because Iowa Sen. Charles Grassley, chairman of the Senate Finance Committee, has been one of the leading proponents of reducing the payment limits in the current law.
One amendment authored by Sen. Grassley would lower the limit for direct payments from $40,000 to $20,000 per person and for counter-cyclical payments from $65,000 to $30,000 per person. The amendment would increase the limit for marketing assistance loan gains from $75,000 to $87,500, but eliminate the use of commodity certificates.
It would also do away with the three-entity rule, which allows an individual to participate in and receive farm program payments in up to three farming entities. No farmer and his or her spouse could receive more than $275,000 in farm program payments under Sen. Grassley's proposal.
The Commission for the Application of Payment Limitations estimates that a reduction to a $20,000 limit on direct payments would cost farmers in Arkansas $76.16 million; in Louisiana, $32.49 million; and in Mississippi, $38.79 million, annually, Salassi notes.
“The short-term effects would be a reduction in farm income, particularly for rice and cotton farmers, and in their ability to cash flow and obtain financing,” he said. “There would also be shifts in crop acreage, where possible. In south Louisiana, unfortunately, we don't have too many alternatives.”
Longer term, changes in payment limits would negatively impact land values and the processing infrastructure; that is, cotton gins and warehouses and rice mills.