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Freedom to Fail
How U.S. Farming Policies Have Helped Agribusiness And
Pushed Family Farmers Toward Extinction
Ben Lilliston and Niel Ritchie work at the Minneapolis-based Institute
for Agriculture and Trade Policy.
By Ben Lilliston and Niel
Ritchie
George Naylor's family traveled
to Green County, Iowa from England in the 1880s. They farmed on other
people's land until 1919 when they bought their own farm. Now, in face
of a growing farm crisis, George Naylor is battling to keep his family's
560-acre farm alive. "Now that prices have gone to heck, we're not getting
any money at all," Naylor says. "We don't buy anything we don't need."
Naylor's experience is typical
of most U.S. farmers who have been sold down the river by a calculated
U.S. farm policy that directly benefits large agribusiness companies and
factory-style farming at the expense of family farms. The farm crisis
has hit home literally, with plunging farm prices -- the bane of family
farmers for centuries -- forcing most farm families to work off the farm
to survive. According to the U.S. Department of Agriculture, almost 90
percent of the total income of rancher or farmer households now comes
from outside earnings.
"We've been looking for other
jobs," says Naylor. "Almost everyone in my neighborhood has other jobs."
The driving force behind U.S.
farm policy is the 1996 seven-year farm program titled the Federal Agricultural
Improvement and Reform Act -- with the ironic acronym (FAIR). The bill,
dubbed "Freedom to Farm" by its bipartisan proponents, put an end to the
New Deal system of production controls and eliminates federal price supports.
It provides farmers with a guarantee of fixed but declining payments to
end in 2002, and allows flexibility to plant whatever they like.
Prior to Freedom to Farm,
if the price for a market commodity -- such as soy, wheat or corn -- dipped
below the price floor, the government would cover the difference, thus
ensuring that price wouldn't fall below the cost of production. Freedom
to Farm eliminated price floors and removed "production controls" including
land set asides and farmer-owned grain reserves. By giving farmers some
ability to limit the amount of commodities on the market, these policies
had given farmers some control over the price for their crops. Finally,
the FAIR legislation gradually transitions away to the point of eliminating
farm programs after the year 2002.
The effects of Freedom to
Farm have been immediate and devastating. Proponents touted the program
as a way to increase exports and the price of crops. But "Freedom to Farm"
has failed miserably on both accounts. Exports of corn, wheat, soybeans
and sorghum have dropped by nearly 10 percent since enactment of Freedom
to Farm. More importantly, prices have collapsed, with corn going from
$3.24 a bushel in 1995-1996 to $1.90 in 1999-2000, wheat dropping from
$4.55 to $2.50, soybeans declining from $6.72 to $4.70 and sorghum plummeting
from $3.19 to $1.60.
The policies of Freedom to
Farm have been such an unmitigated failure that Congress has had to appropriate
massive bailouts in each of the last three years to keep farmers on the
land. In 1998, "emergency aid" to farmers totaled $15 billion. In 1999,
it grew to $23 billion. Another $15 billion will be spent this year.
Putting these numbers into
perspective, John Hansen, president of the Nebraska Farmers Union, says
that the total cost of farm programs in 1996 was $4.6 billion.
Failed Policies, Flawed Assumptions
Freedom to Farm was designed to expose farmers to the so-called free market.
Freedom to Farm reduced the level of government interference, which in
theory would allow farmers to thrive on the open market, particularly
in what was seen as the growing export market.
The market "will decide which
farmers should stay in business and which farmers should choose other
avenues," one proponent, Kevin McNew, an assistant professor in the Department
of Agricultural and Resource Economics at the University of Maryland,
told a Heritage Foundation audience in August 1999. "It will do so solely
on the basis of efficiency and costs. Those that are efficient and produce
at lower cost shall remain. Like any other freely competitive industry,
competition is not always kind, but it is always fair."
Freedom to Farm encourages
fence-row-to-fence-row farming with no provision to control supply, and
forces every bushel produced to be dumped on the market no matter how
low prices are already depressed, since there is neither a fair loan rate
nor a reserve program, according to Naylor. Promoting the "free market"
in farming was understood to translate into lower prices by removing price
supports and production controls.
The big grain traders support
Freedom to Farm. "Freedom to Farm has really positioned the U.S. very
well to take advantage of the opportunities in the world market," Cargill's
Dan Pearson, told the Ontario, Canada Financial Post in December 1996,
shortly after the law's enactment.
Champions of FAIR claimed
that lower prices would make U.S. grain and oilseed prices competitive
in world import markets and increase U.S. exports, thereby increasing
U.S. farmers' income and lowering the cost of federal farm programs. Proponents
also argued that the lower U.S. price supports and lower crop prices would
serve to discourage foreign competitors from increasing the area they
were seeding to grains and oilseeds, further benefiting U.S. farmers.
