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Ag economist slams farm programs

Achtung! Warning! Those with delicate constitutions, proceed with caution…. Chances are almost certain you aren't going to like what Luther Tweeten has to say. He'll assert your reliance on subsidies is akin to a junkie's need for his drug of choice. He'll say you've probably paid too much for land, that your career of choice comes at too high a price for non-farming U.S. citizens, and that you've been lead down a path of prosperity at the unnecessary expense of tax dollars and foolish politics.

However, the retired economist and author has the ear of many politicians and their advisors. As such, you should know what he believes and unabashedly proposes.

At Arkansas State University's Agriculture-Business Conference, Tweeten presented his views and verbally sparred — in a good-natured manner — with other economists. Surprisingly to Tweeten, the large audience received his talk calmly — something he says is rare at other venues.

A few days after the conference, the professor emeritus at Ohio State University spoke with Delta Farm Press about his views on where U.S. farm policy has been, where it stands now, and where he sees it heading. Among the questions and answers:

Q: So, how did you find the ASU meeting?

A: I enjoyed the meeting and debate. I hope I didn't offend too many farmers. I'm from a farming background in Iowa. I have five brothers and a sister who all farmed until retirement.

They gave — and continue to give — me a hard time for my views. But I think they're like many farmers who feel they must protect their turf. Despite our differences of opinion on ag policy, I have the absolute highest regard for them.

Q: How did you come to your position on subsidies?

A: I've gradually gone through a transition. I think there was a time when a case could be made for farm subsidies. In the 1930s, farm income averaged only 40 percent of non-farmers' per household. Furthermore, there was a technological revolution with the tractor, combine and other machines and it was really tough for farmers to adjust to that.

Data from the late 1950s shows that excess labor on farms was close to half. There was great disequilibrium.

That's no longer true. We live in a totally different world. Farmers are no longer a disadvantaged group. In fact, farmers are doing better than non-farmers on average.

It's just difficult to find any economic justification for continuing farm programs — other than as a phase-out.

Q: At the ASU event, you likened the situation with ag programs to supporting a drug addict's addiction. Is that a legitimate correlation?

A: Yes. If you talk to a drug addict, they say, “I can't get along without this drug” while the drug is slowly destroying them. It's even harder for them if someone else is paying for the drug they abuse. The benefits are lost to farmers, just as they are with addicts. The highs soon wear out and the drug must be taken just to be normal.

It's the same with farm programs. The benefits are quickly capitalized.

There was a study done at Ohio State that found program benefits are passed to landlords to the tune of 60 percent in a one year. In the case of land purchase, there is also a loss.

Why? Because the new purchaser pays the capitalized value of all future benefits on the land. The benefits are thus lost to the new buyer. Only about 1 percent of land changes hands every year in a way that transfers program benefits.

The USDA has estimated that 25 percent of current land values are due to farm commodity programs.

So it is like a drug habit. You no longer get the highs, but you can't get off the substance because the withdrawal symptoms are severe. If a farmer pays 25 percent too much for land, it works much the same. If the programs are removed, the poor guy who paid the extra rent or price feels a lot of pain.

Some farmers may argue that we wouldn't raise much sugarcane or sugar beets without the programs. That's true in some areas. But we don't produce bananas, cocoa, coffee or tea because that isn't where our comparative advantage lies. We'll do better as an economy — and we'll have a stronger constitution — if we stay away from commodity programs.

Q: But you also say it's a bad idea to cut a drug addict off cold turkey…

A: That's right. I thought the 1996 farm bill was going in the right direction.

We need a phase-out — say over five to 10 years — announced well in advance so everyone knows it's coming. If someone is bidding for land, they won't bid as much because the benefits are leaving.

But the government must show some backbone and stick with the phase-out. They didn't do that with the 1996 legislation.

I'm very much in favor of providing personal and financial counseling for farmers. The Labor Department can help with job training, job information and relocation assistance. But nowadays, farmers have all kinds of experience with off-farm employment and skills and they're very flexible. The larger farmers are very efficient and, if they didn't pay too much for land, will be okay

At least that's true for any commodity where the United States has a comparative advantage over a foreign nation.

Q: How about the arguments that farming is inherently volatile, that other countries are subsidizing their farmers and thus we need to continue ours?

A: The Europeans are paying roughly double what we are for farm programs. Their economies are being damaged terribly. They're suffering from Euro-sclerosis.

When you see someone shooting themselves in the foot, there's no reason to follow suit. The big losers from agricultural interventions are the countries that intervene. In other words, the big losers are Europe, Japan, South Korea and others.

Unfortunately, the United States is also a big loser. Our national income is $6 billion to $12 billion lower per year because of farm programs. Now that doesn't seem like a big deal in an $11 trillion economy. Still, there's the famous quote: “A billion here, a billion there soon adds up to real money.”

Q: What are you hearing from farmers? Did you get any reaction from the crowd at Jonesboro, Ark.?

A: Not much. That was surprising because I usually get stronger negative reaction than I did at that meeting.

Q: Do you think it's because of Southern manners? Because of the venue?

A: Maybe it depends on where you are in the South. I debated Ron Knutson, a Texas A&M economist, in Texas and said many of the same things I said in Jonesboro. The crowd there was much more hostile. One farmer said only two words to me: “You're dumb.”

Farmers don't like this message and you can't really blame them. The one thing I've learned in 40 years as a professional economist is that people are very good at rationalizing their self-interests. That applies not just to farmers but college professors, reporters — who will defend the First Amendment come hell or high water — and nearly everyone else.

The point is that everyone is very good at rationalizing.

And my debates with Darryl Ray (director of the Agricultural Policy Analysis Center at the University of Tennessee who supports subsidies and also spoke at ASU) and others are friendly. Darryl and I are good friends. He's a good guy regardless. We just agree to disagree on some economic points.

Q: If farm subsidies were phased out, what would be the fall-out?

A: There would be financial difficulties and the federal government would have to step in and help farmers out with loans to those who'd paid too much for land.

There are studies on who is most vulnerable in agriculture. It's across the board in size and types of farms, but best estimates are that 4 percent of farmers are financially vulnerable. By vulnerable, I mean farmers who have negative cash flow from farming and they have a debt/asset ratio of 40 percent or more.

There are arguments that it's less than 4 percent of farmers because off-farm income isn't calculated in. I've talked this over with many smart economists. We don't have very good empirical estimates, but I think if subsidies were dropped around 10 percent of farmers would leave agriculture.

That's the highest estimate I've seen. I hasten to add that the 10 percent would likely leave anyway — their timetable would just be pushed up.

If 10 percent did leave, we're talking about 200,000 farmers.

If we did away with the programs, there would be plenty of money to help the relatively few farmers who would have to make adjustments. We could spend a lot of money to help them and still move to a market-oriented agriculture.

Q: Can you elaborate on instances you think farm subsidies are good idea?

A: Subsidies didn't really come on in a big way until 1933. At that time, poverty was rampant throughout farming households….

Q: Okay, assuming subsidies were done away with. What conditions in the future would trigger new subsidies?

A: That's partly an economic question and partly political. Economically, I don't think anything would justify the government getting into agricultural subsidies again.

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