Green Thumbs: The PiK and Roll and Other Scams from the Farm Belt
Pasley, Jeffrey L.
GREEN THUMBS: THE PIK AND ROLL AND OTHER SCAMS FROM THE FARM BELT The ingenious ways farmers milk government subsidy programs by Jeffrey L. Pasley The Future Farmers of America wants...
...These marketing loans were meant to help our nation's rice and cotton farmers (the only crops eligible) stand tall against foreign competition...
...If they call my plan 'welfare,' what do they call the current programs...
...This is supposed to approximate what farmers would get for crops under normal, if regrettable, market conditions...
...This kind of borrowing is not only profitable, but downright patriotic...
...Like most numbers rackets, PiK and Roll benefits wealthy farmers most because they can afford to buy extra PiK certificates in bulk...
...Federal agriculture loans are linked to the size of a farmer's crop, not to whether the farmer needs the money...
...He's only paying back half of what the government lent him...
...Here are five ways farmers improve their government yields: The Combo Platter To play the farm subsidy game, you have to know the rules...
...It's called the "Payment in Kind" program, or PiK for short...
...The plan would "decouple" government farm support programs from the market...
...He can sell his certificates or trade them in at a nearby CCC warehouse for $2,200 worth of grain at the local market price-1,000 bushels if the price is $2.20 a bushel...
...Or, under a separate farm subsidy program called the "50-92" plan, a farmer can collect deficiency payments on 92 percent of his land for agreeing to set aside—and, if he wishes, grow forage on-50 percent of it...
...The Prince of Liechtenstein Means Test Anyone can farm government loans, even if they're rich...
...Uncle Sam does that for you...
...It doesn't matter if you're Ernest & Julio Gallo or Ma Joad...
...GREEN THUMBS: THE PIK AND ROLL AND OTHER SCAMS FROM THE FARM BELT The ingenious ways farmers milk government subsidy programs by Jeffrey L. Pasley The Future Farmers of America wants its young members to have the rich experience of tilling the soil...
...They vary a bit depending on your crop, but for all of them, from sorghum to soybeans, from cotton to corn, there's just one object: manipulating the price...
...There's no fussing with messy means tests...
...Business has been crazy lately," he told the magazine...
...In California, a farmer got more than $4 million in subsidies for "idling" 14,000 acres that were submerged under nine feet of water...
...There is no denying that some large, profitable farms receive large government payments and loans, but that is to be expected...
...The government has no control over how much money leaves its coffers by this route, let alone who gets it...
...It's a nutty system, which lets the wealthiest farmers reap huge benefits while the poor are not helped enough...
...The enterprising yeoman keeps the subsidy but also gets himself a loan from the governmentowned Commodity Credit Corporation...
...Better yet, he still had the grain...
...So far, so good...
...Marketing loans start out as regular CCC loans, on which there are no limits...
...The Feds make up the difference between what they get on the Manila market and what they would have gotten in Memphis...
...Quid Pro Dough Farmers and agribusiness executives argue that huge payments are misleading because farmers face a serious quid pro quo for joining one subsidy program...
...For a variety of reasons—all farmers don't take out CCC loans, and loan rates for grain aren't always higher than local market prices—many farmers don't PiK and roll their certificates...
...Like Sybil, today's farmer can establish as many legal identities as he wants and have each one receive money up to the limit...
...that's the way the program is supposed to work...
...But Farmer Brown has taken out a $3,500 loan with the CCC by putting up 1,000 bushels of his own grain as collateral at a loan rate of $3.50...
...In his own down-home way he told the judges, "The key is determining my break-even point . . . I analyze the market situation and act accordingly...
...What's the difference...
...Unlike city-dwellers who need a helping hand, farmers do not receive their government aid in a tidy monthly check...
...For instance, the J.G...
...Jon Drozd, an Allegan, Michigan farmer recently profiled in Farm Futures, says he and a partner have earned $2,000 for a half-day's work brokering PiKs and selling financial advice to farmers who haven't figured out the PiK racket...
...Only a lazy farmer sits on his porch, counting his deficiency payments...
...He drove to the local USDA office, took out a CCC loan of $132,480, and then paid it back minutes later with $92,880 worth of PiK certificates...
...They point to the USDA requirement that participating farmers leave a certain percentage of their land fallow...
...Farmers receive a "deficiency payment"—please don't call it a subsidy— that is the difference between these governmentinvented prices...
