Payments by US Farm Safety Net Program: Differences by Crop
10 May 2013
US – An important aspect of the on-going debate over the new farm bill is the proposed elimination of direct payments. This proposal differentially impacts the program crops, prompting a debate among crops and geographical regions over the distribution of payments by farm safety net programs, writes Carl Zulauf and Gary Schnitkey.
The comparison begins with the 2003 crop year because the counter-cyclical program, an important price risk program, was initially enacted in the 2002 Farm Bill.
Distribution of Direct Payments among Crops
Direct payments ranged from 1.3 per cent and 2.0 per cent of crop sales for oats and soybeans, respectively, to 14.9 per cent and 16.2 per cent of sales for sorghum and rice, respectively (see Figure 1). Thus, the elimination of direct payments will have notably different impacts across the program crops. Figure 1 underscores that, while it is straightforward to note that society questions the appropriateness of making $5 billion in annual direct payments with near record crop income; it is less straightforward how to address the differential impact by crop of eliminating direct payments. Source of the data are the U.S. Department of Agriculture (USDA), Farm Service Agency (FSA). When interpreting this ratio, it is useful to keep in mind that sales are based on production and hence planted acres while direct payments are based on historical base acres.
Direct Payments vs. Net Crop Insurance Payments by Crop
Eliminating direct payments would make crop insurance the primary farm safety net program, culminating a 30-year trend toward an increasing role for crop insurance. Thus, it is important to compare the distribution of payments by these two programs by crop.
Figure 2 presents net crop insurance payments expressed as a percent of crop sales. Net crop insurance payment is calculated as crop insurance indemnity payments received by farms minus the premiums paid by farms. Figure 5 is also generated to facilitate comparison. It presents this difference: net crop insurance payments minus direct payments, both expressed as a percent of sales. Source of the data are USDA, Risk Management Agency (RMA). As can be seen, payments differ across crops, with a range of 8.4 per cent for cotton down to .7 per cent for rice.
The distribution of net crop insurance payments in Figure 2 differs from the distribution of direct payments in Figure 1. Net crop insurance payments and direct payments as a percent of crop sales are most similar for corn and soybeans, as well as oats. This similarity, together with the smaller size of direct payments relative to sales, is consistent with the generally=accepted observation that Midwest corn and soybeans are more willing to accept the shift to crop insurance than other crop-region combinations.
Net crop insurance payments are only 0.7 per cent of rice crop sales while direct payments are 16.2 per cent of rice crop sales. The difference of -15.5 per cent is more than twice as large as the next biggest difference, -7.1 per cent for sorghum. Thus, Figure 5, together with the relatively large size of direct payments to rice (see Figure 1), illustrates why rice is so concerned with the shift from a direct payment to a crop insurance based farm safety net.
Statistics: Posted by yoda — Sat May 11, 2013 11:27 am
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American alliances are systems that transfer wealth from U.S. taxpayers and their debtors to citizens in wealthy allies. With Uncle Sam paying for those countries’ defense, their governments are free to use their own revenues for welfare programs or other domestic priorities. This is a sucker’s bet from an American perspective, but pretty great from the perspective of the citizen of a rich country who benefits from this largesse.
The Wall Street Journal’s news section over the weekend showed this phenomenon in an article illustrating the wages of sequestration. In the course of trimming the U.S. troop presence in Europe from 74,000 to 67,000 over two years, the strategically vital hamlet of Praia da Vitória in the Azores will be particularly hard hit. You see, the U.S. military presence will be reduced there, possibly by more than 1,000, devastating the economic well-being of the village, population 22,000.
One sympathizes with the Portuguese citizens who, over three generations, have come to rely on U.S. taxpayer dollars for their well-being. They don’t really know a world without that economic nourishment, so it must be unnerving to think about what will happen without it.
The story reads like a bad breakup. One U.S. official quoted in the article charged with breaking the news that we’re just not that into them remarked that the Portuguese felt “we are no longer important to you and we have been your best friend. They took it personally.” Worse, they felt “strategically devalued.” Other unnamed officials rubbed salt in the wound, noting the danger that the removal of U.S. troops threatened to “diminish the continent’s value as a strategic partner,” implying that its strategic value is provided by Washington.
The article also noted that the Portuguese are already whispering about having their eye on another suitor:
Since word of possible cutbacks at the base surfaced a year ago, rumors began circulating that the Americans would leave [the base] entirely, and that China, which has growing economic ties with Portugal, would establish a naval base their to patrol the Atlantic.
