Iowa farmers required to pay checkoff, but expenditures can be secret

For Iowa farmers, harvest is payoff time.

It's time to sell the soybeans and slaughter the hogs, using the profits to pay bills and invest in next year's growing season.

It's also payoff time for Iowa's commodity groups.

Iowa farmers were forced to turn over $37 million of their paychecks last year to the state's four largest commodity groups, agencies created by law to promote farming, but not required to tell farmers how their money is spent.

The groups use checkoff money for advertising, research and market development in the United States and abroad. If you've heard the slogans “Got Milk?” or “Beef. It's What's for Dinner,” you can thank a commodity group.

But some farmers disagree with spending checkoff money on sponsorships of sporting events and car races. Other farmers wonder who benefits from the efforts – family farmers or agribusiness?

Commodity groups are quasi-public agencies. But their CEOs make six-figure salaries, their budgets are rarely examined and some major expenditures are top secret.

“Farmers wouldn't want us to disclose stuff if it meant we wouldn't be able to achieve the results on their behalf,” said Craig Floss, CEO of the Iowa Corn Growers Association and the Iowa Corn Promotion Board.

Most checkoffs mandatory

The word “checkoff” implies farmers decide whether to contribute money to commodity groups, but most checkoffs are required by law – like a tax. When farmers go to sell their products, commodity groups take a cut off the top.

Today, there are checkoff programs across the country for products that range from beef, corn and soybeans to mangoes, mushrooms, mohair and melons.

The Iowa Corn Growers Association is one of the few groups that allow farmers to request an annual refund. Iowa Corn refunded nearly $1.2 million of the $16.2 million collected in the year that ended Aug. 31, 2012.

But there is a stigma for farmers who seek refunds.

Wayne Humphreys, who farms 1,000 acres near Columbus Junction and serves on the Iowa Corn Promotion Board, said he doesn't understand farmers who don't chip in for the checkoff.

“It's a penny,” he said. “To deny your industry a penny … they should be ashamed.”

All those pennies add up. With a checkoff of 1 cent per bushel, Iowa Corn collected $17 million in fiscal 2013.

Iowa's four largest commodity groups – Iowa Corn, Iowa Soybean Association (ISA), Iowa Pork Producers and the Iowa Beef Industry Council – collected a combined $37.3 million in checkoff funds in fiscal 2013.

Although farmers fund the checkoff, not everyone knows how the money is spent.

“I don't know where all the money goes,” said Ron Holubar, who grows corn and soybeans and raises cattle on his farm near Solon.

The groups were created over two decades and have varying levels of public accountability.

The ISA, for example, is subject to Iowa's Open Meetings Law and checkoff funds are considered public money. Iowa Corn isn't required to tell the public how it spends its money because the funds aren't routed through the State Treasurer's Office.

The four groups are required by law to submit annual reports to the State Auditor's Office, and three groups' checkoff funds are subject to audit by the state.

Despite these ties to government, commodity groups are considered not-for-profits exempt from taxes. Their Form 990 tax reports share some information about spending, including how much their CEOs are paid.

Floss, who has led Iowa Corn since 1997, received total compensation of $339,961 in fiscal 2012, the most recent tax form available. Kirk Leeds, who has been CEO of the Soybean Association since 1992, was paid $283,442 in total compensation in the year that ended Sept. 30, 2012.

Research

Iowa's commodity groups pump money into research of their products to increase production, improve resistance to disease and develop new uses.

The ISA sponsored more than $3.2 million in research last year at Iowa State University. This includes $216,800 to three plant pathologists using an ISU-developed gene-silencing technique to try to identify which soybean genes control a plant's ability to resist disease.

Iowa Corn's 2012 tax form listed research as one of the group's three largest programs but does not provide an amount spent. The group paid three independent contractors, Matric, Athenix and the Argonne National Laboratory, nearly $1 million for research that year.

The group sponsored $34,840 worth of ISU research in fiscal 2013, according to ISU, and recently announced a $2 million endowment for a faculty position in genetics in ISU's Agronomy Department.

