Wonderful expose of ag. subsidies
Source Michael Perelman
Date 06/07/02/22:37

Farm Program Pays $1.3 Billion to People Who Don't Farm

By Dan Morgan, Gilbert M. Gaul and Sarah Cohen
Washington Post Staff Writers
Sunday, July 2, 2006; A01

EL CAMPO, Tex. -- Even though Donald R. Matthews put his sprawling new
residence in the heart of rice country, he is no farmer. He is a
67-year-old asphalt contractor who wanted to build a dream house for his
wife of 40 years.

Yet under a federal agriculture program approved by Congress, his
18-acre suburban lot receives about $1,300 in annual "direct payments,"
because years ago the land was used to grow rice.

Matthews is not alone. Nationwide, the federal government has paid at
least $1.3 billion in subsidies for rice and other crops since 2000 to
individuals who do no farming at all, according to an analysis of
government records by The Washington Post.

Some of them collect hundreds of thousands of dollars without planting a
seed. Mary Anna Hudson, 87, from the River Oaks neighborhood in Houston,
has received $191,000 over the past decade. For Houston surgeon Jimmy
Frank Howell, the total was $490,709.

"I don't agree with the government's policy," said Matthews, who wanted
to give the money back but was told it would just go to other
landowners. "They give all of this money to landowners who don't even
farm, while real farmers can't afford to get started. It's wrong."

The checks to Matthews and other landowners were intended 10 years ago
as a first step toward eventually eliminating costly, decades-old farm
subsidies. Instead, the payments have grown into an even larger subsidy
that benefits millionaire landowners, foreign speculators and absentee
landlords, as well as farmers.

Most of the money goes to real farmers who grow crops on their land, but
they are under no obligation to grow the crop being subsidized. They can
switch to a different crop or raise cattle or even grow a stand of
timber -- and still get the government payments. The cash comes with so
few restrictions that subdivision developers who buy farmland advertise
that homeowners can collect farm subsidies on their new back yards.

The payments now account for nearly half of the nation's expanding
agricultural subsidy system, a complex web that has little basis in
fairness or efficiency. What began in the 1930s as a limited safety net
for working farmers has swollen into a far-flung infrastructure of
entitlements that has cost $172 billion over the past decade. In 2005
alone, when pretax farm profits were at a near-record $72 billion, the
federal government handed out more than $25 billion in aid, almost 50
percent more than the amount it pays to families receiving welfare.

The Post's nine-month investigation found farm subsidy programs that
have become so all-encompassing and generous that they have taken much
of the risk out of farming for the increasingly wealthy individuals who
dominate it.

The farm payments have also altered the landscape and culture of the
Farm Belt, pushing up land prices and favoring large, wealthy operators.

The system pays farmers a subsidy to protect against low prices even
when they sell their crops at higher prices. It makes "emergency
disaster payments" for crops that fail even as it provides subsidized
insurance to protect against those failures.

And it pays people such as Matthews for merely owning land that was once

"We're simply administering it the way Congress established," said John
A. Johnson, a top official at the U.S. Agriculture Department.

Today, even key farm-state figures believe the direct-payment program
needs a major overhaul.

"This was an unintended consequence of the farm bill," said former
representative Charles W. Stenholm, the west Texas Democrat who was once
the ranking member on the House Agriculture Committee. "Instead of
maintaining a rice industry in Texas, we basically contributed to its

*Freedom to Farm*

The program that pays Matthews was the central feature of a landmark
1996 farm law that was meant to be a break with the farm handouts of the
past. Subsidies began when the Roosevelt administration stepped forward
to support millions of Depression-era farmers suffering from low prices.
By the early 1990s, U.S. agriculture was a productive marvel, yet was
still mired in government controls and awash in complex subsidies.

When the Republicans took control of Congress in 1995, they brought a
new free-market philosophy toward farm policy. In a break with 60 years
of farm protections, they promoted the idea that farmers should be
allowed to grow crops without restrictions, standing or falling on their
own. The result was the 1996 bill, which the Republicans called Freedom
to Farm.

The idea was to finally remove government limits on planting and phase
out subsidies. But GOP leaders had to make a trade-off to get the votes:
They offered farmers annual fixed cash payments as a way of weaning them
off subsidies.

That sweetener was needed to win over wheat-state Democrats -- led by
Senate Minority Leader Tom Daschle (S.D.) -- and GOP House members from
rice and cotton districts. Wheat growers alone stood to receive $1.4
billion in the first year. The payments for rice growers were increased
by $52 million at the last minute in an effort to win support from Sen.
David Pryor (D-Ark.).

The new payments were calculated on a farm's "base acres," or production
dating to 1981. For example, if a farmer had planted 400 acres of rice,
he was entitled to a check of about $100 an acre, or $40,000, every
year. The amount per acre varied depending on past production.

The payments were unrestricted -- farmers got them whether or not they
grew any crops, or whether prices were high or low.

Owners could do almost anything they wanted with their land, as long as
they did not develop it. They could leave it fallow or rent it for
pasture. They could set up a hunting retreat. Or, as happened in some
Louisiana parishes, landowners could collect payments while planting
stands of commercial timber.

