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Agriculture AN EIGHTH DISTRICT PERSPECTIVE SUMMER 1986 Government Payments to Farmers: Who Gets What? Direct government payments to farmers come in many forms. Farmers are paid to divert land from crop production, to store surplus commodities and to adopt various conservation practices. Farmers meeting eligibility requirements also often receive deficiency payments which, in most simple terms, are cash transfers equal to the amount of a crop produced times the difference between market prices and the higher target price established by Congress. All of these government payments, to varying degrees, have as their objective the preservation of the commercialsize “ family farm’’—an operation farmed by its resident owner and typically generating between $100,000-$250,000 in annual product sales. Since many of these payments are based on the volume of output, however, a debate has existed for some time over their effectiveness. In particular, the concern has been raised that payments based on output have the potential to funnel a disproportionate share of government support to the generally most efficient, largescale operations (annual sales greater than $500,000); in the view of some analysts, the size and diversity of these farms should enable them to adjust to fluctuations in market prices with little need for government support. In this article, we review recent data on the distribution of government payments to determine how much taxpayer support is being received by the family-farm target group. in the early 1970s. These data clearly indicate that, regardless of how the original objectives and ultimate success or failure of farm legislation since 1970 might be interpreted, the dependence of the farm sector on income transfers from the general public has not been diminished. Who Receives the Payments? With this upward trend in total payments and projections of continued high payments at least through 1988, exactly which farmers are receiving government payments? A recent review of the data for 1984 by the U.S. General Accounting Office (GAO) provides some insight. The data in table 1 (on page 2) indicate that, of the approximately 1.7 million businesses classified as farms, slightly more than 420,000 receive government payments. Subtracting the 1.04 million “ hobby” farms with sales less than $40,000, however, reveals that about 45 percent of the rem aining com m ercial-size farm businesses (272,000 -r 634,000) receive payments. These commercial operations received, in 1984, about $3 billion in payments, or about 90 percent of the total. Within the commercial farm category, the two classes that encompass sales between $100,000-$499,000 typically are regarded as family farms. Farm businesses with sales above or below this range typically have special Trends in Government Support characteristics to distinguish them from family-farm status: the largest sales category (more than $500,000) usually Government payments have accounted for 20 percent or represents large specialty operations, such as poultry more of net farm income in the last three processing, whereas the sales category below years, and projections for the next several $100,000 still includes many operators who years do not indicate any significant earn the largest share of their income in offreduction in this share. Moreover, despite farm activities. Arguing that characteristics THE the many billions of dollars spent on farm of farms in the largest and smallest sales FEDERAL programs over the last 15 years