Archives
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010

December 2009
November 2009
October 2009
September 2009
August 2009
July 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009

December 2008
November 2008
October 2008
September 2008
August 2008
July 2008
June 2008
May 2008
April 2008
March 2008
February 2008
January 2008

December 2007
November 2007
October 2007
September 2007
August 2007
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007

December 2006
November 2006
October 2006
September 2006
August 2006
July 2006
June 2006
May 2006
April 2006
March 2006
February 2006
January 2006

December 2005
November 2005
October 2005
September 2005
August 2005
July 2005
June 2005
May 2005
April 2005
March 2005
February 2005
January 2005

December 2004
November 2004
October 2004
September 2004
August 2004
July 2004
June 2004
May 2004

Getting the business

Northfield News
May 25, 2010
By JACI SMITH

Email this page

Pretend you’ve decided to become a businessman to make your living. You have some startup capital and assets to get going, but much more is needed, so you take out loans against those assets and your future profits.

You have a tried and true business plan, but there are many variables that affect it. Weather, labor, equipment and market forces that literally change each day buffet your attempts to stay afloat. And even though the demand is certain to be constant and the customer base — literally — is the world, there’s no steady growth, no predictability and no guarantees of success, even from year to year.

In general, unless you make at least $175,000 in sales every year, you don’t make a profit. In the industry you’ve chosen, the data over nearly a century shows that the rate of return on your assets and equity will be negative except for the largest of your brethren.

You are a farmer.

The numbers

Paul Liebenstein was No. 1 on the list of Rice County farmers receiving subsidies from the federal government, a fact that caught him entirely by surprise.

Liebenstein is the owner of Wolf Creek Dairy in Dundas and last year he received $86,340 from the federal government, according to USDA figures compiled by the Environmental Working Group, an organization that has created a website to draw attention to federal farm subsidies and seeks reform to them.

Farm subsidies are federal dollars paid to farmers to do one of two things: fill the gap between the market price (if it falls below a certain level) and “parity” for their commodity, or to make up the difference between the cost to farm a crop per acre and profitability. The federal government also subsidizes crop insurance for farmers and has other, smaller subsidy programs, such as for conservation.

EWG will tell you on their website that federal farm subsidies are not working, that it costs American taxpayers astronomical sums of money — $35 billion since 1995 — and that, most importantly, the vast majority of the money falls into the hands of the wealthiest farmers and not family farms.

“Despite claims of reform, many of the top subsidy recipients in this update are the same operations we’ve seen before,” wrote EWG President Ken Cook in his national analysis of the USDA data. “Six of the top 10 recipients of commodity payments in 2009 were also in the top 20 in both 2007 and 2008. In contrast to the public fury over billion-dollar bailouts of Wall Street banks, all 20 top recipients in 2009 received more than $1 million each, several with multi-million-dollar hauls. And this is only one year’s worth of corporate handouts that have gone on for decades.”

In Rice County, it would seem that Cook’s analysis holds true, according to an analysis done by the News. The county received $9.4 million in federal farm subsidies in 2009, the latest year for which data is available, and ranks 48th among the state’s 87 counties in how much it received. The state as a whole ranks fourth in the nation, receiving nearly $900 million last year.

The top 10 percent of the 1,176 farmers who received subsidies took in nearly half — 49 percent — of all the money Rice County received. The average subsidy payment for those in the top 10 percent was $33,108, or $9,000 more than the median per capita income in the county, according to the U.S. Census.

But the numbers are where the similarities to Cook’s analysis ends.

The reality

After the passage of the 2008 farm bill, intended to equalize payments to all farmers big and small, the media was quick to analyze and find fault with the “reformed” subsidies system. The Wall Street Journal, New York Times and other large newspapers wrote in-depth stories on the law, largely concluding it failed to get the subsidies into the hands of the country’s family farms. Before the bill was signed into law, The Washington Post did a yearlong investigative project on subsidies with a title that said it all: “Harvesting Cash.”

The same was true earlier this month when EWG released its 2009 database. The headlines were the same: “Richest farms reap fattest subsidies.”

But in Rice County, not everything is as the EWG or some media claim, according to News analysis. While it’s true that the top 10 percent of farmers received the most money, comparing that list to property records shows those in the top 10 percent also happen to be farming the most acres or milking the largest herds.

In fact, of the top 10 farms that received subsidies in 2009, none are considered “corporate” farms. All are owned by either one or several related members of the same family.

“I wonder how many people would be surprised to know the huge risks we take and the incredible stresses of long hours, huge debt loads, weather worries and the like that farmers face throughout their careers,” said Steve Albers. Albers farms crops in Dundas and last year was near the bottom half of those in the county receiving subsidy payments. He got $6,515 in 2009, according to USDA figures.

The Economic Research Service of the USDA puts out an annual report measuring the economic health of the family farm. It concludes what many farmers have known for years: Running a farm is the same as running a Main Street business, except there are far more variables beyond the “business” owner’s control — like the weather or a natural disaster.

Or a country’s culture, says Gene Kuntz.

Kuntz is a South Central College farm business management instructor. For years, Kuntz said, this country has had a “cheap food” policy. Rather than let market forces dictate, the federal government since as far back as the beginning of the 20th century determined that it’s more important to pay subsidies to farmers to keep food prices down than to let free market forces reign.

“We make it (food) cheaper than any other country in the world,” Kuntz said. “That, in essence, guarantees subsidies will be needed until we decide as a country to pay the same for food as other countries pay.”

EWG’s Cook says in his analysis that calling the subsidy payments a “bailout” is an insult to the term since the money doesn’t get to those who need it most — family farmers.

Not true, says Kuntz. He says without subsidies, what Cook thinks is happening now would actually be reality.

