Market Value of Ag Production

Agriculture is naturally a risky business.  Americans have chosen to hedge some of that risk through federal farm programs to ensure a reliable supply of food and ag products.  If you can’t eat, the rest doesn’t much matter.

The President’s first budget released last week has received a bit of press for changes to U.S. Department of Agriculture (USDA) programs previously agreed to as part of last year’s farm bill.  Specifically, BHO proposed to cut off direct payments to commodity growers with sales over $500,000, as well as other reductions in subsidies and promotions.  This could affect over 6,400 farms in Minnesota alone.

Now, I’m generally all in favor of cutting federal spending.  In this case, I’m not sure the proposal is any better than the system in place.

You might think, “Well, anybody pulling in half-a-million a year doesn’t need a handout” and I would be inclined to agree.  However, this is bad math.  That $500k is a gross figure, as I understand it.  Looking at the US Census of Agriculture for 2007, an average farm in Southwest Minnesota would have realized about $282,000 for the market value of the production of crops and livestock, and about $211,000 in production expenses.  That leaves about $70,000 net to support a family, plus typically cash income for off-farm work in many families if only for health insurance.  Not bad in a rural community if I’m doing my math right, and (with economies of scale) double that figure shouldn’t have any need for subsidies.

Unfortunately, life is more complicated than that.  Many farm operations are partnerships supporting multiple generations.  Many farms have hired help—young guys and gals in school or just starting out, or immigrants working the fields and herds.  So start divying that number into smaller and smaller chunks and see how far that goes?  Even so, that number is also a calculated average (that given my grades in statistics class I hesitate to even publish).  This sort of muddled mandate seems likely to push family operations apart to meet some bureaucrat’s unilateral limit rather than create the type of partnerships to be most competitive in a changing economy.

Lincoln County, Minnesota, is a small county by population and acreage, with more what and less higher-margin corn.  In 2007, the 784 farms in Lincoln County calculated out with the lowest margin between sales and market value of production, below a state-wide average ~$35,000.  Yet there were still 77 operations with over $500,000 in sales in the County that year.

Like much of life, some enterprises do well and others not so well.  Agricultural assistance is intended to insulate the profession of farming on the “not so well” years so we have food at the grocery.  Is the system perfect?  Oh heck, no.  Nickel-and-dime hacks won’t necessarily make it any better and the law of unintended consequenses virtually assures ill-thought changes will make things worse.