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MICHAEL C. STUMO - Organization for Competitive Markets
Reclaiming Food and Agriculture Policy
If we search the misty haze of our memories, we can recall a time when Congress and the U.S. Department of Agriculture supported farmers, capitalism, and American sovereignty.
We must furrow our brows to remember those days– before we traveled through the looking glass to a world where Congress and the USDA now support only the dominant global agribusiness firms, corporate centrally planned agriculture, and outsourcing United States sovereignty.
Even FEMA could not create a more dysfunctional food and agriculture policy than the U.S. Department of Agriculture. USDA substitutes cronyism for competence and rhetoric for data. We can do better. The illusive but real path from misery to progress is dotted by sign posts of objectivity, data, and well chosen, value-based goals.
The core function of government is to increase citizens’ general welfare. The role of food agriculture policy– as a subset of this government function– is to increase the general welfare of farmers, ranchers and consumers. Everything else must be viewed as a tool, not a goal. The core metrics show current policy failure– rural depopulation, rural incomes deterioration, main streets dying, and schools and churches closing.
This article will discuss overarching goals for the farm bill within several topics: trade policy, competition policy, commodity program policy, and new agricultural product uses.
FREE TRADE IS THE DRIVING FORCE
International trade agreements– and proposals for new ones– have become the dominant force in U.S. farm policy. The "comparative advantage" underpinning of free trade theory was once persuasive. Now that the negative data has overwhelmed the promises, the free traders are more like a dangerous cult. Free trade for them is the goal, not a tool to achieve societal benefit. Never mind that free trade is gutting first and third world economies, transferring U.S. political sovereignty to unelected international tribunals, and failing to deliver benefits on most every front. But the cult is powerful– its members reside in the U.S. government, dominant U.S. multinational trading companies such as Cargill, and third world development organizations such as Oxfam.
We are shouted down with political epithets– "protectionist" and "isolationist"– when merely pointing out possibilities for another path.
The Free Trade Cult says we must liberalize world food trade to help third world farmers access rich U.S. consumer markets. But Via Campesina, one of the world’s largest third world peasant organizations, opposes any subsidy cuts in the developing countries. They have seen NAFTA drive Mexican farmers out of business and Nigeria digress from an African breadbasket to a country of hunger. Indeed there is no real world example of less developed country (LDC) agriculture gaining in the face of unimpeded global trade winds.
Why? It is now accepted that gifting food to poor countries is a laudable goal with devastating effects– it displaces local food production ability with foreign multinational products. Trade liberalization has the result of converting LDC agriculture from human food production to low-value export crop production. The locals go hungry, and little money trickles in from commodity sales at low world prices.
We in the developed world do not benefit either. Agriculture has been the predominant export strength for the U.S. in modern times. Thirteen years of NAFTA has taken us to net food importer status. We do not have an export surplus in low value goods such as crops, or high value goods like, for example, radar. All the while, NAFTA tribunals have stricken 43 democratically passed U.S. laws deemed violative of NAFTA provisions.
It is a macho hallucination to say we can compete with countries having one-tenth our land costs and less than one-tenth our labor costs. We compete with countries with little environmental and safety regulations, wildly fluctuating currency exchange rates and national healthcare. One can hardly count on pricing a product one to ten percent below a competitor when the cost structure differs so.
The appropriate cliché is, "when in a hole, the first thing you do is stop digging." To stop digging, further trade agreements should not occur until reassessment. We are outsourcing our food sovereignty, our political sovereignty and our economic sovereignty. Our Founding Fathers, who stated the U.S. Constitution is the highest law of the land, would be aghast.
U.S. MARKET COMPETITION
We have become a centrally planned food economy. Cargill, Tyson, Monsanto and ADM have replaced Josef Stalin’s central planners– but the peasant effect is not dissimilar.
Capitalism is decentralized, innovative and distributes benefits widely. The top four firms control 80% of the market in many food sectors. Too few firms control too much market share in beef packing, pork packing, supermarket retailing, crop seed sales and grain and oilseed processing. The government role is to preserve competition and choice, not aid and abet its destruction.
