Source: The National Association of Wheat Growers

In late February, U.S. President Barack Obama released his first budget proposal, asking, in part, to eliminate direct payments to U.S. farmers with gross annual sales revenue of more than $500,000.

The National Association of Wheat Growers (NAWG), the organization that represents U.S. wheat producers in Washington, quickly and forcefully rejected these proposals. The direct payment program is a top priority for the organization and U.S. wheat growers; the program was, in fact, NAWG's top priority during the writing of the recent 2008 farm bill, which governs U.S. farm programs. So why is the direct payment program so important to the wheat industry?

The answer lies in the unique structure of the program, which provides payments to landowners based on past production regardless of current or future production or market conditions. Unlike other U.S. farm programs, the direct payment program is a five-year contract included in the 2008 farm bill, guaranteeing U.S. government payment to qualified producers.

The direct payment is important to U.S. wheat producers for three reasons:

  • Predictability-Other U.S. farm programs relate to current production, and farmers typically do not know if they qualify until after they produce the crop. By contrast, a producer and his or her banker know how much money will come to the operation from the direct payment program from year to year well in advance. Especially in the current economic climate, this helps producers gain operating credit.
  • Reliability-The direct payment is a U.S. government guarantee to qualifying producers and is paid even if they experience crop failure due to drought, freeze, fire or flood. Other U.S. farm programs require a producer to produce a successful crop to qualify, but the time when many producers need support the most is during times of disaster. Crop failures lead to higher prices, but the price-based protections in marketing loans and countercyclical programs fail utterly in that situation; producers stricken by drought or freeze have no crop, so these programs offer no protection.
  • Trade Compatibility-Many criticize the direct payment because it is paid regardless of current production. However, the fact that it is separated, or decoupled, from what is happening on the ground now makes it the most trade friendly of all U.S. farm programs. Direct payments are reported as "Green Box" to the World Trade Organization (WTO), an important distinction that is becoming even more important within the current environment of negative margins for commodity production. The U.S. wheat industry exports about half of its crop annually and is committed to the international trading system, and the direct payment's compatibility with WTO rules is a key reason for wheat industry support.

Of course, for consumers of U.S.-produced wheat, including our many export partners, the direct payment's focus on continuity of farm operations also means the continuation of a quality supply. At a time when the cost to grow a wheat crop likely will exceed the price at which most producers can sell their crop, gross sales revenue of $500,000 does not guarantee a profit for wheat producers, the vast majority of whom run family-owned operations. The direct payment is the only safety net available to help ensure continuity in the unmatched reliability of the U.S. wheat supply chain.

The future of Obama's budget proposal is unclear. NAWG and groups representing other commodities and members of Congress are working to educate the administration about on-farm realities. While the administration proposes a detailed budget, only the U.S. Congress has the constitutional authority to direct (appropriate) money. NAWG will continue to work on this issue keeping the needs of both wheat growers and wheat consumers in mind.