Funding for Farmers Is a Tough Row to Hoe: The Farm Security and Rural Investment Act, Commonly Known as the 2002 Farm Bill, Provides Welcome Supports to Southeastern Farmers Facing Uncertain Times. Some Opponents to the Bill, However, Question Whether the Cost Is Worth It. What Are the Current and Long-Term Implications of the Evolving Agricultural-Subsidy Picture? (Cover Story)

Article excerpt

For most Southeastern commodity farmers, the Farm Security and Rural Investment Act of 2002 (farm bill) provides a crucial safety net in uncertain times of lagging global economies and complicated trade considerations. Faced with some of the lowest prices since the Great Depression and a succession of weather-related disasters ranging from drought to deluge, most growers welcome subsidies that will guarantee income even in bad years.

While the 2002 farm bill, which will deliver $16.5 billion in annual farm subsidies, brings immediate and much-needed security for the region's agricultural industry, its implications over the longer haul are less certain. According to University of Georgia (UGA) agricultural economist Don Shurley, the bill overlooks some critical issues. For example, generous target prices for some commodities will also drive up land rents, lowering farm earning potentials for the many growers who lease land (42 percent of farmers nationally in 1999, according to the U.S. Department of Agriculture). As competition for agricultural support increases among regions, Southeastern farmers may have to defend the higher subsidies required to maintain input-intensive crops such as cotton, sugarcane and peanuts, according to UGA economist Nathan Smith.

Without agricultural subsidies, farmers in developing nations are sometimes driven from their own markets--not to mention from export markets--by low commodity prices caused by overproduction and by restrictive tariff arrangements. In the United States, lawmakers trying to avoid these pitfalls find themselves increasingly squeezed by pressures to address global trade issues, meet the needs of their farming constituents and act on national security concerns over the need for safe, reliable food sources.

The difference between bills: 1996 and 2002

Lawmakers crafted the 1996 Freedom to Farm bill to encourage a transition from government-dependent agriculture to a more market-oriented industry. While many supports remained in place in the 1996 bill, including the peanut quota system and sugar provisions, other subsidies were reduced, and spending caps were set at progressively lower levels for each succeeding year. The 2002 bill, which restores a safety net for farmers during adverse growing or economic circumstances, represents a 67 percent increase over what farmers would have received under the 1996 bill (see the table on page 4 for state-by-state comparisons).

According to Larkin Martin, a cotton farmer in Alabama and an Atlanta Fed board member, lawmakers drew up the 1996 bill in an environment of global economic exuberance. Responding to dramatic increases in demand, especially from Asian nations, farmers were poised in the mid-1990s to make money even without supports, and the Freedom to Farm bill seemed like a good idea. But when many Asian economies collapsed, so did farm prices, and the result was a crisis for domestic growers. As plummeting prices combined with weather disasters, farmers were forced to appeal to the government for emergency assistance. Congress allocated more than $22 billion in emergency farm aid between 1998 and 2000.

Though bill opponents are still reeling from sticker shock over the $189 billion that the 2002 bill allocates to farmers over the next 10 years, defenders point out that the amount is not significantly higher than what was included in the 1996 bill if the massive outlays for disaster relief are factored in. The new bill institutionalizes relief from bad times rather than dealing with such eventualities on an ad hoc basis. The bill also provides fixed direct payments and counter-cyclical provisions to assure farmers of sufficient income to break even, creating a better lending climate. Both provisions may be essential if farmers are to continue doing business. Like the 1996 bill, the 2002 bill allows farmers to grow crops in response to markets rather than fixing production choices in historically established patterns. …