Supporters said these annual payments gave farmers the flexibility to
switch from one crop to another as market conditions changed, or even to
sit it out in a year of low prices. In addition, the payments fit with
international trade rules that frown on traditional price supports.

The annual payments were dubbed "transitional" and were supposed to
decline over seven years. Many lawmakers assumed they would eventually
end. But two years later, farm prices fell sharply, and the
Republican-led Congress gave in to the farm lobby.

Sen. Thad Cochran (R-Miss.) used his power as chairman of the
Appropriations subcommittee on agriculture to push through $3 billion in
"emergency" assistance to grain, cotton and dairy farmers. That was only
the beginning of a retreat by Republicans fearing retribution at the
polls in key "red" states with broad farm constituencies.

"The original intent was to make a step in the direction of eliminating
farm programs," said then-House Majority Leader Richard K. Armey
(R-Tex.), who led an unsuccessful fight in the 1990s to trim the
subsidies. "By 1998, there was no zeal left."

Instead of cutting, Congress ended up expanding the program, now known
as direct and countercyclical payments. A program intended to cost $36
billion over seven years instead topped $54 billion.

"The farm policy we're pursuing now has no rhyme or reason, and we're
just sending big checks to big farmers," said Gary Mitchell, now a
family farmer in Kansas who was once a top aide to then-Rep. Pat Roberts
(R-Kan.), the 1996 bill's House sponsor. "They're living off their
welfare checks."

Efforts to overhaul the farm subsidy network have been repeatedly
thwarted by powerful farm-state lawmakers in Congress allied with
agricultural interests.

"The strength of the farm lobby in this town is really unbelievable,"
Armey said. "I don't think there's a smaller group of constituents that
has a bigger influence."

*'Cowboy Starter Kits'*

Farmers and landowners benefited from the 1996 law whether their land
once grew wheat, corn, cotton or any of the other subsidized crops. But
nowhere is the impact more evident than in the sunbaked Texas rice
country that spreads southwest from Houston to the Colorado River and
east to the Gulf of Mexico.

In 1981, the Texas rice belt extended over about 600,000 acres. By last
year, USDA records show, the amount of planted rice had shrunk to
202,000 acres, partly because landowners were able to get farm payments
even if no rice was grown on their land.

In fact, so many landowners and farmers are collecting money on their
former ricelands -- $37 million last year alone -- that the acres no
longer used for rice outnumber the planted ones.

"So many wealthy people are getting so much money off this, it's going
to be hard to cut," said Michael Wollam, a rice farmer from Brazoria County.

At a housing development rising from old rice fields on the outskirts of
El Campo, 70 miles southwest of Houston, local real estate broker John
K. Petty purchased a 75-acre tract from investors in July 2002. He held
on to it for a few months, then carved it up and resold it for housing.

"At one time, the area was all farmed in rice," Petty said. Now, the
dusty tract is perfect for what he calls "cowboy starter kits,"
residential tracts owned by nonfarmers but still large enough to keep a
horse in the back yard.

Petty informed potential buyers that because their land had once been an
active rice field, they could collect an annual payment from the USDA on
the portion that was not developed. They did not have to grow rice or
anything else.

"If you have 10 acres and build a house on one, you can continue to get
farm payments on those other nine acres without farming," the USDA's
Johnson said.

Petty used it as a selling point.

"Does it increase the marketability?" Petty asked. "Sure it does."

Duane Korenek bought 17 acres at the site and is building a house.
Korenek said it was "common knowledge around here" that the new owners
could collect farm payments. He has received about $2,550, USDA records

A few hundred yards up a gravel and dirt road, oilman Rene Hamman
purchased 20 acres in May 2003. His two-story house and garage sit on
part of the land and are appraised at $338,140, records show. His
payments have been about $4,500, according to USDA records. "The money
is free," Hamman, 48, said, adding that he thought the money should go
to real farmers. "You don't have to do anything but keep the ground."

When Donald Matthews bought his 18-acre tract from Petty in 2002, he
never expected to receive farm subsidies on his property, appraised at

"I was informed by Mr. Petty that there was a 'rice base' and I was
entitled. I said, 'What do you mean I'm entitled? I'm not going to farm
rice.' "

But nine of Matthews's acres are classified as agricultural land, for
which he has received more than $5,000, records show.

Matthews said he originally was not going to take the money. But he said
Petty told him that it would just go to other landowners. "I thought,
heck, why should I do that? I wasn't going to give it to somebody else
to put in their pocket." Instead, he uses the money to fund scholarships
at the county fair and two local high schools, he said.

"Still, I get money I don't think I'm entitled to," he said.

In some Texas counties, the federal payments open the door to another
benefit: property tax reductions.

"When a property owner receives a federal payment, the land is
considered agricultural use and is assessed at that lower rate,"
explained Tylene Gamble, the chief appraiser for Wharton County, where
El Campo is located. The discount can be dramatic. For example, she
said, a parcel might be assessed at $55 an acre for agricultural use but
$3,000 for regular use. "It's big," Gamble said.

