Growers Reap Benefits Even in Good Years
Monday, July 3, 2006
EDEN, Md. -- Roger L. Richardson, a vigorous 72-year-old who grows corn on 1,500 acres of prime Eastern Shore farmland, had a good year in 2005. Thanks to smart planning, shrewd investing and a little luck, he grossed a healthy $500,000 for his crop.
But the federal government treated him as if he needed help and paid him $75,000.
The money came from a little-known, 20-year-old U.S. Agriculture Department program that was intended to boost farmers' incomes when prices are low.
The farmers do not have to sell at distressed prices to collect the money. They can bank the government payments and sell when prices are higher.
Since September, the program has cost taxpayers $4.8 billion. Most of that money -- $3.8 billion -- went to farmers such as Richardson who sold at higher prices, according to a Washington Post analysis of USDA payment data.
The subsidy is called the loan deficiency payment. Although it has cost taxpayers $29 billion since 1998, it is virtually unknown outside farm country. But in rural America, the LDP is a topic at backyard barbecues and local diners along with the high school football team and the weather. Despite its name, it is neither a loan nor, in many cases, payment for a deficiency. It is just cash paid to farmers when market prices dip below the government-set minimum, or floor, if only for a single day.
The LDP has become so ingrained in farmland finances that farmers sometimes wish for market prices to drop so they can capture a larger subsidy.
"In the fall of the year, we find the farmer wanting the price to go down," John Fletcher, a Missouri grain dealer, told Congress last year. "It's almost unnatural."
Corn farmers collected the LDP on 90 percent of their crop last year, but most did not suffer the losses that traditional subsidies are meant to offset. Some collected hundreds of thousands of dollars.
"Most smart farmers are cashing in on it," said Bruce A. Babcock, director of the Center for Agricultural and Rural Development at Iowa State University. "It shows me that farmers are being overcompensated."
The LDP bears little resemblance to the original price-support system, created in 1938 to help millions of desperate farmers during the Depression. The government then propped up prices by buying grain and cotton whenever the market dipped below a government-set floor.
But by the 1980s, the government had accumulated huge stockpiles of commodities that it could not sell abroad. With the backing of Southern rice- and cotton-state lawmakers, Congress in 1985 came up with a way to protect farmers from low prices: the LDP. The government encouraged farmers to sell their crops on the market and paid them cash when prices fell below the floor.