Blog Post

AEIdeas

In the midst of this week’s negotiations over the farm bill, House Committee on Agriculture Chairman Mike Conaway (R-TX) is pushing to remove any limits on subsidy payments to farms through what has become known as his “nieces and nephews” provision. This provision would increase the number of people eligible to receive up to $125,000 in subsidy payments under one of two major income transfer programs, whether the people in question really participate in the farm business or not.

Currently, only two people per each farm business can be eligible for these programs — called Price Loss Coverage and Agricultural Risk Coverage — capping total payments to a farm business to $250,000. However, the “nephews and nieces” provision proposed by the current chair of the House Committee on Agriculture would substantially increase the number of people eligible for a payment. For example, an agribusiness owner with four “nieces and nephews” described as “actively engaged in farming,” because they participate in an annual earning’s conference call, would be allowed to classify those four people as “actively engaged” because of that call. The owners would then be able to increase the subsidy paid to the farm business up to a limit of $1.5 million a year.

Congressman Conaway’s “defense of the realm” argument for his proposed expansion of subsidies is reported by CNN to be as follows: “Farming today isn’t sitting on a tractor or working in the fields; it can be marketing your crop, managing your labor, all of the things that a normal business does. All of those things are management [activities], and they are no less important to farming than any other type of activity.” Rep. Conaway further argues that if a farm business is large and complex, “Washington should not attempt an arbitrary one size fits all approach to them” by restricting subsidy payments to a mere $250,000 per farm. His argument can be distilled to the following simple assertion that many farm lobbies have put forward over the past thirty years: the purpose of farm subsidies is to subsidize every acre farmed for subsidy-eligible crops.

Most voters and many legislators view farm subsidies as intended to help vulnerable small and medium-sized family farms that are struggling financially, not large-scale agribusinesses with thousands of acres. So which farm businesses would benefit most from Chairman Conaway’s proposal? The answer is straightforward: a very few very wealthy ones. Less than one percent of all farm businesses are currently affected by the current $250,000 cap on subsidies and they are all large-scale agribusinesses.

So, what would such a farm look like? In 2014 and 2015, many farm businesses raising corn in Iowa received annual payments subject to subsidy limits that averaged about $80 per acre over the two-year period 2014-2015. A farm business that produced only corn would have to manage around 3,200 or more acres of corn land to be subject to the payment limit. Given that productive corn land in Iowa sells for over $10,000 an acre and the average farm business owns just over 60 percent of the land being farmed, the farm business would have to own assets worth at least $19 million (and more, when buildings and equipment owned by the farm are included). Not to mention the average debt-to-asset ratio in US agriculture of less than 13 percent is at a near record low.

The beneficiaries of Chairman Conaway’s proposed “nieces and nephews” initiative are not vulnerable small family farms that most voters or legislators would see as needing assistance, but huge agricultural business concerns. The initiative would simply be another win for crony capitalism.