October 18, 2001

U.S. House Agriculture Bill Will help Land Owners and Large Operators

If the farm bill that passed the U.S. House of Representatives on Oct. 5 eventually becomes law, landlords and farmers who own land will benefit from a new subsidy because it will help maintain farm land values, according to a North Dakota State University agricultural economist.

The House farm bill is basically a continuation of the 1996 "Freedom to Farm" bill plus a new counter-cyclical payment when crop prices are low, says Andrew Swenson, a farm and family resource management specialist with the NDSU Extension Service. The limit on combined payments received per person would more than double, from $115,000 to $275,000 per year, compared to the 1996 farm bill.

"The 1996 farm bill was intended to move producers away from government support towards a greater reliance on the market place. For various reasons, that goal has not been achieved," Swenson says. "Six years into the farm bill, prices remain low and the signal to produce comes from the government marketing loan rate, not the market price."

Four consecutive years of emergency legislation have provided supplemental payments that have maintained farm income and prevented a reduction in asset values, mainly land. The new counter-cyclical payment in the House farm bill will provide more certainty in farm income than exists under the current farm bill and should underpin land values and rents, Swenson says. "Producers will factor in the potential income and reduced financial risk from the new subsidy when bidding for land."

According to Swenson, the purpose of the counter-cyclical payment is to replace supplemental emergency payments, not enhance them. Therefore, the House farm bill would probably maintain, not increase, land values. In the long term, a potential downside for landowners could be fewer farmers to compete for land. "The increase in payment limits will heighten the competitiveness of large farms relative to small and mid-size farms," he says.

"The farm bill continues to provide incentives for farms to get larger -- payments are determined by land base and production. Less restrictive payment limits will be helpful to large producers, whose government subsidies were previously restrained by payment limitations," Swenson notes.

"However, the higher payment limits could erode public support for future subsidies," Swenson warns. Government expenditures in the past have been promoted to the public as helping family farms. "If, maintaining the family farm structure is no longer a forthright reason for subsidies to agriculture, it will be more difficult to justify why agriculture is unique and deserving of government transfer payments," Swenson says, "especially as farms get larger and payments become more concentrated."

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Source: Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu