Every time the Farm Bill comes up for debate, there are numerous ideas about how to “fix” the commodity programs. Calls abound to add new programs, scale back existing ones, tweak the payments here and there, and even scrap subsidies entirely (this recent New York Times editorial caused a bit of a stir). Not all of these ideas are new, however, and some of them have been tried before. As more people become interested in the Farm Bill and its impact on what we grow and consume, I think it’s important to understand a bit of the history behind why these programs are they way they are in order to talk about how we might want to change them.
Coupled and Decoupled Payments
First, we’ll need a few definitions. Farm program payments fit into one of two categories: coupled payments or decoupled payments. Farm programs are called “coupled” if there is a direct link between what a farmer plants and how much he receives in subsidies. For example, say the price of corn has been low. The government decides to pay farmers a certain amount of money for each bushel of corn they produce to make up for their falling incomes. So if Farmer Ralph plants corn on 80 acres of his land, he can count on getting a certain amount of money. This gives him an incentive to plant more corn, although falling prices signal that there’s more than enough corn on the market to meet demand. He may even decide to plow up his daylily beds and plant corn everywhere he can because the government is offering him a deal.
On the other hand, decoupled payments don’t depend upon a farmer’s current production or current market conditions. Direct payments, which are allotted to farmers who grow an eligible crop regardless of the market price, are decoupled. Decoupled payments are considered to be less market distorting because the benefits aren’t calculated per unit of production.
“Freedom to Farm” in the 1996 Farm Bill
Up until 1996, commodity programs focused on managing supply by paying farmers to produce less in times of surplus. 1996 marked a shift in commodity program policy. In the 1996 Farm Bill, commonly called “Freedom to Farm” by those who liked it (or “Freedom to Fail” by those who didn’t), the cropland retirement programs were replaced with fixed payments. Unlike previous subsidies, the fixed payments weren’t tied to the current price of a crop or which crop a farmer planted; they were tied to “base acres,” the average number of acres and average yield of a certain crop that a farmer had planted in the 1981-1985 seasons. Farmers who have base acres in corn do not need to grow corn on that land in order to receive the payments – in fact, they don’t have to plant anything at all.
It seems paradoxical that it’d be better to pay people regardless of whether or not they plant corn, but the argument is that it allows farmers to respond to market conditions as they make planting decisions. Before, Farmer Ralph was required to plant corn in order to receive the payments, even if the price of corn was low or if he wanted to try growing flax on part of his land. Under this system, a farmer is guaranteed a certain income for his base acres in corn, but is free to grow another crop if the price is high.
The Origin of Counter-Cyclical Payments
The fixed payments in the 1996 Farm Bill were designed to gradually decline – or, put another way, to wean farmers off of government payments. However, record world production and falling crop prices in the late ‘90s caused farmers to call for emergency measures, and by 1998 Congress could no longer keep the disciplined schedule of declining payments it had set out in 1996. Some applauded Congress for restoring an important safety net for farmers, but others criticized it as a step backward. The emergency payments became a large part of the program payments to farmers, and in the 2002 Farm Bill, emergency payments became permanently enacted as the counter-cyclical payments we have today.
Counter-cyclical payments are considered partially decoupled because they depend both on base acres and the current market price of a crop. This distinction is important because as a member of the World Trade Organization, the U.S. agrees to limit trade-distorting agricultural subsidies (but that’s a topic for another day).
Planting Flexibility – How Flexible is It?
The 1996 and subsequent Farm Bills have allowed for planting flexibility, meaning that a farmer may grow crops other than the base crop on her base acres and still receive payments. It’s important to note that not we’re not talking complete flexibility: farmers cannot plant fruits and vegetables on base acres.
This restriction has many nutrition and local food advocates up in arms - wouldn’t subsidizing
fresh produce on commodity cropland be a great way to encourage farmers to grow more of what we should be eating anyway? Maybe, but the current restrictions are designed to protect existing unsubsidized fruit and vegetable producers from competition. In 2008, a pilot program was introduced to allow farmers in Midwestern states to grow certain fruits and vegetables to be canned or frozen in exchange for reduced program payments.
In general, economists and others who believe in “the market” favor farm programs that are minimally distorting, meaning that they have little impact on prices. Now that we understand a little better where it came from, the question is if the current system of fixed and counter-cyclical payments, base acres, and planting flexibility is the best way to achieve this.
- Monke, Jim. Farm Commodity Programs in the 2008 Farm Bill. CRS. September 30, 2008
- Eidman, Vernon R. The 2002 Farm Bill: A Step Forward or a Step Backward? Center for International Food and Agricultural Policy Working Paper WP02-9. September 2002.
- Westcott, Paul C. and Young, Edwin C. Farm Program Effects on Agricultural Production: Coupled and Decoupled Programs. Chapter 1 in Decoupled Payments in a Changing Policy Setting. USDA ERS Agricultural Economic Report No. 838. November 2004.
Ann Butkowski is happy to be back in her native Minnesota after spending the last two years in Boston. She’s learning to bike the streets of Minneapolis and grow tomatoes in her backyard. Ann has a master’s degree in nutrition science, but doesn’t let that stop her from eating ice cream right out of the carton. Ann is Simple, Good, and Tasty's resident Farm Bill expert. Her most recent post for us was "The Herb Box Brings Tasty Local Foods to Life Time Fitness."