But according to Sheila Ehrich,
a farmer from Elmore, Minnesota, it is the large grain buyers who have
reaped the benefits of Freedom to Farm, not farmers themselves. "Cargill
is buying corn damn cheap -- we're back to overproducing," says Ehrich.
Ehrich and her husband grow
both corn and soybeans on a 1,000 acre farm, and sell seeds to other farmers.
The Ehrich's have recently found a market for their corn at two ethanol
plants. But their other options for selling their crops have shrunk dramatically
since Freedom to Farm passed, reflecting the growing concentration of
agribusiness. The Ehrichs used to have five different elevators, each
independently owned, to choose among to get the best price for their crops.
Now the five elevators are owned by only two companies.
The Ehrich's story is by no
means unique. In August 1999, the University of Minnesota Extension Service
conducted a survey of 300 farmers' and agribusiness leaders' opinions
of the FAIR Act. Almost 50 percent gave the bill a grade of "F" and another
20 percent gave the bill a "D." Ninety-seven percent of the respondents
said changes are needed.
Critics point out how the
Act stripped away New Deal farm programs designed to directly protect
farmers from the wild fluctuations of the market, which had devastated
farmers during the Depression.
The Freedom to Farm experiment,
they say, failed to take into account a number of factors: increased production
by other exporting countries; the facts that lower commodity prices don't
increase overall demand and that productive land never remains fallow
for long; and the lack of competitive markets.
For nearly 50 years, agribusiness
and grain traders who thrive on the volatility of the market and low crop
prices have attacked the New Deal approaches to U.S. farm policy. Family
farmers throughout the country say the agribusiness success in Freedom
to Farm has returned farmers to the Depression-era conditions that brought
about the New Deal farm program in the first place.
Freedom to Farm has accelerated
the long and steep decline in family farms. The total number of farms
in the United States has declined from 6.5 million in 1935 to 2.05 million
in 1997, with most of the decline among family farms, according to Willard
Cochrane, professor emeritus at the University of Minnesota. More than
60 percent of the remaining farms are resource, residential or retirement
farms. Since enactment of FAIR, the number of family farms has gone into
free fall.
Fighting the Market
Farm policy has been a volatile political issue for much of U.S. history
-- most notably in the late 19th century, when the insurgent Populist
political movement was a major force in U.S. politics. The agrarian populist
movement, carried through the early part of the 20th century, was built
largely on efforts by farmers to assert some control over price, supply
and credit. During the 1930s, according to Daryll E. Ray, director of
the Agricultural Policy Analysis Center at the University of Tennessee,
growing farm production rapidly outpaced agricultural demand, causing
lower prices.
Their success came in the
New Deal, following the farm crisis -- portrayed in the Grapes of Wrath
-- which preceded it. But farmers did not respond to lower prices by significantly
reducing output nor did consumers significantly increase the quantity
demanded. Instead, inventories kept building and prices kept plummeting.
The crisis ended only with the implementation of New Deal regulations.
President Roosevelt's farm
policy was designed to restore the farm purchasing power of commodities
relative to the rest of the economy by using three policy tools -- production
controls, price supports and farm credit, explains Mark Ritchie, president
of the Institute for Agriculture and Trade Policy in his 1986 book, Crisis
By Design: A Brief Review of U.S. Farm Policy.
"The Parity program, as it
was called, had three central features," Ritchie writes. "First, it established
the Commodity Credit Corporation (CCC), which made loans to farmers whenever
prices offered by the food processors or grain corporations fell below
the cost of production. This allowed farmers to hold their crops off the
market, eventually forcing prices back up. Once prices returned to fair
levels, farmers sold their crops and repaid the CCC with interest. By
allowing farmers to control their marketing, the CCC loan program made
it possible for them to receive a fair price from the marketplace without
relying on subsidies. Second, it regulated farm production in order to
balance supply with demand, thereby preventing surpluses. Since government
storage of surpluses was expensive, this feature was crucial to reducing
government costs. Third, it created a national grain reserve to prevent
consumer prices from skyrocketing in times of drought or other natural
disasters. When prices rose above a predetermined level, grain was released
from government reserves onto the market, driving prices back down to
normal levels."
"although this parity legislation
was essential to saving family farm agriculture, it conflicted with the
economic interest of a number of powerful corporations and banks," Ritchie
writes. "For example, government intervention to stabilize prices hurt
grain speculators who had benefited from the large price fluctuations
by buying farm products when prices were low, storing the products and
then selling them when prices rose. In addition, effective supply management,
by reducing the acreage being farmed, cut into the sales of pesticides,
insecticides and fertilizer by farm chemical and oil companies. Grain
corporations suffered as well: because they receive the same margin of
profit on every bushel of grain sold, their interests are served by the
kind of high-volume, low-price agricultural market that the parity programs
served to prevent."
Farming Without A Net
Freedom to Farm has driven the move toward large, corporate farms and
agribusiness partnerships and away from small and medium-sized producers.
