Seeds of change for farmers: the new law phasing out various federal subsidies is altering the landscape for agriculture - includes related information on the Freedom to Farm Act of 1996

Nation's Business, Dec, 1996 by Stephen Blakely

The new law phasing out various federal subsidies is altering the landscape for agriculture.

For Mike VanCampen, head of family-owned Turon Mill & Elevator, Inc., in Turon, Kan., landmark farm legislation enacted earlier this year is already bearing fruit.

Because the new "Freedom to Farm" law abolished so many government restrictions, the corn and soybean farmers who use VanCampen's services and buy seed and fertilizer from him branched out this year. Many are planting a wider variety of crops; some also are putting more land into production; and most are farming far more productively than they were allowed to under the old farm program.

"We're seeing a lot more interest in rotating crops, which really helps with pest control while also decreasing farmers' costs," VanCampen says. That and other seemingly basic, efficient farming practices were strongly discouraged under the old program, he says, because government support payments limited production and rewarded farmers for planting the same crops year after year.

The new farm law phases out most federal commodity subsidies over seven years, leaving U.S. producers of those crops to fend for themselves in the marketplace by 2002--free of Uncle Sam's rules and financial support.

Farmers will be devoting more of their acreage to more-diverse crops, says Floyd Gaibler, governmental-affairs vice president of the St. Louis-based Agricultural Retailers Association, which represents 1,200 farm suppliers and specialty service operations. "That will require more inputs [fertilizer, pesticides, and herbicides], more transportation and storage, and more trickle-down economic activity," he says.

Increased Flexibilily

Farmers generally are welcoming the new market-oriented approach. In eastern Montana's McCone County--the most payments-dependent county in the United States, according to one recent analysis--Jerry Schillinger, a third-generation family farmer, says: "The thing I like about 'Freedom to Farm' is just that: We do have more flexibility. It allows you to plant what you think you should plant, rather than what the farm program says you should."

Schillinger owns a 1,250-acre wheat operation in an arid, windswept region and is already using his new operational freedom to plant peas, safflowers, and lentils on his former "program acreage," where previously he was limited to growing only wheat. He says he's also growing more wheat than would have been allowed under the old law.

Mixed Emotions

Although the 1996 farm law is generating relief at the sudden independence from red tape and restrictions, it's also prompting some fear and uncertainty over the gradual withdrawal of the federal safety net. Among those who are concerned is Charles Mathews Sr., a fifth-generation rice farmer in Marysville, Calif., the most agriculturally productive state in the nation. He and his son farm 700 acres of their own as well as 3,000 acres for neighbors in an area suited for rice and not much else.

U.S. rice farmers compete with heavily subsidized foreign rice, and some producers such as Mathews won't be able to turn to alternate crops when federal rice payments are gone in seven years.

"This is very poor soft," Mathews explains. "You can't grow row crops or trees or wheat or corn. It waterlogs very easily, which makes it good for rice but bad for anything else. Our choice would be to either grow rice or let it go fallow.

"If the [rice] business goes out, it impacts a lot more people than just the rice farmers. It's the dryers, the truckers, the equipment dealers, the airplane services."

A FAIR Deal

Formally titled the Federal Agricultural Improvement and Reform Act of 1996 (FAIR), the new statute was driven largely by congressional Republicans intent on cutting government spending and regulatory intrusiveness. It was signed into law in April by President Clinton after a bitter, yearlong battle on Capitol Hill.

Much is at stake with the statute. Agriculture and food distribution generate about 16 percent of the nation's income and account for about 21 million U.S. jobs; almost 2 million people are farmers.

Although the new law does not wipe out all of the government's old commodity programs, it does make sweeping and historic changes in farm policy.

The most cos fly farm programs were developed during the Great Society initiatives of the 1960s, when Washington adopted a system of direct income-support payments for farmers who produced the major commodities--the so-called program crops: wheat, corn, cotton, rice, sorghum, barley, and oats.

At their peak in 1987, direct government payments to farmers totaled $17 billion, accounting for 30 percent of farmers' net income that year.

Under the old law, producers of program crops received government checks to make up the difference when market prices fell below government-set target prices for those crops.

The new law eliminates target prices and, eventually, the support checks for farmers. For the next seven years, farmers of those commodities will receive fixed, declining transition payments based on 85 percent of their previous program acreage, regardless of market conditions.