Farm Policy: Framing the Issue

Even though the corn farm imposes costs and problems on everyone downstream while the grass farm provides environmental benefits for all to enjoy, U.S. farm policy ironically rains a wealth of financial incentives on the first farm while putting the second at an economic disadvantage.

The corn farmer tried to maximize his profit and minimize his risk. Commodity subsidies for corn—the crop most favored by government policies—enticed him to plant all his acres in corn. He got a direct payment based on his past corn acres. He knew he would do very well if corn prices went high, and he would be fine if prices went low because another government check would make up much of the difference. By reducing risk and ensuring a profit, the production subsidy policy urges farmers to maximize production of a few preferred crops—even at the expense of the environment.

The grass-based livestock farmer received no support from the government. He had to take the market price for his beef whether high or low and got no government payment. This farmer might manage to come out ahead financially by spending much of his winter lining up premium markets with restaurants and discerning customers. He might bring in a little money from conservation programs to share in the costs of his practices. All in all, however, the livestock farm operates at a financial disadvantage compared to his corn-growing neighbor, even though he contributes habitat and clean water to the environment instead of pollution when the inevitable hard rains come.

It may be a coincidence that the favored commodity crops happen to be the very crops with the worst impact on the environment. These annual row crops typically expose the soil for most of the year and require high fertilizer and pesticide use, as well as aggressive drainage of wet soils and wetlands. The lack of diversity of crops leads to erosion, runoff, and more flooding downstream. The result is polluted drinking water, floods, declining fish and wildlife populations, and green and muddy waters unattractive for recreation.

Agriculture policy decisions over the last 50 years have been a prime cause of the current crisis in river quality. Programs and subsidies operate as red lights and green lights to farmers for the decisions they make on their farms. Red lights include prohibitions such as the ban on the pesticide DDT, taxes on certain activities, and regulations like feedlot permits. Green lights include payments in the form of subsidies and incentives, publicly funded research that benefits certain farmers over others, and cost sharing on conservation expenses.

Where did farm policy come from?

From the beginning, the intent of American farm policy has been three-pronged: to secure an adequate and safe food supply for the nation (recurring surpluses now make this almost a moot point), to ensure income stability for farmers who must survive perpetually uncertain weather and fluctuating prices, and to protect the nation's soil and water.

Starting in the Great Depression of the 1930s, farm policy responded to low prices for farmers by encouraging them to produce less in order to raise prices (supply management), and often with a check to the farmer from the government (subsidy). Despite the dizzying evolution of agricultural programs and organizations over the past 60 years, those two practices remained pretty much the same until the 1996 farm bill. Since then, the U.S. has dropped supply management but continued to subsidize farmers who grow the few favored commodity crops.

This approach to farm policy—focused on supporting the producers of commodity crops—may have helped some farmers survive, but it also powerfully promoted plenty of production for those few crops. It encourages more production of commodity crops over other crops, and gives the largest payments to the largest farmers. Vegetables, fruits, other grains, and livestock are not considered commodities and are not generally subsidized. The inevitable consequences of this policy have been the consolidation of farms, often owned by large-scale investors rather than family farmers, the depopulation of the countryside, the loss of biodiversity, and damage to soil and water quality.

During these 70 years of farm policy, there has been at least some attention paid to conservation. In 1985, the Conservation Reserve program was created, and it continues to be a popular program that has turned more than 30 million acres of cropland back to grass and permanent ground cover. Even at some 3 billion a year, the dollars invested for conservation have always been a pittance compared to the dollars available to the commodity subsidy programs. Incentives for conservation have always been greatly overshadowed by incentives for massive increases in commodity crop production.

The promise of the new Conservation Security Program

Today's farm policy seems complex and intimidating to many. The long history, many acronyms, and power of vested interests are major turnoffs. However, as both the biggest threat and the biggest hope for watershed restoration, agriculture requires that concerned citizens grapple with the public policies that have created the current situation. These policies can be changed to bring about very different results.

The 2002 farm bill included a new conservation program designed with the input of farmers and conservationists. The Conservation Security Program (CSP) was created to fill critical gaps in conservation policy, and to be the first step toward a "green payments" program that rewards farming practices that protect the environment.

In contrast to past conservation programs where the vast majority of money was spent retiring sensitive lands from production, the CSP will reward conservation activities that are integrated with production on working lands. Instead of targeting funds to the worst cases for cleanup (which tends to give the advantage to the bad actors), CSP will reward those who have used conservation practices on their own in the past, as well as those who want to adopt more in the future.

CSP is a new paradigm for conservation programs. However, because it was designed to be open to all farmers who meet the conservation standards, it also is the first conservation program to operate on par with commodity subsidies, which are also funded as "entitlements" not subject to annual appropriations battles.