in an effort categories allow them to cope with the RESERVE RANK of to improve the sector’s financial status, the business cycle unassisted, analysts focus on ST. IX)LJIS share of farm income represented by farms in the $100,000-$499,000 sales category as representing the family-farm government support is larger now than it was SUMMER 1986 FEDERAL RESERVE BANK OF ST. LOUIS Table 1 Number and Percentage of Farms Receiving Government Payments by Annual Sales Class: 1984 Sales class (thousands) 500 and m ore Total number of farms Number of farms receiving payments Percentage of farms receiving payments Value of payments (millions of dollars) 3 0,363 12,522 41% 250-499 6 8,578 30,779 45 609.89 100-249 2 29,255 108,345 47 1,270.33 40-99 3 05,949 120,483 39 704.46 20-39 198,460 6 1,028 31 187.74 10-19 193,086 36,808 19 72.42 5-9 2 01,412 2 5,452 13 26.82 0-4 442 ,2 0 6 2 5,044 6 12.27 1,669,308 4 2 0 ,4 6 0 25 3 ,3 2 4 .3 9 TO TAL* $ 4 40.45 *Totals may not add due to rounding. SOURCE: GAO, Farm Debt, Government Payments and Options to Relieve Financial Stress, GAO/RCED-86-126BR, March 1986 target group: medium-sized, undiversified businesses least able to handle cyclical fluctuations and most in need of government support. On this basis, family farms received about 60 percent ($1.9 billion -=- $3.3 billion) of government payments in 1984. This support was allocated, as the table shows, among more than 139,000 farms. The average payment among these farms was about $13,525. It also should be noted that slightly more than one-half of the farms in this category received no government payments. Eighth District Land Prices Continue to Decline Farmland values nationally fell 12 percent in the 10 months between April 1985 and February 1986. This fifth consecutive year of decline put the average value of farmland at a level slightly above its 1978 figure. In real terms, farmland is now priced near its value in the mid-1960s. Among Eighth District states, only Tennessee saw land prices stabilize in 1985. Table 2 shows that declines in the remaining District states ranged from 17 percent in Arkansas to 4 percent in Kentucky. Since the 1981 peak, farmers in T ab le 2 C hanges in A verag e Farm land Prices A pr. 1, 1985 Feb. 1, 1986 Feb. 1, 1981 Feb. 1, 1986 A rkansas Illinois Indiana K entucky M ississippi M issouri T ennessee -17% -13 -16 - 4 -10 - 8 1 -33% -49 -50 -19 -26 -43 -12 U nited S tates -12 -29 SOURCE: U.S. Department of Agriculture Missouri, Illinois and Indiana have seen land prices decline more than 40 percent. The smallest five-year decline again occurred in Tennessee, with a drop of 12 percent. —Michael T. Belongia Agriculture—An Eighth District Perspective is a quarterly summary of agricultural conditions in the area served by the Federal Reserve Bank of St. Louis. Single subscriptions are available free of charge by writing: Research and Public Information Department, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, Missouri 63166. Views expressed are not necessarily official positions of the Federal Reserve System.