Outrageous Ag Profits

Today Carpe Diem has a good piece on the comparison between Big Ag and Big Oil. Windfall profits are more appropriate for Soy Beans than Crude Oil. Makes you wonder why we have over $30b allocated for ag subsidies this year?

The Great Ag Heist...From Taxpayers

From Prof. Mark Perry today. See the entire post. It has some good graphics that paint a very telling picture.

Maps are from the USDA's National Agricultural Statistics Service. The average farm real estate value has increased by 85% in the last five years, from $1,270 per acre in 2003 to $2,350 in 2008 (see top chart above, click to enlarge). Many Midwest corn and grain states like the Dakotas, Minnesota, Illinois, Indiana and Nebrask have experience double-digit increases in farm values in just the last year (see bottom chart above, click to enlarge).Strong commodity prices and farm programs, outside investments, favorable interest rates, and tax incentives continue to be the factors that drive farm real estate values to record levels.
Update: With farm real estate values booming, commodity farm prices close to historical highs, and farm profits at record levels (see chart below), this group still needs farm subsidies (e.g. $288 billion 2008 farm bill).

More Government Waste for Agriculture

From Citizens Against Government Waste...

The letter from the chairman of the Sugar Cane Growers Cooperative of Florida was a painful reminder that the U.S. sugar program benefits only a handful of people ("Boost for sugar is good for city," May 23).

The current price of U.S. sugar is roughly 20 cents per pound. The price of sugar on the world market is about 10 cents per pound.

Any economist will tell you that the price of our domestic sugar is artificially inflated by strict regulation of imports, a commodity loan program that forces the government to buy up any sugar that domestic producers can't sell and production controls that make it illegal for domestic sugar processors to sell more than their government-assigned allotments, even if they have buyers standing in line.

By keeping domestic sugar prices so high, the current sugar program encourages companies that use sugar in their products to move their factories to countries such as Canada and Mexico where they can buy less-expensive sugar and then just bring the finished products back here.

If you owned a factory that made candy, wouldn't you jump at the chance to cut the cost of your key ingredient in half, especially if you could do so by simply relocating a few miles across the border?

Regrettably, Congress just passed a new farm bill that makes a sweet program for sugar growers and processors even sweeter.

And by mandating a new and costly sugar-for-ethanol program, the bill will require the U.S. Department of Agriculture to purchase surplus sugar for about 20 cents per pound and then resell it to ethanol plants for less than 10 cents per pound.

The sugar program has always been touted as one with no net cost to taxpayers. But this costly new measure requires the government to give away taxpayer dollars.

This would be laughable if it were not so outrageous.

Thomas A. Schatz
Washington
The writer is president of Citizens Against Government Waste.

House Bill H.R. 2419 Fail Americans

Here is a brief outline of the short comings from the new 2008 Farm Bill that just passed the House and is now on its way to the Senate:

1. It provides little improvement to means testing or payment limits.
Married couples with an adjusted gross income of $1.5 million will still receive
subsidies. The payment limit level of $360,000 was not reduced.
2. It continues to dole out $5.2 billion annually in direct payments to individuals
(many of whom are no longer farming) without any regard to prices or income. These direct payments, 60 percent of which go to the wealthiest 10 percent of recipients, were created in 1996 and were supposed to phase out by 2002.
3. It creates a new “permanent disaster fund” worth $3.8 billion - a disaster for taxpayers, most farmers, and the environment. This will encourage planting on disaster-prone land, plus most payments will go to the same producers already receiving the bulk of the direct payments.
4. It increases the support price for sugar, reserves 85 percent of the U.S. market
for domestic producers and creates a new sugar ethanol program. The Congressional Budget Office estimates that this new program will cost taxpayers $1.3 billion over ten years, although the real cost is likely to exceed $4 billion. The consumer costs of the sugar program will exceed $2 billion annually.
5. It adds earmarks such as $5 million for grants to broadcasting systems inserted by Sen. Kent Conrad (D-N.D.), $3 million for Delta Health Alliance Grants inserted by Sen. Thad Cochran (R-Miss.), and $1 million for the National Sheep and Goat Industry Improvement Center inserted by Sen. Max Baucus (D-Mont.).

This legislation is a joke and it hurts not only Americans, but people all over the world. I am actually pleasantly surprised that Rep. Tiahart voted AGAINST this bill. However, I feel less confident about my two Senators. So here is my letter to the two Kansas Senators:

Dear Senator:

I am writing today to ask that you take some political risk and reject the new Farm Bill. This Bill has less to do with Agriculture and more to do with special interest and wasteful big government.

Farm income will be at an all-time high in 2008. There is absolutely no reason for over $20B of taxpayer money to fund farming families that have incomes in excess of $1.5M/year. It is tough to explain how someone qualifies for government aid when their income is 150 times the poverty level in the US.

This Bill also drives the cost of food higher for all people as there are incentives to produce less food. There are provisions which drive the price of some commodities, like sugar, to levels that are 2-3 times the world price. While this is good for a few families in Florida that actually grow and process sugar, it is bad for consumers who have to pay the price in lost jobs (think the candy industry) and higher prices for basic food staples.

The Farm Bill has become a toxic mess of legislation. This is politics at its worst and the effects on the economy go well beyond the $20B price tag every year. Please stop this senseless piece of legislation and support President Bush.

Respectfully yours,


Feel free to copy it and send it on to your Senators.

Big Ag vs Big Oil

In reading a little bit on the Congressional hearings today for the big oil companies I came across something very interesting. Rep. Edward Markey, D-Mass stated the following:

"These companies are defending billions of federal subsidies ... while reaping
over a hundred billion dollars in profits in just the last year alone," he said.
The companies are reaping "a windfall of revenue" while poor people have to
choose between heating and eating because of high energy prices.

I find this interesting because of a quick bit of research I did this afternoon. It turns out that US Farm income is expected to be $92.3B in 2008 according to the USDA. Now farmers are enjoying in excess of $20B in government support (subsidies, loan programs, disaster aid, etc). On the other hand, the Oil Companies are enjoying $123B in profit (2007 and less expected in 2008) and only $18B in government support. So farmers’ income to aid ratio is 21.6% while Big Oil is 14.6%. So it would seem to me that it is the farmer who is actually making people make the choice between heating their homes and eating, not the oil companies.

Maybe the right thing to do is have no subsidies for anyone and let consumers choose what the right price for energy and food is in the market place. Why do any of these for profit entities need tax payer support? If they cannot stand on their own two feet, they should be allowed to fail, even farmers. Get the land in the hands of farmers that can be more efficient and deliver food to consumers that is cheaper. That is the humane thing to do, even for the farmers.