A new USDA study indicates government commodity payments will continue to shift to farm households with higher income, a trend brought about because agricultural production in recent years has shifted to farms with larger sales.

The report, authored by USDA’s Economic Research Service (T. Kirk White and Robert A. Hoppe), says the trend does not reflect a change in program policy but uses the same payment formula adopted in the original program to determine which farms would receive support based upon production numbers.

"Since operators of larger farms tend to have higher household income, the shift of commodity-related payments to larger farms has resulted in a shift of payments to higher income households," notes the USDA report released this week.

"For example, in 1991, half of commodity payments went to households with incomes over $54,940 in constant 2009 dollars (50th percentile) and a quarter of commodity payments went to farm households with incomes greater than $115,000 (75th percentile).

By 2009, the distribution of payments had shifted upward considerably, with half of commodity payments going to households with incomes over $89,540 and a quarter going to farm households with incomes greater than $209,200."

The report is significant as pressure continues to mount for lawmakers who are being pressured by budget constraints and by commodity critics and taxpayers concerned with farm subsidy programs. The issue has become such a hot ticket item that many corn and soybean groups have said they are willing to forgo direct payments for other types of farm subsidy programs due to the growing controversy.

"While commodity program payments to farmers vary considerably from one year to the next, they continue to play an important role in agricultural policy, accounting for $6 billion to $16 billion annually between 1999 and 2009," says USDA in the new report.

Those numbers do not include conservation program payments.

Federal farm programs include the “fixed” or direct payments program, the counter-cyclical payments (CCP) program, and marketing loan benefits programs. In addition, the 2008 farm bill created the Average Crop Revenue Election (ACRE) program, which also provides commodity-related payments, although farmers did not begin receiving ACRE payments until after the period covered in the analysis, 1991 to 2009.

DP, CCP

Direct payments and CCPs are based on a farm’s historical production, and CCP payments also depend on current market prices. Marketing loan benefits and ACRE payments are tied to current production and market prices.

While eligibility criteria are different among programs, most commodity payments go to farmers growing (or who have historically grown) barley, corn, grain sorghum, oats, peanuts, rice, soybeans, upland cotton, wheat, and other oilseeds, collectively referred to as program crops. Furthermore, payments under several of the programs depend on whether the market price for each program crop is above or below specific levels.

While most farmers are well informed on subsidy rules, agricultural economists contend it is the general public and often the media that generally misunderstand the farm subsidy payment system and this in turn leads to misconceptions and general negativity toward farm payment programs in general.

According to the new study, it is important to note that farm operators do not receive all the benefits of commodity payments. A significant portion of the benefits of payments is captured by non-operator landlords. Although many farmers own land, roughly 55 percent of farmland and 64 percent of cropland is operated by someone other than the owner, and 94 percent of rented farm land is owned by non-farmers.

In an effort to aid producers explain government payments they receive to a non-informed public, the study points out that production of commodities has been shifting to larger farms because larger farms tend to be more profitable. According to the report, larger farms will probably continue to be more profitable, and that means commodity production is likely to continue to shift to larger farms.

Since commodity program payments are based on current or historical production, payments will continue to shift to larger farms and higher income farm households unless the design of commodity-related programs changes substantially.

Congress has created upper limits on the amount of Government program payments that can be made to an individual, as well as income eligibility caps that restrict eligibility to households with income below specified levels. The current payment limits and income eligibility caps affect few recipients and only a small share of total payments.

To view the new study, go to http://www.ers.usda.gov/AmberWaves/March12/PDF/CommodityPayments.pdf.