Government Pays Farmers to Keep Peanuts in Storage

Call it the bizarro free market.

If you grow peanuts in this country, the government will pay you to keep them in storage—instead of selling them—if the price of peanuts falls below a certain target and the farmers decide to forfeit their crop.

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That’s right: The taxpayers spend money to make sure they can’t pay less for peanuts.

Peanut farmers aren’t the only ones protected from market price declines. Cotton farmers can store their product at taxpayer expense, too, under certain circumstances.

The program doesn’t cost much money—the non partisan Congressional Budget Office estimates that the government could save $37 million over five years if it was eliminated. And that makes the subsidy, well, peanuts in comparison to the $1.3 trillion annual federal budget deficit.

But the storage program is just one tiny example of the multi-billion dollar handout Uncle Sam offers to farmers large and small every year. And it’s got many wondering whether the federal government can afford to keep an entire industry on the federal dole any longer.

"Famers have to have a safety net if commodity prices fall through the floor." -Georgia Peanut Commission, Don Koehler

“It obviously distorts the market, because not every commodity has a subsidy,” said Tom Schatz, president of the watchdog group Citizens Against Government Waste. And last week, the co-chairs of the president’s fiscal responsibility commission called for eliminating $3 billion in agricultural subsidies overall.

So why are peanut and cotton farmers protected? They’re better at playing the inside game in Washington. “These programs have been on the chopping block for years and even in these demanding times, they still have enormous power on Capitol Hill,” said Schatz.

In 2009, the most recent year for which data is available, peanut subsidies alone totaled more than $101 million dollars, according to the Environmental Working Group, which tracks agricultural subsidies. That’s not just from the pay-for-storage program, it also comes from other subsidies, including direct payments, crop insurance premium subsidies and price support payments.

But not everyone, of course, is a critic of the peanut payments. Don Koehler, the executive director of the Georgia Peanut Commission says the government supports farmers because it wants to ensure access to a stable food supply and to ensure that the United States doesn’t outsource food production the way it has manufacturing and oil production.

Plus, he said, the subsidies are “small, compared to what the problem is with the federal budget.”

“Farmers have to have a safety net if commodity prices fall through the floor—and they have before,” Koehler said. “A farmer’s at the mercy of a lot of things: The supply chain, fertilizer and seed prices, the weather. The commodity markets have quite massive swings in prices.”

Koehler said that this year, peanut farmers in Georgia have heavy crop damage from burrower bugs, which hadn’t been a problem in that state before. And although that means supply will get smaller and prices will go up, many of the farmers locked in their prices before the problem was apparent—meaning they’re under now contract to sell their peanuts for less than the $550 per ton price that the 2011 crop is expected to bring in.

And that’s the problem with cutting subsidies. The cost of the price supports is passed on to American taxpayers in such a diffuse way through slightly higher taxes and slightly higher commodity prices. But the benefits go to entrenched interests in agriculture states that can be difficult to overcome.

And don’t forget that in the United States, citizens of low-population agricultural states have disproportionately more influence than those of high population states in the manufacturing belt. South Dakota has two senators—the same number as New York State.