While the Congressional committees prepare proposals for a new Farm Bill, budget watchers have been raising the red flag of warning that too much money is being spent. Although farm programs are only ½ of one percent of the federal budget, there are many critics of how USDA funds are spent and distributed. Farmers who are receiving the controversial payments should be fully aware of how those funds are allocated because you have a seat at the table.

Farm program payments began as a means of ensuring there were enough farmers to provide food to a starving nation in the 1930’s. While that may be a tangential reason today for farm program payments, they have a significant role in keeping family farm operations in the black, and play a role for farm household budgets. That is the contention of USDA economist Robert Hoppe in his analysis, The Importance of Farm Program Payments to Farm Households.

Hoppe says USDA distributed $112 billion between 2000 and 2005 in the form of direct and countercyclical payments, LDP’s, and various disaster and conservation payments and grants. Payments are generally small for the less than half of the farmers who receive them. But because the size of their operations increases their eligibility, a few larger operations receive a greater share of the payments. The economist notes that larger operations, whether land is rented or owned, will have multiple households involved that might share in the farm program payments, diluting the impact of the payments to the operation. Additionally, the farm program payment become less important if there is non-farm income in the family budget.

Hoppe found that 75% of large family farms receive payments; and about half of small commercial farms do, as do a third of residential/retirement farms. That is primarily connected to production of program crops, and the smaller farms are more likely to have livestock making up part of their household income. However 58% of the farm program payments go to large family farms which produce 61% of the USDA program crops. Residential/retirement farms make up two-thirds of all farms and receive over half of all of the conservation payments, since many of them may have CRP land, which is 82% of all conservation payments.

The primary income for typical US households is wage and salary income, which is steadier than the great variability in farm family households. Policy makers see one of the functions of farm program payments is to provide financial stability. Hoppe says for most farm operations farm program payments are “a relatively small share of cash receipts and play only a minor role in smoothing out the effect of variable farm incomes on farm household well-being.” He says accumulated household wealth and off farm income play a much larger role than farm program payments within the total family budget. He says 15% of farms in 2005 received more than $10,000 in USDA payments, but payments went up as farm sales increased. The average payment was $76,900, and Hoppe says in that territory, "The importance of the payment to the well-being of even these high-payment farm households is likely to be overstated.”

While critics may find fodder in those statistics, they should acknowledge that farm program participation comes with obligations as well.
1) Receipt of some payments such as CRP does not indicate money is received on top of other money earned, but replaces lost crop income.
2) Some conservation payments are in exchange for expenses incurred for installing certain conservation practices, and converting the land from productive to a public conservation benefit that is a net loss to the producer.
3) Larger farms are more likely to rent significant portions of the land in the operation. Many of the farm program payments have been capitalized into rental rates that go to the landowner, and only pass through the operation bank account.
4) For larger operations there will be multiple households that will share in the income from the operation, including farm program payments, and that reduces the amount going to each household.

Summary:
One of the lightning rod issues of farm policy debate is the distribution of farm program payments. While the total exceeded $100 billion over a five year period, the amounts received by most operations was quite small, and represented a small portion of their household income. With increased needs for off-farm income, the importance of farm program payments may be seen as diminishing. However, many of the payments per farm operation have to be shared among multiple households. Many of the payments may be for conservation practices, and either replace lost income from CRP acres, or provide an increased public benefit for soil and water conservation.