Federal Subsidies Turn Farms Into Big Business

By Gilbert M. Gaul, Sarah Cohen and Dan Morgan
Washington Post Staff Writers
Thursday, December 21, 2006

The cornerstone of the multibillion-dollar system of federal farm subsidies is an iconic image of the struggling family farmer: small, powerless against Mother Nature, tied to the land by blood.

Without generous government help, farm-state politicians say, thousands of these hardworking families would fail, threatening the nation's abundant food supply.

"In today's fast-paced, interconnected world, there are few industries where sons and daughters can work side-by-side with moms and dads, grandmas and grandpas," Rep. Jerry Moran (R-Kan.) said last year. "But we still find that today in agriculture. . . . It is a celebration of what too many in our country have forgotten, an endangered way of life that we must work each and every day to preserve."

This imagery secures billions annually in what one grower called "empathy payments" for farmers. But it is misleading.

Today, most of the nation's food is produced by modern family farms that are large operations using state-of-the-art computers, marketing consultants and technologies that cut labor, time and costs. The owners are frequently college graduates who are as comfortable with a spreadsheet as with a tractor. They cover more acres and produce more crops with fewer workers than ever before.

The very policies touted by Congress as a way to save small family farms are instead helping to accelerate their demise, economists, analysts and farmers say. That's because owners of large farms receive the largest share of government subsidies. They often use the money to acquire more land, pushing aside small and medium-size farms as well as young farmers starting out.

"Historically, when you think of family farms, you think of Mom and Dad and three generations working a small or mid-sized farm. It gives you a warm and fuzzy feeling," said Alex White, a professor of agricultural economics at Virginia Tech. "In the real world, it might be a mid-sized farm. But it also might be a huge farm. It might be a corporation."

Large family farms, defined as those with revenue of more than $250,000, account for nearly 60 percent of all agricultural production but just 7 percent of all farms. They receive more than 54 percent of government subsidies. And their share of federal payments is growing -- more than doubling over the past decade for the biggest farms.

Two farms help to tell the tale.

John Phipps of Chrisman, Ill., harvested nearly 170,000 bushels of corn and soybeans last year on two square miles of fertile soil. He grossed nearly $500,000, putting his farm in the nation's top 3 percent. Still, he received $120,000 in subsidies.

"It's embarrassing," Phipps said. "My government is basically saying I am incompetent and need help."

Several hundred miles northwest, Thomas Oswald farms the same Iowa fields that his relatives worked more than a century ago. The land he rents is about one-third the size of Phipps's, and Oswald's subsidies are much smaller. Oswald contends that federal payments are helping to fuel a spike in land prices that favors the wealthy.

"If the purpose of farm policy was to save the family farm and help stabilize rural communities, then it hasn't worked," Oswald said. "What the government is really doing is subsidizing land and assets, not people."

A New Era in Farming

The transformation of the family farm from a small, self-contained business to a complex, technology-driven enterprise is seen today in a rapidly changing rural landscape dominated by larger and wealthier farms. That landscape shows a vastly different picture of family farms than the one often evoked by legislators and industry groups: bigger, more industrial than agrarian, with owners wealthier than most Main Street Americans.

In a late-October speech in Indianapolis, Agriculture Secretary Mike Johanns said that, in the face of higher energy prices and natural disasters, "our farmers' resiliency is evident": Agricultural exports are at a record $68 billion; farm equity has swelled to $1.6 trillion, another record; and farmers' debt-to-assets ratio is at a 45-year low.

"Today, producers grow more crops and handle more livestock more efficiently than at any time in the history of mankind," Johanns said.

Nevertheless, just last year the government paid out about $15 billion in income support or price guarantees, which increasingly are going to the largest farms -- those with annual sales of $500,000 or more. Between 1989 and 2003, the share of federal payments for those farms jumped from 13 percent to 32 percent while the share going to small and medium-size farms -- those with $250,000 or less in sales -- dropped from 63 percent to 43 percent.