______________________ 2 FEDERAL RESERVE BANK OF ST. LOUIS SUMMER 1986 EIGHTH DISTRICT AGRICULTURAL DATA Percent Change Prices and Costs1 Mar. 1986 Apr. 1986 C O N S U M E R P R IC E IN D E X (°/o cha n g e ) N onfood Food -0 .6 % 0.0 - 0 .4 % 0.2 P R O D U C T IO N C O S T S FO R F A R M E R S (% cha n g e ) A g ric u ltu ra l m a c h in e ry and e q u ip m e n t M ixed F e rtilize rs O th e r A g ric u ltu ra l c h e m ic a ls G a so lin e May 1986 0 .1 % 0.4 Average for 1985 0 .3 % 0.2 Year-To-Date 19862 - 0 .8 % -0 .2 Same Month Year Ago 1 .3 % 2.0 0.1 -0 .5 -1 .8 -2 1 .4 0.2 1.2 2.1 -8 .3 0.0 -0 .3 -0 .3 11.2 0.0 -0 .2 -0 .1 0.3 0.4 0.0 3.6 -3 3 .7 0.3 -2 .2 1.9 -3 4 .3 0.0 -0 .8 0.0 -0 .8 -3 .8 2.7 1.7 3.2 0.0 -0 .4 -0 .5 -0 .5 -3 .9 -4 .4 -3 .4 -4 .7 -2 .2 -8 .1 F EE D ER C A T T LE W h o le sa le p rice - Kansas C ity ($/cw t.) $63.22 $60.32 $60.40 $ 6 4 .5 5 -1 .0 -9 .9 F E E D E R PIG S W h o le sa le p rice - So. M isso u ri ($/head) $41.33 $37.98 $ 39.97 $37.11 39.5 1.5 P R IC E S R E C E IV E D BY F A R M E R S (% chan g e ) A ll p ro d u cts Live sto ck C rops B R O IL E R S W h o le sa le p rice - 12-city ($/lb.) 50.31$ 50.05$ 54.56$ 5 0.81$ 12.0 7.2 TURKEYS W h o le sa le p rice - N ew Y ork, 8-16 lb. yo u n g hens ($/lb.) 63.94$ 64.61$ 67.08$ 7 5.48$ -2 2 .8 7.1 CORN W h o le sa le p ric e - No. 2, ye llo w - St. Louis ($/bu.) $ 2.42 $ 2.46 $ 2.56 $ 2.66 -1 .2 -8 .9 SOYBEANS W holesale price - No. 1, yellow - Central Illinois ($/bu.) $ 5.47 $ 5.40 $ 5.44 $ 5.5 6 2.3 -5 .6 $ 3.36 $ 3.45 $ 3.40 $ 3.39 -0 .6 1.8 $17.25 $15.50 $13.25 $ 1 7 .7 0 -2 3 .2 -2 5 .7 6.8 -1 .0 W HEAT W h o le sa le p ric e - No. 1, h ard w in te r K ansas C ity ($/bu.) LO N G -G R A IN RICE W h o le sa le p ric e - A rka n sa s ($/cw t.) C O T TO N A ve ra g e p ric e re ce ive d by U .S. F a rm e rs ($ /lb.) 55.00$ 56.40$ 56.90$ 5 5.84$ Percent Change U.S. Exports C o rn (m il. bu.) S o yb e a n s (m il. bu.) W h e a t (m il. bu.) R ice (rough e q u iv a le n t, m il. cw t.) C o tto n (thou, bales) Mar. 1986 Apr. 1986 May 1986 Average for 1985 98.0 88.7 74.0 3.4 188.0 58.0 80.4 65.0 2.9 173.0 48.0 56.2 51.0 3.1 81.0 145.8 5 3 .7 8 1 .7 5.1 4 1 8 .7 Year-To-Date 19862 - 7 3 .2 % -4 0 .3 -2 9 .2 -3 2 .6 -5 8 .7 Same Period Year Ago - 6 5 .2 % 69.8 -1 9 .1 -3 8 .1 - 8 2 .1 3 N onR eal-E state Farm D ebt O utstan d in g Banks Outstanding ($ millions) U .S. E ig h th D is tric t4 A rk a n s a s K e n tu c k y M isso u ri Tennessee $ 3 3 ,7 7 9 2 ,429 409 567 1,164 310 PCAs3 Percent Change 3/85 - 3/86 3/84 - 3/86 -1 3 .6 % -1 1 .2 -1 1 .1 1.1 -2 2 .1 -1 2 .7 -1 1 .6 % -9 .1 -6 .2 0.5 -1 8 .2 -8 .3 Outstanding ($ millions) Percent Change 3/85 - 3/86 3/84 - 3/86 NA NA - 2 7 .9 % -2 5 .1 -3 2 .0 -2 2 .3 NA NA $214 243 243 242 NA NA - 4 0 .0 % -4 6 .3 -4 4 .7 -4 4 .8 A gricultural Bank Loan P e rfo rm an c e 5 Percent of Farm Loans Overdue at Agricultural Banks 3/86 U .S . E ig h th D is tric t4 A rk a n s a s K e n tu c k y M isso u ri Tennessee 6 .8 % 8.6 7.5 6.9 8 .7 6.3 3/85 Percent of Total Loans Written Off at Agricultural Banks 3/84 4 .4 % 5.0 6.8 6.5 5.0 4.4 6 .1 % 7.1 8.5 6.3 8.3 5.8 3/86 3/85 .3 9 % .31 .29 .17 .34 1.17 .3 3 % .30 .42 .13 .44 .27 A gricultural P roduction Loan In terest R a te 6 Banks E ig h th D is tric t A v e ra g e PCAs 5 /8 6 5 /8 5 1 0 .8 % 1 2 .4 % 3 /8 6 1 2 .0 % 3 /8 5 1 2 .5 % 1 The consumer price index components are seasonally adjusted. All other data are not seasonally adjusted. 2 Percent change from December of previous year, based on the most recent month available. 3 Source: Farm Credit Banks of Louisville and St. Louis, Farm Credit Administration. 4 Includes all of AR and parts of IL, IN, KY, MO, MS and TN. 5 Agricultural banks are defined as those with more than 25 percent of total loans in agricultural loans. 6 Interest rate data are for different dates. PCA rates are weighted averages for Arkansas and Missouri, not adjusted for stock purchase requirements. Source: Farm Credit Banks of St. Louis. 3/84 .1 5 % .12 .20 .10 .16 .10
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