The attacks on the World Trade Center will be felt in family farm budgets across the country. Among other things, the attacks may set off a domino effect that will cause farmland prices and the value of the dollar to fall. Farm exports to Mexico and some Asian countries could also fall.
The biggest impact, however, may be felt in agricultural subsidies, which soared from $7.3 billion in 1995 to more than $22.9 billion in 2000. Even before the Sept. 11 attacks, the federal budget surpluses that helped pay subsidies were disappearing quickly. And, there was broad agreement that the level of subsidies was too high.
The Trade Center attacks put huge new demands on the budget. “Beefed-up security, air strikes or whatever military action (the government) chooses to take, will cost money,” says Philip Paarlberg, ag economist at Purdue University. “A lot of people in agriculture are worried that some of the costs will come from the ag subsidy program. They were worried about this before the World Trade Center and this means the government has even more outlays to cover.”
What happens if much of the cost comes from ag subsidies? Luther Tweeten, a retired ag economist at Ohio State University, offers these possibilities:
Some farmers may have trouble paying for land, especially if they bought it in recent years as prices began to rise. “We're probably not likely to terminate all subsidies,” he says. “But we're going to scale them back. Those who made decisions assuming these things were going to continue will be in for a big shock.”
Farmland values could fall. One reason land values rose was the flood of new money from a rising tide of subsidies. Lower values would hurt farmers who want to use land as collateral for farm loans.
Since cash rent tends to move in the direction of land prices, rents could fall as well. “People who rent their land might be better off,” Tweeten says. Farmers, or retired farmers, who own rental properties, would suffer. Roughly half of all U.S. farmland is rented.
Ag exports to Mexico could fall. Mexico is a poor country that could be hurt by the worldwide economic slump that was worsened by the Trade Center attacks. Mexico spends more on U.S. ag products than all of Western Europe, much of it on U.S. corn and soybeans. (Paarlberg adds other foreign markets, particularly some Asian countries, also might reduce their commodity purchases.)
The dollar could fall in value in relation to foreign currencies. “The sleeper in all of this is the value of the dollar,” says Tweeten. “If foreigners lose confidence in the U.S., the value of the dollar would fall.” This would help farmers by making U.S. ag goods cheaper in foreign markets.
But, a falling dollar could add to inflation in two ways. First, it would make foreign goods more expensive here. Second, interest on U.S. government bonds would have to rise to attract foreign investment to cover our national debt. Since all interest rates tend to go up in response to inflation and rising rates on government securities, the cost of farm borrowing would rise as well, Tweeten says.
Here's a partial list of federal expenses (at press time) stemming from the Sept. 11 attacks that will compete with ag subsidies and other federal programs for funding.
Known costs (estimated):
Economic stimulus package to head off a recession — more than $75 billion
Aid to rebuild New York — more than $20 billion
Airline industry bailout — nearly $15 billion
Improved airport security — more than $2 billion.
Unknown costs:
Benefits for furloughed workers
Foreign aid to terrorism-coalition countries
Protracted anti-terrorism conflict
Homeland Security Program
Improved CIA foreign intelligence.