Government subsidies for farmers tell much of the story. According to
an April study by the Environmental Working Group, approximately $22.9
billion was passed out in subsidies during the first three years of the
Freedom to Farm Act (1996 to 1998), and the top 1 percent of subsidy recipients
collected an average of $249,000 over the three years -- about $83,000
per year. The top 10 percent of the recipients -- 144,000 participants
-- collected 61 percent of the money, or an average of $32,000 in payments
per year. At the same time, the majority of subsidy recipients saw little
benefit from the 1996 law. Half of all subsidy recipients were paid less
than $1,200 per year, and many smaller farmers saw a loss in their net
farm income, the study said.
"If they would pay farmers
on a basis of need -- rather than just pay everybody -- it would make
a lot more sense to people outside of farming," says Sheila Ehrich. "I
don't see how Congress can continue this. When the economy changes, we'll
be the first ones cut."
although there are other factors,
the subsidies are largely determined by farm size, thereby favoring agribusiness
over small family farmers. They are not determined by whether a farm makes
a profit or is in need. Some landowners who are not farming as much have
been eligible for large payments, solely because of the number of acres
they own.
Who's making the bread?
Freedom to Farm's lower commodity prices have not translated into consumer
benefits. Since 1984, the real price of a USDA market basket of food has
increased 2.8 percent while the farm value of that food has fallen by
35.7 percent, according to C. Robert Taylor, professor of agriculture
and public policy at Auburn University. Taylor says there is a "widening
gap" between retail price and farm value for numerous components of the
market basket, including meat products, poultry, eggs, dairy products,
cereal and bakery products, fresh fruit and vegetables, and processed
fruit and vegetables.
At a major farm rally in Washington,
D.C. in March, farmers served legislators a "farmers" lunch. The lunch
included what would typically be an $8 lunch -- barbecued beef on a bun,
baked beans, potato salad, coleslaw, milk and a cookie. The farmers charged
only 39 cents for the meal, reflecting what farmers and ranchers receive
to grow the food for such a meal.
Fighting Back
What Freedom to Farm has done is highlight for many farmers as never before
that their interests diverge from agribusiness. "The U.S. food system
consists of six interrelated sectors: farm inputs, farm production, food
processing, wholesaling, retailing and food service," notes Dr. Richard
Levins, an agricultural economist at the University of Minnesota. "Agribusiness
and their supporters in government are eager to portray agriculture as
monolithic, with all sectors equal and interdependent. But the reality
of which sectors have market power and political power is quite different."
The low commodity prices which
benefit many large agribusiness interests erode family farms' viability.
"The long-term crisis in agriculture will continue until the government
addresses the fundamental problem of market prices set below farmers'
cost of production," concluded a coalition of over 60 family farm, labor,
environment and church organizations in a statement released in conjunction
with Willie Nelson's 1999 Farm Aid concert.
Family farm and sustainable
agriculture advocates are beginning to formulate policies to respond to
this crisis. With the current farm bill due to expire in 2002 and a pattern
of five- to seven-year programs, groups are starting to take a longer-term
view of the political landscape and working to build coalitions to reverse
this concentration of agribusiness power and wealth.
On March 21, over 3,000 farmers
came to Washington, D.C. for what was billed as the "Rally for Rural America."
An emerging coalition of family farm, church, labor, consumer and environmental
groups endorsed an agenda for replacing the current failed farm policy.
The coalition called for the immediate passage of a new farm bill that
would:
- Set government non-recourse
loans at near the cost of production to ensure that farm income comes
from the marketplace and not taxpayers.
- Enact short-term conservation
measures to avoid wasteful and market-depressing overproduction.
- Create a farmer-owned grain
reserve to ensure food security in times of scarcity and price stability
in times of plenty.
- Maintain planting flexibility.
- Establish a national dairy
policy to ensure a farmer's cost of production plus a return on investment.
In addition, the coalition
called for the negotiation of fair trade agreements, including assurances
that all countries retained the right to develop farm programs that respond
to the needs of their farmers and consumers. They also demanded that countries
end export dumping -- the sale of commodities below the cost of production
-- that undermines domestic economies. They insisted that environmental
protection, fair wages and worker rights be included in every trade agreement.
And finally, they called for the restoration of competition to the marketplace
through strict enforcement of antitrust law and an immediate moratorium
on mergers and acquisitions in agribusiness, transportation, food processing,
manufacturing and retail companies.
Freedom to Farm has been derisively
called "Freedom to Fail" by critics. Many agriculture experts believe
the United States has only a few years left to save its family farmers,
before they are either swallowed up by larger farms, or left in financial
ruin. The next farm bill, expected to be hashed out next year, will likely
leave a lasting imprint on whether most U.S. small farmers will be able
to stay on the land in the next century.
"Given the basic framework
of Freedom to Farm, there isn't any way to envision agriculture as anything
but what it has turned out to be," says Naylor. A sustainable future for
Rural America, says Naylor and farmers like him, depends on establishing
an entirely new agricultural framework.
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