Business Ethos Blog

Growing Agricultural Subsidies

Dr. David Mielke is the Retire Dean of the College of Business at Eastern Michigan University

 

Dr. David MielkeIt was a couple of months ago that Congress was considering the farm bill.  We learned that a major portion of that bill was not to provide price supports or crop insurance, but instead to fund food stamps.  Food stamp payments have ballooned from $30.4 billion in 2007 to almost $75 billion in 2012.  The number of people receiving food stamps has increased 70% since 2008 to 47.8 million people.  Then of course we have the mandate and subsidies for ethanol which supports corn prices.  When Congress deals with budget cuts, certainly the farm bill and ethanol will continue to be discussed.

However, are there some other Department of Agriculture expenditures that should also get some scrutiny?  If you are a woman or Hispanic and grew a backyard garden  between 1981 and 2000 and or even dreamed of asking for an agriculture loan, you may be a victim of discrimination and eligible for a $50,000 payout from the Department of Agriculture.  The USDA announced in September that it would award a total of least $1.3 billion to women and Hispanics who were not offered subsidized farm loans that they applied for or would have liked to apply for.  Given the budget issues, is this the “Right Thing to do?”  Let’s look at some issues:

1. This new initiative follows the settlements designed for African Americans.  More than 90,000 African Americans filed claims before the deadline in 2012 asserting they were wrongfully denied farm loans or other USDA benefits in the 1980s and 1990s.  The Census bureau later estimated that there were at most 33,000 black-operated farms nationwide in those years.  Even that number is probably inflated because anyone who sells more than $1,000 in agricultural commodities is categorized as a farmer.  So if you sell at the farmer’s market, you will probably qualify.

2. It is interesting that women and Hispanics are potentially eligible if they would have LIKED to apply for a loan.

3. Since most farm loans previously went to white males, the assumption is that there was discrimination.

4. The current standard for the new payments is more rigorous than the one used during the earlier rounds of settlements when a black claimant’s simple assertion that they attempted to farm or had applied unsuccessfully for a farm loan was sometimes sufficient to collect the payout.  The Government Accountability Office noted that most claims were evaluated solely on the information submitted by the claimants and there was no independent verification of the information provided.

5. Advocates for female farmers are unhappy because the USDA is not providing free lawyers to help claimants collect a payout—as they did for black claimants.

The USDA has a long history of giving farm loans to people with no apparent farming competence.  The GAO estimates that a quarter of bankruptcies among USDA borrowers in the 1980s occurred because farmers received too many subsidized loans.  Almost half of their borrowers were delinquent in the mid-1990s and the agency wrote off $15 billion in bad debts between 1989 and 1996.  A 2006 USDA study found that half of the subsidized farm loans granted in 2000 had defaulted at least once by 2004.

6. Some female farmers are claiming discrimination because after defaulting on one USDA loan they were denied a second loan.

7.  There has been no class action suit alleging discrimination—this is a voluntary program to provide payments.

 

There is no doubt that discrimination is unacceptable, but in this case we have no legal action that prompted the payments.  There is a loose, at best, application process and it is unknown how the $50,000 figure was determined.  This is not the “Right Thing to do.”  There is no shortage of commercial loans available for farmers.  The USDA loan program is one more way to steer capital to politically favored applicants.  We don’t have funds for White House tours or air traffic controllers, but we do have $50,000 payments to those who would have liked to apply for a USDA farm loan.  We should eliminate all USDA farm loans and stop politicians from picking winners and losers in rural America.  We have enough of that in the green energy field.