The Iowa Pork Producers spent about one-quarter of its $4.5 million in checkoff funds last fiscal year on new swine research projects at ISU, spokesman Ron Birkenholz said.

Market Development

Commodity groups always are looking for new customers in the United States and around the world.

Iowa Corn pays between $1.3 million and $1.5 million a year to the U.S. Grains Council, a Washington, D.C., based not-for-profit corporation that develops markets for barley, corn, grain sorghum and related products. Another $500,000 to $600,000 a year goes to the U.S. Meat Export Federation, Floss said.

Nearly 40 percent of corn grown in the United States in 2012 was used as feed for livestock, so corn farmers benefit from increased exports of beef and pork to Mexico, Japan and China.

The ISA plans to spend about $1.4 million this year on international marketing.

“The global demand for soybeans had outpaced any other crop,” Leeds said. “The world is looking for a protein crop.”

Of the Iowa Beef Industry Council's $1.7 million in checkoff money last year, $500,000 went to the Federation of State Beef Councils and $108,000 went to the U.S. Meat Export Federation, said Nancy Degner, executive director of the Iowa group.

“We know we are a more-cattle-fewer-people state, and we need to support those national efforts,” she said.

Promotion

The commodity groups spend millions of dollars promoting their products within Iowa. Some might consider this preaching to the choir, considering the state's agricultural roots and the fact that nearly 10 percent of Iowans still work in farm-related jobs.

But commodity groups see it differently.

“One of the challenges with agriculture today is the disconnect that has occurred between generations of Iowans who no longer have a tie to the farm,” Leeds said.

The ISA spent $150,000 this year to sponsor the Iowa Games, an all-ages, Olympics-style sports festival.

Iowa Corn pays an undisclosed sum to sponsor the Cy-Hawk Series, a set of sporting events between in-state rivals, the University of Iowa and ISU. Floss won't provide the cost of the sponsorship with Learfield Communications, the company that handles sports marketing for the UI and ISU.

“It's a significant investment and one that I can't release because that's a contractual obligation that we have,” he said.

Another important, but secret, expense is Iowa Corn's sponsorship of the Iowa Corn Indy 250, a race at the Iowa Speedway in Newton that involves cars using 85 percent ethanol gasoline.

Iowa Sen. Chuck Grassley, who grew up on a farm near New Hartford and is still a member of the Iowa Corn Growers Association, said these expenditures should be made public.

“Maybe they don't want to answer because they'd be embarrassed, but there's people that know, and there's no reason that stuff should be secret,” Grassley said.

Iowa Corn Growers Association's Floss defends the sponsorships. The group's research shows 60 percent of Iowans are listening to or watching the UI/ISU football game in September. The Indy 250 race shows high-performance vehicles running on ethanol - a good testimonial for the corn-based fuel.

“Our farmers want us to be telling their story,” Floss said.

Ron Holubar, the Solon farmer, thinks agricultural advertising is a good investment.

“Sometimes city people are absolutely clueless,” he said.

But some other farmers think it's a waste of money.

“Sponsoring games, car races has absolutely nothing to do with the kind of problems that farmers are facing,” said George Naylor, who grows 470 acres of corn and soybeans near Churdan.

Spending decisions

Elected boards of farmers decide how to spend checkoff cash. The Iowa Corn Promotion Board recently reduced from two to one the number of farmers elected from each of nine districts. Floss said this doesn't decrease representation because the group is using more farmer committees to recommend spending decisions.

Anyone who has sold at least 250 bushels of corn and has 25 signatures of other producers can run for the Corn Board, which has elections for a portion of its seats each year.

Ben Schmidt, who grows corn and soybeans near Iowa City, is serving his seventh year on the 21-member ISA board.

“The soybean association does a good job of representing Iowa soybean farmers in general,” Schmidt said.

But he knows there are differences between the issues of large-scale and small-scale farmers. Schmidt wouldn't say how many acres he farms, equating the question to asking someone how much money is in his wallet.