The CSP has been slow in getting off the ground, but two years after enactment, it finally was offered to farmers in 18 watersheds during the first signup, a half dozen of which are in the greater Mississippi River watershed. The rules are still subject to revision, and the details of the next signup will largely depend on the extent of funding approved by Congress, which is considering capping the program in 2005. Even if capped, the House proposal will enable $1 billion in contracts to be offered to farmers in 2005. If the Senate has its way, the uncapped program will grow even larger.

Green payments

The CSP is the first step toward green payments. A full-fledged green payments approach to farm policy could address all three of the current policy's major objectives—adequate food supply, conservation of soil and water, and financial support for farmers. However, instead of supporting commodity production, it would support farming systems that provide environmental benefits for all of society.

Policy elements	Green Payments	Current Commodity Payments
Who is eligible?	All farmers	The 40% of farmers who grow commodities
Rewards what?	Environmental benefits	Commodity production
Contributes to farm income?	Yes	Yes
Entitlement?	Yes, if high conservation standards are met	Yes, if in compliance with basic erosion and wetlands standards
Working lands?	Yes	Yes
Whole farm plan?	Yes	No

Green payments would tie subsidies to the environmental services produced by the farm, which could include not only the protection of soil quality and water quality, but the preservation of nature and biodiversity on working farmlands too. In contrast, commodity subsidies tie payments to what and how much is produced. Green payments would be for all farmers, instead of targeting only the 40% of farmers who grow corn, soybeans, wheat, cotton, or rice. Like commodity subsidies, a green payment program would provide real income that contributes to the bottom line profitability of the farm.

The European Union is on a path to transform most of their farm support programs to green payments. Aiming to reward what they term the "multifunctionality of agriculture," Europeans want to pay farmers for environmental benefits, rural development, and preservation of the rural landscape.

The next farm bill, slated for 2007, is shaping up to be the first open debate in the U.S. about shifting away from production subsidies to green payments. The conversion might be gradual, reducing subsidies while farmers become used to producing environmental benefits in order to earn more under CSP. Alternatively, it might be more dramatic, replacing subsidies with a greatly expanded CSP or a new program.

The World Trade Organization could change everything

Driven by hopes for increasing export markets, the U.S. helped create the World Trade Organization (WTO) in the 1990s. With a goal of leveling the playing field for free trade, the WTO set about regulating the world's trade and subsidy policies by reducing and eliminating the various financial advantages countries give to their own producers.

A landmark WTO ruling in June 2004 has farm groups shaken. A challenge from Brazil asserting that almost all of the U.S. cotton subsidies are illegal, as well as some export subsidies for other crops, was upheld. Of great significance was the finding that even payments based on past production and not current production distort trade and therefore must be disallowed and perhaps banned or limited. Brazil argued that the subsidies led to overproduction and suppressed prices, thus giving the U.S. an inequitable share of the world market. While the decision will likely be appealed and included in future trade negotiations, it brings into question current U.S. subsidy policies, because subsidies for corn, soybeans, wheat, rice, dairy, and sugar are based on assumptions and laws similar to those governing cotton production.

This WTO action is causing a seismic shift in what is possible in U.S. farm policy. Powerful farm and commodity groups see a threat to their subsidies and are looking for alternative ways the U.S. might support farmers.

Additional opportunities to alter the current subsidy system are opened by the enormous cost of subsidies in a time of record U.S. budget deficits. It will be tricky to preserve baseline funding and redirect it toward green payments, but budget pressure broadens the normal discussion to new alternatives.

Other topics further open the door. For example, the failure of subsidies to actually help the vast majority of family farmers is a big concern, and mounting public criticism of the way subsidies go to the largest farms—and even to many who are merely outside investors—undermines support of commodity policy. Other pressures for policy change may come from growing criticism of the role that processed commodities play in the U.S. obesity epidemic, or citizen and scientific concerns about degraded water quality and wildlife habitat due to agricultural practices.

While the new CSP and expansion of green payments cannot solve all the problems of agriculture, these types of policies can simultaneously help farmers and begin to reverse the environmental impacts destroying the Mississippi River.

Take action

• Let your Senators, Congressperson, and USDA officials—including U.S. Agriculture Secretary Ann Veneman—know that agriculture conservation programs are the key to solving Mississippi River water quality problems.
• Try to purchase foods from environmentally responsible farms, such as organic foods, a local farmers market, or join a subscription farm near you. Find locations or order on the net at localharvest.org.
• Sign up for policy action alerts from the National Campaign for Sustainable Agriculture at sustainableagriculture.net.
• Reduce your own nutrient pollution by cutting back on lawn and garden fertilizer use and eliminating unneeded phosphorus.