The Heritage Foundation has released an in-depth and unique report that analyzes the question of whether agricultural producers and ranchers need government intervention in order to manage risk.
Many agricultural special interests are already attacking the report, showing a surprising level of vitriol. This is a shame given that the report is designed in large part to start a thoughtful discourse on the issues. After all, agricultural policy impacts all of us.
Here are some of the myths that are being thrown around regarding the veracity of the report, along with the facts:
Myth: The report cherry-picks data by not looking at debt-to-asset and debt-to-equity ratios beyond 2014.
Fact: This may be a first: criticizing data as being cherry-picked when 55 years of data are used. As stated in the report, since 1960-2014, debt-to-asset and debt-to-equity ratios have been consistently low. The report provides a 55-year average and a 10-year average of these ratios.
The report didn’t use data beyond 2014 because 2015 and 2016 were forecasted numbers when the data were calculated (2016 is still a forecast).
Based on data just released, the debt-to-asset ratio for 2015 (12.3 percent) and 2016 (12.4 percent) is below the 55-year average from 1960 to 2014 (15.5 percent), and right around the 10-year average from 2005 to 2014 (12.2 percent). The debt-to-equity ratio for 2015 (14 percent) and 2016 (14.2 percent) is below the 55-year average (18.4 percent) and right around the 10-year average (13.96 percent).
U.S. Department of Agriculture Secretary Tom Vilsack just stated, regarding the release of new USDA data, “The estimates today also showed that debt to asset and debt to equity ratios—two key indicators of the farm economy’s health—continue to be near all-time lows.”
Myth: The report cherry-picks data by focusing on income when agriculture was doing really well.
Fact: The report uses 53 years’ worth of average farm household income and 24 years of median farm household income data (these data come from the USDA and cover all the years provided).
Myth: The report is dated in that it claims agricultural producers are doing well financially, and the report ends its analysis in 2013. Since 2013, net farm income has dropped 56 percent.
Fact: There’s nothing outdated about the data that show producers are doing well financially. In Vilsack’s recent statement, he explains, “In addition to strong balance sheets, median household income for farming families remains near historic highs.”
The report actually provides mean and median farm income up to 2014, the latest data available. Median net worth was based on 2013 data because this allowed an apples-to-apples comparison of the median net worth of all households. It also so happens that 2014 and 2015 median farm household net worth was greater than in 2013.
Here comes the irony: these same groups complaining about cherry-picked data are cherry-picking data to try and make their points. According to the USDA, except for 2011, which was slightly lower at $113.5 billion, 2013 was the highest year of net farm income by far ($123.8 billion) during the 2000-2016 time period.
This is critical because as net farm income is now forecast at the more typical $71.5 billion for 2016, these special interests can show a big decline by starting their analysis with the unusually high year of 2013.
They even exaggerated the decline, which is 42 percent based on the latest data (2013 compared to the latest forecast for 2016). The 56 percent number is based on the USDA’s outdated (and wildly inaccurate) forecast for 2016. In fairness, one group attacking the Heritage report did say the decline was more than 40 percent, not 56 percent.
Myth: The report inappropriately compared farm household income and wealth to that of all U.S. households instead of comparing farm households to small businesses.
Fact: Is the USDA wrong in comparing mean and median farm households to all U.S. households? This is a common comparison long used by the agency.
This comparison has historical significance because subsidies were viewed as a form of social welfare in the 1940s to help address the deep poverty of farmers. During that time, as explained by the USDA, “per capita income of farmers was, on average, 50.7 percent that of nonfarmers.”
The report doesn’t use the data to argue that agricultural producers do better financially than all small businesses. If it did, and then used these specific data, the agricultural special interests would have a point.
These data are used to show a very simple and well-established point: Farm households have greater incomes than nonfarm households and have about 10 times the median net worth of all U.S. households. This may be a point that agricultural special interests don’t want people to realize, because after all, the myth of the struggling farmer is a nice myth for them to perpetuate.
On a related note, the report does use exit rate data to compare farms and small businesses. Farms have at worst about the same exit rates as all small businesses, and most likely significantly lower exit rates.
Myth: The report wouldn’t give farmers a viable safety net.
Fact: The report recommends moving away from subsidies, but in doing, so providing protection for farmers against deep yield losses. This means programs like the disaster assistance programs would remain intact. The report would also maintain the federal crop insurance program and properly get it back to its mission of protecting farmers from disasters.
A safety net is meant to help people when they “fall,” to enable them to get back on their feet. The current “safety net” is helping to make sure farmers, including primarily large agricultural producers, make as much money as they had expected.
The report does argue that taxpayers shouldn’t fund programs like the new Agricultural Risk Coverage program that protects farmers from “shallow losses,” or in other words, just minor dips in expected revenue that often could be due to ordinary business risk.
The federal sugar program that artificially drives up the price of sugar should be eliminated. Consumers shouldn’t have to pay hidden taxes because of artificially high prices due to central planning policies, which are estimated to cost consumers more than $3 billion a year. Other industries shouldn’t be severely harmed through this cronyism. For example, according to the U.S. Department of Commerce, for every one sugar-growing and harvesting job that is saved through these higher prices, nearly three confectionery manufacturing jobs are lost.
Under the current “safety net,” farmers can have bumper crops and still receive indemnities under the federal crop insurance program. There don’t have to be any yield losses or anything remotely resembling a natural disaster under the taxpayer-funded crop insurance program.
Relatively new revenue-based insurance policies (starting in 1997 and becoming prevalent just over the last 15 years or so) have taken over the federal crop insurance program, seeking to insulate farmers from market forces. The report recommends getting rid of such policies, but still maintaining yield-based policies, which is what the federal crop insurance program was only supposed to cover in the first place.
On top of all the programs that would still remain, the report recommends providing block grants to states, funded from one year’s worth of the savings achieved. States, which know their interests better than the federal government, can use this money to help with this transition away from many of the subsidies, or they can utilize the money for other agricultural purposes that best meet the specific needs of their states.
Many of the attacks on the report have also been ad hominem attacks, for example, suggesting Heritage is anti-American. Only extreme special interests would think that trying to promote freedom and limited government isn’t American.
The hysterical arguments simply provide proof that these defenders of the agricultural status quo can’t defend the extreme nature of today’s agricultural subsidies that primarily protect large producers even when they just don’t get as much revenue as they had expected. Of course, given the indefensible nature of the status quo, maybe their hysteria is understandable. Meanwhile, Heritage will work in a thoughtful and respectful manner to help shape agricultural policy.