“There could be a small percentage of farmers that don't feel the association represents them,” he said over the noise of the combine he's using to harvest the last of his 2013 crop.

Naylor, wearing a faded button-down under his denim overalls, was on the state's first Corn Promotion Board in 1978.

“I was kind of naïve about what farm policies were at that time,” said Naylor, who pays about $1,000 a year into checkoffs. “What they were promoting were agribusiness interests. They didn't really care about family farmers.”

That kind of comment bothers the Soybeans Association's Leeds. He said the family farm looks different than it once did, with some families running large farming corporations.

“What people believe agriculture in Iowa is about, it's changed,” he said. “I'm not making a judgment about if it's better or worse, it's just different than it was.”

Iowa had more than 200,000 farms in 1950, but that dropped by half by 1990 as Iowa saw a consolidation of farms, according to the USDA's Census of Agriculture. Fewer Iowa farms have cattle and hogs today than in previous decades, but large-scale animal operations have proliferated.

Is more always better?

The United States has more than 330 million acres of agricultural land. As corn prices have risen in recent years, farmers have put more land into production.

This bodes well for the Iowa Corn Growers Association the Iowa Corn Promotion Board, which receive 1 cent per bushel of corn sold in Iowa.

But poor farming practices have caused environmental problems, such as polluted waterways and erosion. Excess nitrogen and phosphorus from farms throughout the Mississippi River basin is contributing to an oxygen-deprived “dead zone” in the Gulf of Mexico.

Some of the techniques recommended for reducing the flow of nitrogen and phosphorus into waterways would require farmers to take land out of regular corn production.

But Floss insists there's a way to keep yields up with less pollution. The group is working with companies to commercialize corn genes and launch a new trait in corn that improves nitrogen-use efficiency.

But more corn also can bring down the price.

Corn peaked at $8 a bushel a year ago, but prices have fallen to an average of $4.30 a bushel earlier this week. With lower corn prices, even farmers with high yields could struggle to break even, Naylor said.

Future of the checkoff

Farmers have challenged commodity groups over the years, claiming individuals shouldn't be forced to contribute financially to groups whose activities they don't support.

In 2001, the U.S. Supreme Court decided the assessment for a mushroom promotion program violated the First Amendment because the ads were directed at generic advertising that some producers did not support. But in 2005, the Court determined beef advertisements were considered government speech and not susceptible to First Amendment challenges.

One way to get more farmers behind checkoff decisions could be to make the spending more transparent. The Nebraska Corn Board is a public agency that publishes its budget online.

Executive Director Don Hutchens, whose fiscal 2014 salary is $135,403 – about one-third of Iowa Corn's CEO – spoke with The Gazette about his group's spending decisions.

Nebraska, the No. 3 corn producer in the nation behind Iowa and Illinois, collected just over $5 million in checkoff cash last year. The group spent about $1 million each on international marketing, domestic marketing and market development.

“Farmers themselves have said, ‘Tell us how you're spending your money,' so we have to do some sell-back to our farmers,” Hutchens said.

The Illinois Corn Marketing Board collects 5/8 cent for every bushel sold there, which amounted to about $6 million in the year that ended Sept. 30, 2012. Among expenditures includes $100,000 a year to sponsor the Normal Cornbelters, a minor-league baseball team, CEO Rod Weinzierl said.

Iowa Corn agreed to keep quiet the cost of the Cy-Hawk sponsorship, believing farmers would see secrecy as a trade-off for spreading a pro-corn message, Floss said.

The group also won't say how much they spent on a pewter trophy they unveiled for the series in 2011. The trophy was ditched after football fans universally panned the farm family depiction.

Grassley, who has pressured not-for-profits to be accountable for their spending, said commodity groups will continue to be successful in Iowa if they spend farmers' money responsibly and explain the expenditures.

“Transparency brings accountability,” he said.

Iowa's Four Largest Checkoff Programs and How They Work