Start 'Weaning Off' of Uncle Sam Now

Profit Planners panelists address reader's concern over the implications of the federal deficit.

Published on: Aug 25, 2010

Editor's note: This is the unedited version of our September Profit Planners panel responses to the following question.

Many of us in agriculture have grown used to "milking" Uncle Sam via farm program benefits, disaster payments, even cost-sharing. Do you see these things ending if our government dives deeper into debt? Any advice on how to "wean off"?

Mike Evanish: For the past few decades, except in times of extreme disaster, Congress has been putting in place programs that both help farmers and cost the Treasury less money. Examples include crop insurance, MILC and more. In my opinion the budget problems the government is currently experiencing can only work to quicken the pace of this frugality.

A quick note on just how quickly the National Debt is growing, I recently read a Washington Times article (July 7, 2010) that stated that on June 30, 2010 the U.S. Treasury borrowed about $167 Billion. This borrowing was more than the entire deficit for the year 2007.

This level of borrowing leads me to the conclusion that all programs will see massive cuts in the near future -- agriculture included. Low interest rates have saved us to this point.

Your second question is much harder to answer. No matter the source, money always comes with strings attached. "Do this and I will pay you that much." Many times the money is given all at once but the strings extend out into the future. So there can be no quick and easy answer.

Not all agricultural production has a program tied to it, however. As an accountant working in ag for over 30 years it was always interesting to witness that crops without programs tended to be more profitable.

What was always unclear was if these profits were the result of no government intrusion, better management skills possessed by the farm operator, location of the farm, soils or what. I bring this up only to reassure you that profits are possible without government payments.

As for the best way to "wean off" the programs, I suggest that you put together a business plan covering the next 5 to 10 years. The immense amount of work needed to look at new crops and new ways of doing things (on paper) will, in the end, guide you to an "operational philosophy" that's appropriate for you.

Once settled on, I advise taking money from all of the programs that fit the philosophy and ignore the rest. The long-term goal of your business plan must be setting up a business that can function without the government money, but that will take all funds that fit the business plan.
 
Dale Johnson: Over 1-trillion dollars of the 4-trillion-dollar federal budget is deficit spending. Farmer's share of the budget for those items mentioned in the above question is about 20 billion dollars or 0.50% (½ of 1%) of the budget and about 2% of the deficit.

Certainly, the federal government can't balance the budget on the backs of farmers. In fact, it remains committed to food security and "cheap food" policies. The farm lobby is still strong.

But a lot of people are becoming alarmed at the deficit's size. And I believe that all types of government spending including agriculture will take a hit in the future.
I like the "carrot approach" of cost share programs that help farmers implement environment improvements on farms. So I hope these programs are lower on the hit list.

I also like the emphasis on subsidized insurance programs and away from disaster payments. I encourage all farmers to take a look at crop insurance and revenue guarantee programs.

East Coast farmers near our huge population centers have opportunity to wean off government commodity programs – transition from grain crops to fruits, vegetables and specialty livestock. I've been amazed at what some farmers are doing to take advantage of developing trends, such as "buy fresh, buy local", "know your farmer", organics, pastured meats, farmers markets, CSAs, etc.

There's evidence that some trends may become main stream. I recently visited a young couple farming a small acreage. They showed me the computer system set up by the up-and-coming Wegmans grocery chain to purchase their produce for local stores.

Wegmans was actually highlighting their farm in the produce section. Watch out Walmart. East coast farmers will have a comparative advantage as food trends change and government reduces support for agriculture.

George Mueller: What a powerful question! Our farms are modern businesses and there's no justification for our government taking tax money from hard working Americans to subsidize our farming endeavors.

I agree with you that it is time for our "nanny" (Uncle Sam) to "let go of the seat of our bicycle", so we can learn to compete in domestic and world markets. Like you, I think we 'll soon be "peddling" on our own without government subsidies, doing just fine, and much better off because of it!

Unfortunately many farmers and farm leaders see nothing wrong with "milking" Uncle Sam. It has been done for so long that we are beginning to think we are "entitled" to government handouts in agriculture. But with trillion-dollar deficits, I'm hoping that such foolishness will end – both agriculture subsidies and trillion-dollar deficits!

 "Weaning" is always a shock to the system whether it is calves, pigs, or farmers. When prices are down, we farmers do every thing possible to squirm our way back to the government "teat".

Right now our milk industry leaders have several bills in Congress saying we are willing to accept quotas on our milk production in return for a subsidy. What a terrible thing this would be if Congress passes such a bill. Let me explain.

Our United States dairy industry is one of the most efficient in the world. While Canada and Europe voted for quotas for their dairy farms in return for a higher price, we have kept our freedom to innovate, expand, and produce as much as we want. We also depend on periods of low prices to keep our production in line.

This freedom to expand and use the most modern methods has given us tremendous efficiency while the dairy industry in Europe and Canada has fallen behind.

With the industrial success of China and India, they now have money to spend on dairy products. For the first time in my lifetime, world dairy prices are higher than our own and we can compete on world markets. This is a tremendous opportunity! And what are our dairy leaders doing? They're asking Congress to put us under a quota plan that will eliminate our chance to serve this new world market.

My advice to our very astute reader: Run the most efficient farm you know how to get through the weaning process. I hope we are both right in predicting that government subsidies are about to end. The stress of weaning is short-lived and we'll find that we can grow just fine "on hay and grain without the milk subsidy".

Glenn Rogers: The so-called "milking of the government" must eventually end with all aspects of our society as the U. S. taxpayer cannot afford to continue to pay for all of the government programs and the interest and principal on the debt. It matters not if its special projects, grant funding, government employment, or any other type of support. Economic logic says we must either cut funding, increase government income (taxes or revenue by expansion of business and living environment of some sort), or do both.
 
We must recognize that our society is changing its lifestyles as we progress well into the 21st century. We no longer are as active as we once were, so U.S. demand per person for sugar, fructose corn syrup, energy bean products, dairy products plus other animal and plan products could go down on a per pound of human weight.

Thus, it would be logical that we need to transition from traditional agricultural production to other forms of agriculture. We also need to be responsible for our own actions.
 
How to "wean off"? Use government payments you receive now as retirement and investment funds for non-farm items rather than the farm. As difficult as this sounds, first calculate how much the "cost share", counter cyclical, and other governmental payments really are and set that money aside for non-farm and retirement accounts. Don't use them in the farming operation.

Learn to live without them and then when they actually disappear the "shock" will not be so evident. While it would be great to not apply for those payments, it's difficult to not accept those payments when the majority of others may be receiving payments.

There is no question that payments will be getting smaller and the quicker we prepare by going to alternative crops and alternative methods, the more we will be prepared for this when the time comes.

Got a question? Our experts await!
Our Profit Planner panel would like to hear it. The panel consists of Michael Evanish, business services manager of Pennsylvania Farm Bureau's Members' Service Corp.; Dale Johnson, Extension farm management specialist at University of Maryland; George Mueller, dairy farmer from Clifton Springs, N.Y.; and Glenn Rogers, University of Vermont Extension professor emeritus and ag consultant.

Send your questions to "Profit Planners," American Agriculturist, 5227B Baltimore Pike, Littlestown, PA 17340. Or e-mail them to jvogel@farmprogress.com. All are submitted to our panel without identification.