An American conservative movement worthy of the name would realize the economic strain the country is under and wouldn’t be embracing situational Keynesianism and trying to insulate the bloated military budget from cuts. It would be pointing out that this system of transferring money from U.S. taxpayers to taxpayers in Japan, or Germany, or Portugal is bad for Americans, unconservative, and unnecessary.
Unfortunately, we don’t have that kind of conservative movement.
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The Washington Times noted this week that the 2012 improper payment rate for unemployment insurance benefits was 11.4 percent ($10.3 billion out of $90.2 billion), according to U.S. Department of Labor data. The good news is that the figure is down from 12 percent in 2011. The bad news is that it’s still a pathetic waste of money.
The waste, fraud, and high administrative costs associated with the program are just some of the reasons why it should be scrapped. A Cato essay on the failures of the unemployment insurance system explains:
When policymakers dream of ways to provide subsidies and safety nets to groups in society, they rarely take into account the large bureaucratic costs that are inevitably involved. The UI system is a complex and costly system for governments and businesses to administer.
State governments must raise taxes from almost 8 million businesses, with tax bills specifically calculated for each firm’s experience rating. At the same time, the states dole out individually calculated benefits to millions of workers and monitor whether each person making a claim is currently eligible. Businesses and states need to adjudicate the many disputed claims for benefits, and states need to police UI tax evasion as businesses try to manipulate the system to get a lower tax rate.
Federal and state UI administration cost taxpayers $5.9 billion in 2010. Despite this large cost, there is widespread concern among experts that the UI system is “in long-term decline” from an administrative perspective. UI computer systems are apparently far outdated in many states, and administrators say that they need more money to do their jobs competently.
One problem is that state UI tax systems are very complex. There are four different experience-rating systems, and there are three different methods of determining which businesses to charge when a worker makes a claim. States have various exclusions to the UI tax base, and new businesses have special rules because they don’t have an experience rating yet. Most states also impose a range of added charges to basic UI taxes, such as solvency taxes, taxes for socialized costs, reserve fund taxes, and various surtaxes.
Employers face substantial costs to deal with all the paperwork and tax planning needed to comply with the UI system. For example, the National Federation of Independent Business notes that regardless of eligibility, “many departing employees automatically file for unemployment compensation. They have nothing to lose; filing a claim costs nothing and it puts the ball in the employer’s court.” Businesses are then forced to spend time and money fighting unjustified claims.
There is a substantial amount of waste, fraud, and abuse in the UI system. Many people try to grab benefits improperly, including people who are ineligible, people who are not actively looking for work, and people who have taken jobs and neglect to report it. Other problems include the misreporting of earnings, the provision of false ID to gain benefits, and falsifying reasons for employment termination… If you Google the phrase “unemployment benefits fraud,” you find a huge number of news stories.
The bottom line is that government benefit programs such as UI are subject to large administrative costs and widespread abuses, which represent losses to taxpayers and the economy. The larger subsidy and benefit programs become, the larger the army of people doing paperwork and transferring wealth in society, rather than adding to wealth by producing real products.
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Quantitative addiction and the allure of low interest rates – US paid $454 billion in interest payments alone in 2011. Equity in real estate for households cut in half.
Posted by mybudget360
Today I was looking at the total public debt outstanding and the current figure seems surreal. The total public debt outstanding is now up to $16.27 trillion. We’ve been on this path for many decades of spending more than we earn but the problem is we are reaching a peak debt situation. It is hard to say how much debt is too much debt for a country but a generally agreed upon figure is when the debt goes above 100 percent of annual GDP then issues begin to arise. The US fortunately is able to get incredibly low interest rates on world markets by a variety of methods including having the Fed use quantitative easing techniques. Given the size of our debt, low interest rates are sold as an aid to US households but the reality is that a more important reason is to keep payments on interest lower. What are the consequences of too much debt?
Debt versus production
Too much debt is never a good solution to fixing an ailing economy. The allure is easy and it is understandable why countries would embark on this easy path. Yet reverting back to a more normal balance is rarely that easy. Recently our total public debt surpassed annual GDP:
Clearly this is the worst recession since the Great Depression. On the back-end, the bailout mechanisms are still fully in place. When you have solvency issues adding more debt simply pushes out the pain deeper into the future. The Federal Reserve with Quantitative Easing sold it as a way for US households to get easier access to cheap money. But if we look at interest payments we begin to realize what is going on:
Last year we paid out $454 billion in interest payments. If you run the numbers on this, assuming a similar amount paid out in 2012, we are only paying 2.7 percent on our total debt. This is an incredibly low blended rate. Keep in mind new issuances are at even lower levels thanks to the Federal Reserve. This is really the big addiction. Say rates went up to a modest 5.4 percent we would be paying out $908 billion a year in interest alone! And a large portion of this debt is now held outside of the country:
Over $5 trillion of our debt is held by foreign institutions and investors. Given that our entire global economy is interconnected, a surge in interest payments for us is going to sap out productivity from the world’s number one economy. What do you think this will do to interest rates? Our trading partners especially with China are more than willing to lend out money at lower rates since they need the US consumption machine to keep going so more Chinese can find work. Their concerns are very much the same as our own.