...Nothing is stopping him from collecting a deficiency payment either...
...A program once meant to show the flag now subsidizes the rice an Arkansas farmer sells in Vermont...
...According to the GAO, one farm management company broke up a 6,660 acre farm into 28 separate tracts, and rented them to investors, each of whom could receive subsidies...
...Ostensibly, the farmer trades much of his productive capacity— and profit—for a generous government check...
...If that doesn't bring in enough money to feed the family and pay for costs, the government would do what it does for others in need—send a check...
...Boswell, Co...
...Naturally, clever farmers have started moonlighting as PiK brokers...
...The bigger the crop, the bigger the loan...
...In consultation with lobbyists and the USDA, the House and Senate agriculture committees set a "target price...
...In 1986, the family collected a $1.05 million deficiency payment...
...All this has been like rain after a drought to the nation's rice and cotton agribusinessmen...
...So in its classrooms across rural America, 416,000 high-school-aged students learn the right time to sow, the best ways to reap, and the skill that every modern farmer needs—how Jeffrey L. Pasley is a reporter-researcher at The New Republic...
...Though legally corporations have some of the same rights as people, most federal laws manage to make necessary distinctions between the two...
...Cooper Evans dubbed this "an almost universal practice, one that I, too, have felt compelled to follow with my own farmland...
...Finally, some farmers use special seed, extra fertilizers, pesticides, herbicides, and machinery to increase the amount of crop they can produce per acre...
...A system of direct income support would make government dependency less easy for farmers to swallow...
...Now each new bundle of joy means a small corporate empire...
...Lewis, a highschool senior, used all available government programs and reported profits of a little over $15,000 for his year-long project...
...Welfare Reform The farm program is a piece of Swiss cheese for a relatively simple reason—neither farmers nor their representatives can bring themselves to call farm supports welfare...
...The solution is just as simple, a plan called "decoupling," which is being pushed by Senators David Boren of Oklahoma and Rudy Boschwitz of Minnesota...
...The Agriculture Department has a labyrinth of programs to raise prices, cut acreage, and promote exports...
...In the early seventies Congress imposed a cap— currently $250,000—on the amount any one person can get back from the government after he sells his crop...
...In other words, he's turned $2,200 in PiK certificates into $3,500 in debt relief—courtesy of Uncle Sam...
...The number of persons receiving deficiency payments at or near the limit climbed from 4,300 in 1983 to 29,000 two years later...
...Because their payments would be tied to past production, there's no incentive to fabricate new farms, spawn new corporations, or buy grain in other states to make more money...
...That's just for starters...
...Though created out of thin air in Washington, these two prices are as real to farmers as high and low tide are to fishermen...
...Normally he'll have to pay that $3,500 back (with interest) or forfeit his grain...
...Everyone knows about -the growth of farm subsidies—which cost the federal treasury $26 billion last year and now account for nearly onethird of farmers' income...
...Although this technique seems less devious, it achieves the same end as the others: it allows farmers to qualify for billions from federal programs intended to reduce production while at the same time enabling them to increase production...
...But it's not just Americans who have benefitted from this flag-waving program...
...so there's profit in buying certificates where they're less valuable and selling them where they're more valuable...
...Program benefits, such as deficiency payments, are determined by the number of bushels or other units produced," explains USDA official Jim Johnson...
...Congress also sets a lower price, called the "loan rate...
...The kids are learning just how rich the soil can be...
...Many farm groups oppose the plan on the grounds that it would turn the farm program into welfare, to which Boschwitz replies: "Farmers are getting benefits now and they would get benefits under my plan...
...This, of course, created a booming new business for rural barristers...
...the technique's spread, one USDA official told the National Journal, is a "welfare program for lawyers!' By 1989, GAO estimates that all the paper-shuffling could cost the government $2.3 billion...
...As corn, wheat, and other grain prices fell in the eighties, the Mississippi Christmas Tree moved north and west, with devastating results on the federal treasury...
...Farm Futures referred to this as part of a farmer's "marketing strategy...
...To put it very bluntly," an Iowa farmer told the Des Moines Register, "if you're not farming the government today, you're not doing a very good job...
...Farmer Brown, therefore, is eligible for $651,000 for a crop that would have brought him about half that much on the market...
...He may be a farmer-entity...
...But that's nickel and dime stuff...
...But the caps don't make the crown prince sweat at the baccarat table...
...Congress has long been conscious of the bad press caused when the very rich receive subsidies...