In 2003, the owners of the biggest family farms reported an average household income of $214,200, more than three times that of U.S. households on average. "Farm households are not, in general, poor," government researchers concluded.

To be sure, there are still many small and medium-size family farms. In fact, they account for nine of every 10 farms nationwide -- 1.9 million farms in all, according to the Agriculture Department's definition. But about a million of those farms are "hobby" or "residential" farms that produce little or no income from crops or livestock. The government's definition of a farm includes any operation that has or could have $1,000 annually in sales.

By including "these very, very small hobby farms" in its overall count, the USDA is "masking the tremendous consolidation" that has occurred, said Iowa State University economist Michael D. Duffy.

The shift in subsidies to wealthier farmers is helping to fuel this consolidation of farmland. The largest farms' share of agricultural production has climbed from 32 percent to 45 percent while the number for small and medium-size farms has tumbled from 42 percent to 27 percent.

As in many states, farmland in Iowa is being gathered up into ever-larger farms. In many cases, the owners are families buying up neighboring tracts. But increasingly, outside investors are also buying Iowa farmland, with "one in five acres of farmland in Iowa now owned by someone who doesn't live here," Duffy said. Many of the outside landlords rent their land to the highest bidders.

Nationally, the average size of a farm has more than doubled in the past two decades, to 441 acres. Many farms now cover thousands of acres, some tens of thousands.

"It seems as though conventional agricultural policy is to get big or get out," said Traci Bruckner, a policy analyst at the Center for Rural Affairs in Lyons, Neb., which works to preserve small farms and rural communities. "To me, that seems backwards."

'Farming Is a Science'

From the perch of his $180,000 six-row combine, churning through cornfields that stretch as far as the eye can see, John Phipps has a rare view of American farm policy.

Outfitted against a gray October day in jeans, wool shirt, vest and faded baseball cap, Phipps, 58, resembled hundreds of other farmers as he struggled to change a filter on his combine. But he is hardly typical. Trained as a chemical engineer, Phipps spent five years serving on a nuclear-powered submarine before returning to east-central Illinois in the 1970s.

Today, he calls himself an "industrial farmer" who uses computers, technology and science to get the most out of the 1,800 acres of corn and soybeans he plants in an area of Illinois where the weather and soil are ideal for farming. The strategy has paid off with bigger and better yields.

Yet to Congress and federal agricultural officials, Phipps and his wife, Jan, are struggling family farmers. Last year, the government sent the Phippses a check for $120,000. Thousands of similar checks arrived throughout the Corn Belt, even as many farmers had bumper crops.

"Being labeled as a family farmer immediately qualifies me as someone who needs help," he said. "Name one other business like that -- there are none."

Over the past decade, farmers in the Midwest have produced one record crop after another. Now, surging demand for corn-based ethanol has corn prices at a 10-year high.

Phipps resents the images used to evoke sympathy for farmers. "I think they do us more harm than good," he said as he scrambled to finish his harvest. "I don't think farmers are any more special than anyone else; lots of people work hard and don't get help. Why should farmers get special treatment?"

In addition to farming, Phipps hosts a weekly farm television show, writes a blog and contributes articles to Farm Journal. That income helps significantly, he said, allowing him "a little more flexibility" than other farmers have. In the past five years, the Phippses have also received about $357,000 in federal subsidies.

"I'm not proud of it," he said. "I would like to have the moral courage and financial clout not to take them. But if I don't, I won't be able to compete when it comes time to bid for land."

Phipps knows that this fuels the rising cost of farmland; an acre of land there now sells for about $4,800. "When I belly up and write a check, I am perpetuating the problem," he said. "For the most part, all of the smaller farmers have all been flushed out in the last five years."