Yet if you look at places like Spain you will find the issues of solving a solvency crisis with more debt. At the core of the problem was the real estate bubble bursting. Let us take a look at the number one asset for Americans, real estate:
At the peak of the mania, US households had nearly $14 trillion in equity in their properties. Today, that number is still cut in half hovering at roughly $7 trillion. All the bailouts and other measures still have real estate wealth near the trough. This is why for most working and middle class families the recession still feels very much in place. Also, you have a large portion of recent buyers entering with low down payment mortgages so not much equity has been built up. Those low interest rates do help but again the bigger help is largely directed to banks and the government that are now stuck with the low interest rate appetite.
We have a complicated interconnected system in place. There are now more and more hints that the Chinese real estate market is taking a leg down. This is another potential problem looming. Again, too much speculation and too much debt are at the core of these issues. The problems in Europe are not gone. In fact, Europe has now slipped into another recession and their unemployment rate is at the highest level on record. As a trading bloc, this is the biggest economy in the world. This will have larger ramifications on the global economy.
The US is now going to have Quantitative Easing into infinity similar to what Japan did. But this can only occur as long as the markets are willing to invest in such low rate levels. In Europe the market is already bailing out. If China’s economy slows a bit their appetite will pull back. Japan is dealing with their own internal issues. The core problem is still here. Too much debt and a crisis brought on by solvency.
Statistics: Posted by yoda — Mon Nov 19, 2012 9:03 am
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WEST LAFAYETTE, Ind. – Low crop yields from this year’s drought could mean an inability of some farmers to meet farmland rental agreements if they suffer major losses of income.
The possibility means tenants and landlords need to communicate with one another, and both parties need to review the terms of lease agreements.
"The ability to meet rent payments will vary widely among tenants due to the differing financial impacts of the 2012 drought," said Chris Hurt, Purdue Extension agricultural economist.
Contributing factors include final crop yields, final grain prices, the amount of production that is forward-contracted, level of crop insurance coverage, if any, whether there is livestock involved, and a producer’s financial strength heading into the 2012 drought.
But regardless of financial circumstances, Purdue Extension agricultural economist Gerry Harrison said tenants and landlords are legally locked into lease agreements.
"The law is clear on the duty to perform under a contract," he said. "A cropland lease, oral or written, is a contract."
A tenant’s overall financial position will couple with the type of lease agreement to determine whether rent can be paid and what options tenants and landlords have. Common lease agreements include crop sharing, straight cash rent or a variation of the two.
"If it is a crop share lease, the landowner is in a similar position to the tenant," Harrison said. "If the lease is a ‘flex’ lease, what is the flex provision? If the flex is based on crop yield, the lack of yield may remove any liability the tenant has, based on the flex provision.
"If the flex lease is based on price for the crop, the tenant with a short crop may have a serious problem."
Under Indiana law, a landlord can terminate a lease with 10 days’ notice if a tenant doesn’t pay rent when due, unless both parties agree otherwise or if the tenant pays the rent in full within the notice period.
"At the very least, some flexibility in non-payment of rent by the due date might be needed this year until a crop insurance payment or a loan becomes available to the tenant," he said.
Statistics: Posted by yoda — Sat Aug 04, 2012 12:02 am
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In another sign of the slowing economy, corporate tax payments to the federal government have slowed dramatically, according to the latest estimate Thursday by the Congressional Budget Office.
In its monthly budget review the CBO said corporate taxes have grown 39 percent in fiscal year 2012, but most of that reflects activity through December. Looking only at April and May, which the nonpartisan budget agency said "more closely reflect profits during this calendar year," payments were up only 4 percent over last year.
Overall CBO analysts said the federal deficit stands at $845 billion for the first eight months of the fiscal year, which began Oct. 1. That’s better than 2011, when the deficit was already at $927 billion at the same point.
The government actually ran a surplus in April — the first since the last months of the George W. Bush administration — but dipped back into the red in May, notching a $125 billion deficit, or more than twice last May’s deficit of $58 billion.
Year-to-date spending is about the same as 2011, with defense, unemployment and Medicaid payments dropping while Social Security and Medicare payments have grown.
The CBO does a preliminary estimate each month of the government’s fiscal picture. The Treasury Department will release official data later this month.
