The Fruit Growers News - October 2001


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For Small Farms Household Income Safety Net Might Be Better than Commodity Programs

By William Lazarus University of Minnesota

USDA has spent nearly $70 billion on federal farm programs since 1996, and those payments have made the difference between profit and loss for many farm operators. The Federal Agricultural Improvement and Reform Act expires in 2002. And as discussions about the next Farm Bill gain momentum, we might consider how the goal of farm household income support fits within U.S. farm policy.

The goals of farm policy were stated by the 21st Century Commission on Production Agriculture as: producing an abundant supply of quality agricultural products at fair prices; maintaining a prosperous, productive economic climate for farmers; maintaining strong family farms as a dominant part of the production system and a high quality of life for all individuals living in rural areas.

The commission’s wording is broad and open to different program approaches. One way to interpret their use of the terms “prosperity,” “family farm” and “quality of life” would be to focus on assuring a minimum standard of living for farm households. The mention of “reasonable prices” also implies attention to controlling production surpluses as well as avoiding shortages. Quality of life and family farm organization also imply protecting the environment and slowing industry consolidation.

Safety net
I use the term “household income safety net” to refer to ways to target farm program payments to households based on some measure of income or living standard. The idea gained visibility when then-Secretary of Agriculture Dan Glickman called 1999 the “Year of the Safety Net.” Economists at the USDA Economic Research Service have analyzed several safety net approaches. Their conclusions are presented on the Web site at www.ers.usda.gov/Emphases/Rural/. The safety net concept might be of interest to those in the Minnesota farm community who are looking for alternatives to traditional farm programs.

The USDA-ERS analysis looked at how the cost to the government and the distribution of benefits across different farm sizes and regions would compare to current direct payments if government assistance were based directly on financial need. They used various target levels of farm household income and implied operator hourly earnings to measure financial need. They found that lower-income farmers would benefit relatively more under the safety net scenarios.

Minnesota farmers overall could receive either higher or lower payments than currently, depending on the income measure used. For example, if payments were made to bring farm household income up to 185% of the poverty line, the cost to the government would be about the same as current programs. (The poverty line for a family of four was $16,400 in 1997; 185% of this amount is $30,340). It was estimated that this scenario would have cost the government a total of $21 billion over the three years 1998 to 2000, compared with the $19.5 billion actually spent.

The income safety net approach is not new. It has precedents in a number of non-farm federal programs. While the safety net approach might help small farms, it has received mixed reviews so far. According to the May 2000 issue of Agricultural Outlook, the analysis has been criticized because of a perceived association of income transfers with social welfare programs.

Critics favor price supports over the income-support approach since commodity price supports carry less of a negative “social welfare” image. Still, small family farms often have relatively high production costs.

William Lazarus is a farm management economist with the University of Minnesota Extension Service.