-Caveat Lector-
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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