This system of dominant, slothful, and abusive firms is not efficient. Consumers do not benefit from lower prices, higher food quality or innovation. Indeed perishable food products in the retail counter have far exceed general food price inflation. Innovation comes from the small firms.
The first omnibus farm bills originated in the 1930’s. A farm bill has never addressed competition. The Organization for Competitive Markets proposed a comprehensive competition section for the 2002 Farm Bill. Then Senate Agriculture Chairman Harkin championed it. But the Agribusiness lobby killed it.
Federal farm policy must impose and enforce restrictions on economic predation directed to independent producers. Packers should not own livestock because they manipulate markets with the supply. Processors offer long term contracts to producers with often false promises and forced costly alterations down the road. Competition and market fairness should be central in the next Farm Bill.
COMMODITY PROGRAMS AND SUPPLY MANAGEMENT
Naïve economists believe low prices are caused by oversupply. They also believe low prices will drive crop farmers from production and bring supply and demand into balance. But when a farmer goes out of business, his/her land is farmed by another. The crop land supply is constant, and always in production regardless of price. Weather is the predominant cause of corn, soybean and wheat supply fluctuations.
Farm subsidies are certainly an ill-designed bandaid. Some say we should eliminate the bandaid, all the while ignoring the obvious fact of the drastic wound underneath. Land supply inflexibility combined with misguided trade policies and concentrated, centrally planned markets require us to either have some commodity programs, or a significantly reduced agriculture sector.
There are three fundamental choices for commodity program direction:
First choice, full crop production plus subsidies: This is the route Congress chose in the 1996 Freedom to Farm Bill. The government will not tell you what to plant or pay you to idle land. Rather, we will pay subsidies for low prices. The problem was increased crop supply, low prices, and tremendously increased cost in the form of subsidies as compared to prior policies. This is the basic program we have today.
The second choice is just eliminating farm programs. The Free Trade Cult advocates this road. But the inflexible land base would remain in production, dominant grain companies would control the land through contracts, and the last independent farmer exodus would occur. Land prices would drop causing ag lender panic and force bankruptcies or liquidation. Third world farmers would still have no direct access to U.S. consumers, and world prices would be low, harming all farmers globally.
The third choice is supply management. It sounds horrible, but it is the best option. Toyota manages automobile supply. If demand is low, the company can idle plants or shifts to bring supply into line. If corn supply is high, one farmer reducing acreage will have zero effect. Only the USDA, unfortunately, can manage this supply through idling land and paying farmers to store grain through certain commodity loan programs.
U.S. ag secretaries were charged with variations of this role from the 1930’s to 1996. The program was far cheaper and more effective than today’s policy. A true supply response results. Crop prices rise, which means third world farmers see a positive price response. Drs. Daryl Ray and Daniel de la Torre Ugarte of the University of Tennessee have studied this and developed far more beneficial versions of this model than Congress has used in the past.
Farm policy can be a tremendous force for good. We have the data to know what policy tools give the best results. Congress has been persuaded by major agribusiness donors to choose dysfunctional policies that reduce farm prices, increase agribusiness profits, and increase consumer food prices. Implementing the suggestions of this article will slow the decline, and give us a chance to revitalize Rural America.
Michael C. Stumo serves as General Counsel with the Organization for Competitive Markets in Lincoln, Nebraska. Visit www.competitivemarkets.com.
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This article was published in the Winter 2005 issue of Catholic Rural Life©. No portion of this article may be reproduced without written permission from The National Catholic Rural Life Conference. To purchase the Winter 2005 issue of Catholic Rural Life, please contact The National Catholic Rural Life Conference office at 4625 Beaver Avenue, Des Moines, Iowa 50310-2199, call (515) 270-2634, or e-mail ncrlc@mchsi.com. The cost is $2.50 an issue plus postage and handling.
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