Statistics: Posted by yoda — Thu Jun 07, 2012 1:37 pm
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WASHINGTON (AP) — A program that puts billions of dollars in the pockets of farmers whether or not they plant a crop may disappear with hardly a protest from farm groups and the politicians who look out for their interests.
The Senate is expected to begin debate this week on a five-year farm and food aid bill that would save $9.3 billion by ending direct payments to farmers and replacing them with subsidized insurance programs for when the weather turns bad or prices go south.
The details are still to be worked out. But there’s rare agreement that fixed annual subsidies of $5 billion a year for farmers are no longer feasible in this age of tight budgets and when farmers in general are enjoying record prosperity.
About 80 percent of the bill’s half-trillion-dollar cost over the next five years represents nutrition programs, primarily food stamps now going to some 46 million people. About $100 billion would be devoted to crop subsidies and other farm programs.
The Senate Agriculture, Nutrition and Forestry Committee last month approved a bill that would save $23 billion over the next decade by ending direct payments and consolidating other programs. The bill would strengthen the subsidized crop insurance program and create a program to compensate farmers for smaller, or "shallow," revenue losses, based on a five-year average, for acres actually planted.
Getting a bill to the president’s desk will be a challenge. Most of the bill’s spending is on the Supplemental Nutrition Assistance Program, or food stamps, at an annual cost now of about $75 billion. The Republican-led House is looking for greater cuts to this program than the Democratic Senate will accept.
The House also is more sympathetic to Southern rice and peanut farmers who say that shallow loss program hurts them. They want to keep some form of target price subsidy.
The current farm bill expires at the end of September.
But the Senate bill, and presumably the yet-to-be-written House counterpart, "makes clear that the era of direct payments is over," said Democratic Sen. Debbie Stabenow of Michigan, who heads the Senate committee. She said the Senate bill "represents the most significant reform in American agriculture policy in decades."
The White House, which also is pushing for the end of direct payments, says more than 50 percent of the subsidies go to farmers making more than $100,000 in income.
Direct payments are only one of several ways the government ensures that farmers are protected from falling prices or weather disasters. The Congressional Research Service estimates that under current law, the government will spend $5.7 billion a year on commodity programs, including direct payments, along with $1.5 billion a year on disaster aid and $9 billion a year to subsidize crop insurance.
The Agriculture Department says that in 2011 the government paid farmers about $10.6 billion, including about $3.6 billion for conservation programs, some 10 percent of the farm sector’s record-high net cash income of $108.7 billion
According to the Environmental Working Group, in the 1995-2010 period, the top 10 percent of payment recipients received an average $30,751 a year while the bottom 80 percent got $587 a year.
Direct payments were initially supposed to be a "market transition" device after the 1996 farm bill eliminated other price supports. But those payments became entrenched when farm prices dropped in the next few years and farmers went through a rough period.
Farmers are now willing to give up direct payments because of their increasing reliance on crop insurance. Insured acres have risen from 45 million in 1981 to 265 million in 2011, to the point where 83 percent of the nation’s farmed acreage is covered by government-subsidized insurance programs.
The government chips in for an average 62 percent of the farmer’s premiums, which supporters insist is different from a direct subsidy because the premiums go into a risk pool to pay for future losses.
The proposed shallow risk program would cap annual payments at $100,000 for a married couple and restricts it to farmers with adjusted gross incomes of less than $750,000. But there are no such caps on the insurance program, drawing criticism from some small government groups. The Senate bill, said Taxpayers for Common Sense, "does nothing to rein in the exploding costs of taxpayer subsidized crop insurance."
The Congressional Budget Office estimated that the government could save $1 billion a year by reducing the premium subsidy by 10 percentage points. The Government Accountability Office says it could save an additional $1 billion if individual farmer subsidies were capped at $40,000 a year.
The GAO said that in 2011 the average value of premium subsidies was $8,312 per farmer, and that one corporation that insured nursery crops in three counties in one state cost the government $2.2 million in premium subsidies and $816,000 in administrative expenses.
Agriculture Secretary Tom Vilsack has suggested lowering the premium subsidy rate, reducing insurance company returns on investment and cutting payments to farm insurance agents from $1,000 a policy to $900 to save money.
Farm groups argue that higher premiums would result in farmers insuring fewer acres and exposing taxpayers to more special disaster aid in bad times. The American Farm Bureau Federation opposes any changes in current farm bill payment limitations and means-testing provisions.
"Simply stated, payment limits bite hardest when commodity prices are lowest," the federation’s president, Bob Stallman, said at a recent House hearing.
Statistics: Posted by yoda — Sun Jun 03, 2012 10:30 pm
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