Still, Phipps's sympathy extends only so far. Large farms are a "rational and ethical" response to market demands, he said. His family has farmed there for six generations, Phipps himself for the past three decades. He owns 800 acres outright or with his siblings and rents 1,000 acres. His wife is his main helper and drives one of the trucks that haul up to 700 bushels of corn per load to grain bins. "Imagine that: Two middle-aged people able to farm 1,800 acres," Phipps marveled. "That's all because of the immense technology we have at our hands. We are horrendously efficient."

As his combine churns down the rows of corn, Phipps knows exactly how many bushels he is harvesting, acre by acre, row by row. The information is downloaded to his computer so he can put it in a spreadsheet.

"Farming is a science now," he said. "The image of a farmer in bib overalls bumbling along is just wrong. I'm an engineer, for God's sake."

'I Want to Earn It'

In mid-November, when the harvest is finished, Thomas Oswald, 40, retreats to his neatly restored house bordering the fields in northwest Iowa that his family has farmed since 1870. There, he dabbles on the computer, checking yields and prices, does odd jobs, and plans for the next planting season. Oswald also serves as chairman of the local Soil and Water Conservation District.

"I want to be known as someone who farms well as opposed to farming big," he says.

The 580 acres where Oswald grows corn and soybeans straddle a gravel road on the outskirts of Cleghorn, a rural farming community. Oswald rents most of the land from his father, Stanley, who at 78 still helps with the harvest. Oswald and his father share the income from the farm, which grosses $150,000 to $250,000. "We're a small to medium-size farm," Oswald said. He also does farming for neighbors, and his wife, Suzanne, works as a travel agent in Cherokee.

As with many farming areas in the Corn Belt, land values are increasing and farms are getting bigger in Cherokee County. Between 1990 and 2005, the average price for an acre of farmland more than doubled, to $3,186, according to a USDA database of land values. Between 1997 and 2002, the number of farms with 1,000 or more acres climbed by nearly one-quarter, while the number of small and medium-size farms, such as Oswald's, declined by 12 percent.

"Land prices are going nuts," Oswald said. "Some farms are going for $4,000 to $5,000 an acre." In summer, it is not unusual to see owners of larger farms "out trolling for land." The chances of smaller farmers successfully bidding for those acres are slim. "You might as well buy a lottery ticket," Oswald said.

For smaller farmers, he said, it is a Catch-22. "In order to afford land, you already have to own land or have a lot of money," he said. "The more subsidies you get, the more money you have to reinvest and expand. That free money distorts the economic pluses and minuses."

The subsidy-fueled competition for land has changed the culture and demographics of farming areas such as Cherokee County. In the past, Oswald said, there was more sharing among neighbors. "It was less about acquiring land," he said. Now, neighbors sometimes are eyed warily as competitors.

Larger, more efficient farms also require fewer workers, offering less opportunity for younger people. Cherokee County has lost one-third of its population since 1960, records show. Across Iowa, there are now twice as many farmers over the age of 65 as under the age of 35, according to Iowa State researchers. "You see the thinning of the population, and at some point you have to ask yourself, 'When does that line become too thin?' " Oswald said.

Contrary to some expectations, the billions in subsidies have failed to slow the exodus. A March 2005 study by the Federal Reserve Bank of Kansas City found that hundreds of counties most dependent on subsidies had suffered the biggest population losses and posted the weakest job growth. "Farm payments appear to create dependency on even more payments, not new engines of economic growth," concluded the study's author, Mark Drabenstott.

Oswald has received nearly $98,000 in subsidies in the past five years. Each check is a "cash infusion" that helps to pay the bills. "It's hard to be proud of the little brown envelope if you don't do anything to earn it," he said. "I want to earn it."

Oswald chose to remain smaller, he said, explaining that he does not "want to muscle out neighbors" for land and is conservative about taking on too much risk. And although he may be small, Oswald stressed, he is not backward. "That's an image they use in Washington to sell these programs," he said. "It's an emotion argument -- political."

Research editor Alice Crites contributed to this report.

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