Double Dippers

How Big Ag Taps Into Taxpayers' Pockets - Twice

August 3, 2005

Double Dippers: Two Programs, One Bad Policy

Far from saving America's family farms, the current farm subsidy system is destroying them.

— "How farm subsidies became America's largest corporate welfare program," The Heritage Foundation, Feb. 25, 2002

What do you get if you take two wasteful and inequitable programs and put them together? In the case of crop and water subsidies, you end up with a bigger mess than before, and a farm policy as antithetical to the free market as anything out of Soviet central planning.

During a 1987 hearing in the House Subcommittee on Water and Power Resources, Rep. George Miller of California, the leading watchdog in Congress on water subsidies, called the double subsidy system an "unsound and fiscally irresponsible practice." He said:

"What we have are two government-funded, government-run programs which conflict with each other. We have taxpayer-subsidized projects delivering taxpayer-subsidized water to farmers, who use it to produce subsidized and surplus crops. This is not rational. This is a waste of taxpayer dollars." [7]

Two years later, Rep. Sam Gejdenson of Connecticut introduced a bill to end double dipping. Gejdenson, who retired in 2000, said double dipping "destroys the credibility of federal farm policy." Gejdenson's bill attracted 111 co-sponsors, but as with the 10 other double dipping reform bills introduced since 1982, it was opposed by the agricultural lobby and never reached a floor vote.

Politicians aren't the only ones who have criticized the inherent conflict of providing subsidized water to grow subsidized crops. In 1989, in a report on the impacts of irrigated agriculture, the National Academy of Sciences (NAS) identified double dipping as a "particular concern." [8] More recently, the respected resource economist Dr. Norman Myers of Oxford University, a longtime advisor to U.S., European and United Nations science agencies, called double dipping a "perverse" subsidy — "adverse in the long run to both the economy and the environment." [9]

In its report on irrigation, NAS identified three key problems with water subsidies — each made worse when crop subsidies are added to the equation. [8] Although it's been 16 years since the report was issued, the problems have not changed:

  • Farmers rarely end up paying back the costs of constructing federal water projects because the Bureau of Reclamation sets water prices too low to actually recover the capital costs.
  • The nation ends up with an artificial farm economy that lacks the financial resources and incentives to deal with the environmental and other consequences of irrigated agriculture.
  • By their very nature, water subsidies reduce farmers' incentives to use water as efficiently as possible.

By law, CVP irrigators were obligated to pay back $1 billion of the project's $3.6 price tag within 50 years of its completion. But in 2002 — 60 years after the water began flowing — CVP farmers had only paid back 11 percent of their obligation. [3] Until recently many of the long-term contract rates were so low that they didn't even cover the costs to the government of delivering the water, much less repay the farmers' debt to the government. In 2002, the contract rate for 17 CVP water districts, that together paid for almost 300,000 acre-feet of water, was just $2 per acre-foot. Yet the cost for delivering this water to these districts was more than $10 per acre-foot. Nineteen CVP irrigation districts had repaid nothing in capital costs. Two districts did better: They had repaid $2 and $1. [3]

In response, the Bureau of Reclamation has repeatedly promised that the base price of water will go up in the new contracts now being executed, and that the rates can be adjusted every year to ensure that irrigators will pay back what they owe by 2030. Although in many cases the new rates in the contracts executed so far are marginally higher than the old rates, CVP-wide water rates actually decreased between 2004 and 2005 by an average of 81 cents an acre-foot on average — as much as $8.78 an acre-foot in some cases. [10]

The second problem the NAS identified is that water subsidies eventually create a farm economy that is dependent on continued subsidies. The Academy said the West has "many marginal irrigation projects," and that over time the dependency on federal subsidies "becomes fundamental to local lifestyles, and there is an expectation of unending support." [8]

The agricultural lobby has fought tenaciously to ensure that the new CVP water contracts will continue to provide large amounts of highly subsidized water to agribusiness. They have mounted large-scale lobbying and public relations campaigns insisting that cheap federal water is a matter of life and death for small farms. [See] But as we have seen, CVP water and water subsidies are overwhelmingly concentrated in the hands of the largest, richest farms.