...No wonder in 1985 64 percent of farm subsidies went to the largest 21 percent of farms...
...Congress recognized that this program was more than a bit hypocritical...
...If a farmer and his sister run a farm together as a corporation they can each collect up to $250,000 in individual payments, plus another $250,000 for their corporation...
...Farmer Brown can take out a "loan" from the government at the loan rate ($6.84 per hundredweight of rice), and then pay it back at that low foreign price ($3.50 per hundredweight...
...PiK certificates are tied to local grain prices, and grain prices vary from place-to-place...
...It is also turning farming into a perverse game in which the farmer who survives is not necessarily the most productive, but the one most adept at exploiting loopholes in subsidy programs...
...in California's San Joaquin Valley picked up a quick $20 million last year...
...That proved a logistical nightmare...
...In Princeton, California, the local FFA chapter enrolled their 60-acre rice field in the federal price support program—and received $7,087 from the U.S...
...How to Make $31,937 in an Afternoon" described a Michigan farmer going about his pecuniary chores...
...Just as New York breeds literary trends, the South hatches federal farm subsidy scams...
...The goal of decoupling is to make the farmer's planting decision entirely neutral from the government program," says a pamphlet from Boschwitz's office...
...You may have heard that some farmers commonly qualify for government aid by counting as "set-aside" land they can't use anyway, such as acres with rocky or sandy soil, land that tends to flood, or fields that are left fallow because of normal conservation practices...
...Over the past three years, half the farmers who took out CCC loans gave their grain to Uncle Sam—and kept the money...
...It's like buying shoes at K-Mart and exchanging them for cash at Gucci...
...Not making that distinction in agriculture left a hole as big as all outdoors, one particularly useful to large cotton farmers—with powerful friends in Congress—who felt squeezed by the limit...
...said the Reagan administration in 1983: instead of cash, we'll make farmers take some of their subsidies in grain, which they can then go out and sell or keep...
...Instead, they sell them, at a handsome premium, to farmers who don't have enough certificates to retire their loans...
...So Farmer Brown orders up The Combo Hatter: he turns the crop over to the government, keeps that loan money and collects the original deficiency payment...
...Today's FFA concentrates on the business side of agriculture, according to spokesman Jeri Mattics...
...the farmers had billions in subsidies coming...
...The idea behind these loans is to give farmers enough money to keep them afloat until prices rise...
...So Farmer Brown could fulfill his set aside requirement for the corn subsidy program by planting hay on 20 percent of his land...
...The annual loan rate for all crops has been running 50 percent higher...
...Sometimes this broadbrush approach helps struggling farmers, but that's purely incidental...
...Under the PiK program, he can settle his loan with his PiK certificates on a bushel for bushel, rather than a dollar for dollar basis...
...It was a textbook case of dumping on foreign markets, precisely the kind of practice that makes us so annoyed at the Japanese...
...PiK and Roll encourages farmers to take out CCC loans as an investment device rather than as a stop-gap to get through hard times...
...Subsequent USDA regulations conferred personhood on any legal entity, including individuals, joint ventures, limited partnerships, corporations, associations, trusts, or estates...
...Because the programs sudsidize the price of all rice and cotton grown in the United States, any foreigner who grows here gets federal aid...
...The overhead is minimal: just a phone, a calculator, a pick-up to visit farmers, and a revolving line of credit from a local bank...
...In fact, true market prices are usually, but not always, much lower than the loan rate...
...Princeton High's FFA advisor, Andy Ferrendelli, called it "a learning experience," noting that "they go out and get loans just like other farmers around here?' Students who learn to plow the markets and federal programs can win blue ribbons...
...The most complicated of these multiplying schemes was dubbed the "Mississippi Christmas Tree...
...In June, the deficiency payment per bushel of corn was 75 cents, so the average large family farm, which produces 214,852 bushels of corn a year, was eligible for a $161,000 deficiency payment...
...In an interview with the Des Moines Register, former Rep...
...Afterwards, his new farm family included the same six people plus 15 brand-new corporations formed through various combinations of the family members...
...The real money is in the mushrooming PiK certificate marketplace...
...Department of Agriculture, according to the National Taxpayers' Union...
...So rather than ignite a trade war, Congress bit the bullet on marketing loans: it expanded them to include rice and cotton sold in this country...
...If the prince and his Texas associates feel cramped by the cap, they can just forfeit their crop and pocket the multi-million "marketing" loan...