Gamble is trying to enforce local rules that require landowners to
actually farm to qualify for the lower tax rate. But she is hampered by
the federal government's definition of farming, "which does not require
you to actually farm. There is a conflict there between the federal
definition and our definition," she said.

Gary Underwood, director of agricultural appraisals for sprawling Harris
County, which includes Houston, said owners are building $500,000 houses
on old rice fields and qualifying for tax breaks.

He singled out one tract where the owner built a 4,000-square-foot
single-story house on five acres in Katy, a booming suburb. The house
sits on one acre. The other four acres get a tax break and a farm
payment. "I can't touch him," Underwood said.

*The Big Landowners*

The large landowners who control vast sections of the once-sprawling
rice fields outside Houston have been some of the biggest beneficiaries
of the 1996 law, USDA records show.

Diana Morton Hudson is a corporate securities lawyer whose 87-year-old
mother, Mary Anna Hudson, owns an interest in two tracts of land in
nearby Matagorda County. USDA records show that Mary Anna Hudson has
received $191,000 since 1997 on land she doesn't farm. "We just pay
someone to mow it, and it just sits there," Diana Hudson said.

Later, she added: "I'm a corporate securities lawyer. I couldn't even
locate these two parcels in Matagorda."

Houston heart surgeon Jimmy Frank Howell has received $490,709 since
1996 in payments tied to old rice tracts on a vast ranch near Raywood in
Liberty County where he now raises cattle, USDA records show. The last
rice produced on the 10,000-acre property was "probably over 10 years
ago," according to Susan Cotton, Howell's business manager. "We're not
rice producers anymore."

For Guy F. Stovall III, an El Campo banker who helps oversee thousands
of acres of family lands in Wharton, Matagorda and Jackson counties, the
1996 farm law was a chance to get out of rice farming and convert
properties inherited from his grandparents to other uses.

But 10 years later, taxpayers are still paying for the transition.
Records show the land owned by Stovall and two trusts set up by his
grandparents have generated $1.8 million in rice subsidies since 1996.

Stovall stopped growing rice and began renting the land for grazing
cattle. The family continues to grow some crops, such as sorghum and

Stovall said that is exactly the kind of transition Congress intended
with Freedom to Farm. He estimates that 50 to 60 percent of his
government payments go to soil, water and other improvements, such as
filling in irrigation ditches and putting up fences.

"There are bullfrogs where there were none, and we're starting to see
quail," he said. "There are less chemicals flowing into our bays, and it
reminds me of the environment when I was a kid."

*'Hell of a Deal'*

Among the most fervent critics of the annual payments are hundreds of
Texas farmers who rent land on which they grow rice. Under the rules,
tenants receive the money if they operate the farms. But landlords can
simply increase rents to capture those payments.

Other landlords have evicted the tenants from land they had farmed for
years. Then the landowners can collect the checks themselves, even if
they do not farm.

Congress "made slaves out of every farmer who was a tenant," said
Stephen J. Zapalac, a former Matagorda County rice farmer who now runs a
farm credit office in Bay City.

In 1998, Zapalac was leasing 2,500 acres, most of it for rice farming.
One landlord canceled a lease for 1,400 acres in 1998, he said, and a
second cancellation followed for the rest in 2004.

"As soon as they figured they could take the payments, they said, 'I
don't need you anymore,' " he said. "They were renting me land for $40
an acre, but they could get $125 an acre from the government."

Some of the rice land he lost has been turned into pasture for cattle,
while the landlord continues to receive the rice money.

"You can sell the calves and still stick the rice payment in your
pocket," Zapalac said. "It's a hell of a deal."

For years, Rex Bailey III, a rugged 6-foot-5 rice farmer, sharecropped
near Angleton, Tex., an arrangement in which he and his landlord divided
the costs and shared in profits and government payments.

"It was all based on what was produced," he said. "We shared the risk."

That changed in 2002, when the owners of one tract changed their
arrangement with Bailey, 55, from sharecropping to a fixed annual rent,
pegged to capture the $90 an acre that the government was paying him on
214 acres.

"A lot of landlords increased their rental rates to equal or exceed the
direct payments," Bailey said. "They know what the payment is, so that's
what the rent is. Even though the payment is in my name, I turn around
and give it to" the owner.

In 2004, the property was sold to Shin Shan Chu, an elderly investor who
lives in Vancouver, Canada. Once a year, Bailey, who still grows rice on
part of the 4,000 acres, cuts a $25,000 check and sends it to Chu, whom
he has never met.

Reached by telephone, Chu said he hoped to eventually "develop some
residential buildings there. It's very nice land, very flat, very close
to the city."

Chu, who also owns and leases 17,000 acres of farmland in west Texas,
grew up in mainland China and Taiwan, worked in electronics and moved to
Vancouver 36 years ago. He described himself as nearly 80.

"It's just an investment," he said of his farm holdings. "I'm waiting
for the money."

/Researchers Alice Crites and Don Pohlman contributed to this report./

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