“Those payments keep family farms in existence,” he said. “Without them the ripple effect would be the elimination of the smaller farm units and the growth of larger ones.”

On the back forty

Liebenstein’s $86,000 federal subsidy went to pay part of his feed and labor bills. Wolf Creek Dairy has six full-time and six part-time employees.

But that same year overall he lost $300,000. He ended up having to take out a loan against his assets in order make his payroll and other costs. His only hope for future profits is if he makes enough to cover his expenses and his new loan.

Albers, who farms corn, beans, and cuts his own and his neighbors’ hay, said there have been many years where the subsidy he received was his only profit. Last year his subsidy came to about $17 per tillable acre. The average countywide was about $20 per acre in crop subsidies.

But to farm that same spread would likely cost $600 an acre, Albers said.

“With the price of corn threatening now to go below $3, it’s not hard to see how it’s going to take a really good crop to come out,” Albers said.

The scale is what most people can’t relate to, said Kent Politsch, public affairs chief for the federal Farm Services Agency in Washington, D.C.

“The farmer is a small businessman,” Politsch said. “He operates his business on the scale of someone who owns three hardware stores. They both set up their business the same way — LLC — to get some tax breaks. But the farmer’s profit margin is far smaller than most.

“If you consider that businessman’s average income is about $40,000 and he hears that a farmer got $600,000 in payments, it seems really lucrative. But what no one talks about is that the farmer likely spent $700,000 to survive, and most of that money he put into the local economy. No other local businessman is doing that.”

Ag studies have shown that each dairy cow generates about $5,000 of impact on a local economy. Using that math,Liebenstein’s herd alone pours $2 million into Rice County’s economy. He supports implement dealers, bankers, and seed, fertilizer and chemical dealers. The families of his 12 employees depend on his farm in whole or in part for their income.

“There’s an old saying,” Liebenstein said. “It says ‘give all the money to the farmers because they’ll spend it all.’”

There’s no question that some may have figured out how to abuse the federal farm subsidy system, Politsch said. But for every one of those there are many others, like those on Rice County’s list of top recipients who are one bad crop, one low milk price year away from going broke.

“The last thing our economy needs to have happen is to have a farmer who’s producing the food we need to be lost,” Politsch said. “We lose farmers, we lose production, prices go up. That’s when we lose Main Street.”

—Reach Jaci Smith at 645-1116 or jsmith@northfieldnews.com

* * * *

FOR MORE INFORMATION To see the database compiled from USDA data by the Environmental Working Group, click here

A PRIMER

WHAT ARE SUBSIDIES? A federal government “safety net” to agricultural producers to help them through the variations in agricultural production and profitability from year to year due to variations in weather, market prices, and other factors.

HOW DOES IT WORK? The primary subsidy system has the following elements:

* Direct payments paid at a set rate every year regardless of conditions.

* Counter-cyclical payments triggered when market prices fall below certain thresholds.

* A revenue assurance program provides for overall profitability for a given crop.

* Marketing loans offer terms whereby farmers can realize gains through loan deficiency payments (LDPs) and commodity certificates.

* Disaster payments recoup large losses due to natural phenomena. The government subsidizes crop insurance to further insulate farmers from risk.

TIDBITS

— The median value of wealth for all U.S. households was $120,300 in 2007, compared with $525,262 for farm households. The median wealth is the level at which 50 percent of the households are above and 50 percent are below.

— In 2008, the average total wealth of farm households was $875,259, with about three-quarters of this total associated with farm assets.

—The share of farm household wealth associated with nonfarm assets grew from 15 percent in 1994 to 24.1 percent in 2008.

— In 2010, the average family farm is forecast to receive 10.3 percent of its household income from farm sources. Farm income is forecast to average $8,338. The average off-farm income is forecast to be $72,428.

—The top 1 percent or 11 recipients of subsidies in 2009 took in 13 percent of all the payments or $796,000.

—The bottom 80 percent of recipients, 941, took in 32 percent of all the money, or $1.9 million.

—Stearns County took in more subsidy money in 2009 than any other county in the state, $30.4 million.

—The No. 1 subsidy in Rice County over the last 14 years is for corn crops, with 1,463 recipients taking in nearly $90 million.

Source: U.S. Department of Agriculture and the Federal Reserve

TOP RECIPIENTS Paul Liebenstein, Dundas $86,340 Metogga Lake Dairy LLC, New Prague 85,099 George E Duban, Lonsdale, $82,298 Far Gaze Farms, Northfield $79,334 Kuball Dairy Farm Llp, Waterville $77,363 Douglas A Story, Kenyon $77,219 Saemrow Dairy, Waterville $76,898 James D. Duban, Montgomery $63,893 Estrem Farms, Nerstrand $59,624 Dennis L Tatge, Faribault $54,681

WHAT’S IN THE 2008 FARM BILL •Grants $37 million in technical assistance to specialty crop producers •Prohibits persons with adjusted gross non-farm income of over $500,000 or adjusted gross farm income of over $750,000 from receiving certain types of subsidies •Establishes a table of market assistance loan rates for 19 commodities including corn, wheat, barley, oats, and soybeans •Supports the price of dairy products by requiring the Secretary of Agriculture to buy cheddar cheese, butter, and nonfat dry milk made from milk produced in the United States •Provides assistance for landowners who have lost non-industrial private forestland due to wildfires, hurricanes, excessive winds, drought, ice storms, blizzards or floods •Increases loan rates for sugar producers •Offers incentive payments for the production of oil seeds that reduce the need for hydrogenated oil •Extends the Conservation Reserve Program and the Wetlands Reserve Program through the 2012 fiscal year •Authorizes $25 million for each fiscal year from 2008 through 2012 for loans to broadband Internet service providers in rural areas Source: U.S. Library of Congress THOMAS guide

NOTICE: In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving this information for research and educational purposes.