...PiK and Roll It seemed like a great idea...
...That, in turn, lowers prices further, necessitating more government spending and more set asides...
...The grand total: 21 "people" qualifying for government assistance...
...Subtracting the $7,663 premium he paid for the funny money, the farmer cleared a profit of $31,937 for a few hours of paper work, all on the government's tab...
...They could no longer kid themselves that the farm program merely provided them with a "fair price...
...Then there are cases of outright fraud...
...In Iowa, two different farmers counted the same 103-acre piece of land in their set asides...
...The rich are equally entitled to special marketing loans...
...In 1985, there were $20 million in payments to foreignowned farms...
...Says Drozd's banker: "Now and then we remind Jon to keep his mind on the home farm ." Farm Futures also featured an example that would make Ivan Boesky reach for a hoe...
...Last year, FFA's fiber crop winner was Allen Lewis, a student cotton fanner from Tennessee...
...They qualified for $595,000 worth of payments even before he decided to have some corporate offspring...
...The catch is, this loan rate happens to be 40 percent higher than the local market rate for corn...
...There is no means test on price supports...
...When Congress imposed per-person payment limits, it left the secretary of agriculture to define just what "person" would mean...
...It is perfectly legal to have dozens of corporations living under one roof...
...The government gives Farmer Brown part of his deficiency payment—say, $2,200—in PiK certificates...
...Less well-known are the financial gymnastics farmers go through to cash in...
...General Accounting Office investigators found a 5,841 acre farm (they won't say where) operated by a father, his four sons, and one daughter...
...So the government pays the subsidy indirectly by using the system of target prices and loans to manipulate the prices farmers get for their crops...
...So rather than the grain itself, last year farmers started getting "PiK certificates" good for a set amount of grain...
...The farm's total federal take became $1.4 million: it would have been only $50,000 if owned by a single company...
...Farmers would plant according to what the market would bear...
...Between 1984 and 1986, almost 9,000 new "people" were reorganized onto the USDA payment rolls...
...Farmers could sell or trade these certificates like coupons or securities...
...Ailing farmers do benefit from PiK and Roll...
...Now there's a thriving market of farmers who spend their days trading PiK certificates at the government's expense...
...That same farm was eligible for a $490,000 loan...
...Farmers who once spent their time figuring out how to get rid of grub worms and boll weevils now rise early to tap their PCs, calculating how to get the most from the federal government...
...But it's a crazy way to help the poor...
...The "set-aside" requirement ranges from 35 percent for rice farmers to 20 percent for corn...
...The wettest part of my whole property is all set aside!' Using still another dodge, farmers qualify for subsidy programs by setting aside land not to lie fallow but to produce forage for their livestock...
...With loan in hand, the farmer can either pay it back in cash or simply forfeit the collateral (the grain) to the CCC and keep the loan...
...to harvest cash from the federal till...
...If he holds onto the grain, he must pay for the storage and the principal and interest...
...We don't, for instance, tax people and corporations at the same rate or under the same rules...
...The government's Commodity Credit Corporation was loaded with surplus grain from loan forfeitures...
...Under the program, they can peddle their long grain or puffy instant rice overseas at absurdly low prices...
...Smiling, he's not alone and he's done nothing illegal...
...People Who Need People Next time you're driving along a rural highway and see a leather-skinned man, riding a tractor, wiping his brow, and plowing his field, don't assume he's a farmer...
...Farmers used to need large families so that there would be hands to do the chores...
...That's not cheating...
...The government's mistake was letting farmers use PiK certificates to pay back their government loans...
...When USDA tried to patch the hole with new regulations a few years later, Congress ripped it open again, mandating that USDA stick to the old definition...
...Back in the seventies, the people who had the most to gain from people-multiplying were those with the biggest subsidies to protect: southern rice and cotton farmers, with their relatively large land holdings and perennially low commodity prices...
...The simplest PiK scheme, the PiK and Roll (named for a basketball play) works like this...
...Not an appetizing thought...
...Plus, he still has the 1,000 bushels of grain to sell on the market or to feed his livestock...
...This farm-multiplication scheme makes agriculture an attractive investment...
...Last year, the Crown Prince of Liechtenstein collected $2.2 million in subsidies for his interest in a Texas rice farm larger than his native country...
...This is what all the interests agree farmers ought to get for their crops...
...But any farmer with a truly green thumb can beat the set-aside...
Vol. 19 • September 1987 • No. 8