EWG found that in 2002, ten percent of CVP farms accounted for more than two-thirds of the irrigation water delivered that year. These 683 farms received an average of 2,300 acre-feet of water and an average subsidy worth up to $349,000. The top five percent, or 341 farms, used 49 percent of the irrigation water delivered by the CVP — an estimated 3,400 acre-feet of water apiece, for a subsidy worth up to $513,000. Meanwhile, the average CVP farm received just 350 acre-feet of water, for a median subsidy of $7,056. [3]

The balance is even more uneven when it comes to crop subsidies. From 1995 to 2004, taxpayers spent $144 billion on federal farm subsidies. But of the 2,128,982 farms counted in the most recent Census of Agriculture, only one-third received government payments of any kind in 2002. Two-thirds of the nation's farmers get no subsidy payments whatsoever. They don't qualify because they grow the "wrong" things. Of the farmers who did receive subsidies, 80 percent collected, on average, less than $7,300 over the ten-year period. Between 1995 and 2004, the top ten percent of recipients took in 72 percent of the total payments, for an average of $332,835 per farm. The top one percent of recipients alone accounted for almost one-fourth of all the farm payments, with total subsidies averaging more than $1 million per farm. [4]

The third problem the NAS identified with subsidized water is that it reduces farmers' incentives to use water as efficiently as possible. [8] Water use inefficiency — planting water-intensive crops like cotton and rice, or using more water than necessary to grow crops — has a variety of negative impacts. Most obviously, when more water goes towards irrigation, less water is available for other purposes. In a state plagued with chronic water shortages at the same time as it is trying to stave off the collapse of the San Francisco Bay/Delta ecosystem, which has been devastated by the diversion of water to the CVP and pollution from toxic agricultural chemicals, there's never enough water to waste.

There are other consequences to dirt-cheap irrigation water. The NAS said subsidized farm water is "a major culprit contributing to irrigation-induced water quality problems" because it "results in more water being used, it encourages farmers to cultivate less desirable lands, and it leads to increased leaching from subsurface flow." [8] The problem with "less desirable" lands is that they must be drained because their soils contain higher concentrations of salts and trace elements that are toxic to plants. The resulting drainage water ends up polluting waterways — in some cases with catastrophic results.

In 1982 biologists at the Kesterson National Wildlife Refuge in Merced County began to notice that many ducks and other waterfowl were dying mysteriously. By the next spring, record numbers of migratory birds were emerging from their eggs with massive deformities, including misshapen beaks, twisted legs, missing wings, and incompletely formed skulls. More than 1,000 waterfowl eventually died. Scientists determined that the water in the refuge contained high levels of selenium, a usually benign trace element that can be deadly to wildlife and humans in high concentrations. The compound was reaching the refuge in drainage water coming from the highly saline soils of the San Luis Unit of the Central Valley Project.

Using more water also increases erosion, which dumps more sediment in streams, rivers and bays, and more drainage increases the spread of contaminants such as pesticides and heavy metals. [11] Under the federal Clean Water Act, California must identify all the "impaired" waters in the state — those unsuitable for drinking, swimming, fishing or wildlife habitat. The state's most recent impaired waters list includes more than 700 miles of rivers, creeks and sloughs in the Central Valley, plus almost 55,000 acres of wetlands and estuaries where impaired water quality is linked to agriculture. [12]

Subsidizing crops compounds all of these water subsidy problems. Making crops cheaper to grow means that it is easier to cultivate lands inherently unsuited to agriculture. Subsidies to water-intensive crops such as cotton and rice are incentives to use more water. Subsidies interfere with the normal signals of what would make ecological sense to grow in a region, and what lands would make sense to cultivate.