In the future, just toiling hard—the first commandment of agriculture—will no longer be enough to assure a farmer success. New technology, world trade, and a host of smaller factors are bringing momentous changes to American agriculture, and farmers who expect to stay in business are going to have to guard their independence with quick thinking and tough choices. Dramatic reforms of government farm programs are called for as part of the necessary adjustment, and we will examine some below. Bit it is primarily farmers themselves who are going to have to work their own salvation.
The first thing they are going to have to decide is what kind of famer they want tot be. There are basically two options: The top fifth of U.S. growers (fewer than half a million individuals) run large, efficient family farms as commercial enterprises and produce 85 percent of our agricultural output. Most of the rest are part-time farming families who have found agriculture a good complement to a day job, an off-farm business, or a spouse’s salary. Farm labor is what economists call “lumpy”—there are periods when you wear itself out, then long stretches where you can do nothing at all. That can fit well with another job, even when the farming is done on a reasonably big scale.
Big boys and part-timers alike have family incomes above the national average, but they earn them in very different ways: The first devote themselves entirely to agriculture and bring home an average of about $100,000, while the latter derive about three-quarters of their income from nonfarm sources. (In between the commercial and the part-time farmers are very small scale full-time farmers, who are often distressed and rapidly disappearing.) Even farm families that are fully dependent upon agriculture are finding it advantageous to diversify their income sources. One example would be the Baxter operation located near Stockley, Delaware. Jim Baxter is a jowly, unpretentious man, feeding a smoky trash fire and loading junk onto a truck when I find him in his barnyard. The day before, a tornado had touched down and destroyed part of his grain bin and elevator, a reminder of the unpredictable natural environment within which farmers work.
“There’s been a Baxter farm here since 1903,” he explains, “but it’s changed a lot over the years.” With his two sons, Baxter started a farm-machinery parts business on the premises to supplement seasonal crop income. They also put up a string of chicken houses. The modern broiler industry was born nearby, in the area where Delaware, Maryland, and Virginia meet, and it has broken into specialized components on the way to becoming a super-efficient business.
Large companies like Holly Farms and Perdue Farms Inc. supply day-old chicks, special feed, and technical advice to growers, and they buy up the mature birds for processing and marketing. In between, nearby farmers provide the careful attention and efficient husbandry needed and, in the process, generate a predictable cash flow.
Every few weeks, flocks of 50,000 to 100,000 birds circulate through the Baxters’ controlled-environment chicken barns. Though they require careful watching, the chickens remain a sideline on a relatively small piece of the family land. Between the chickens, the parts business, and the older grain-raising operation, Baxter Farms has become a diversified operation, with labor and financial demands smoothed and balanced out.
A more full-blown example of agricultural specialization is Harry Mitchell. Near Berlin, Maryland, Mitchell owns a com- pact 10V2 acre spread. On that tidy bit of carpet he has put up a half dozen chicken barns that 105,000 fowl call home. Every few weeks the companies with which he has contracts bring in a load of peepers and take away a load of squawkers. With his feathered guests zipping from infancy through adolescence, to prime McNugget-making age in a mere 49 days, Mitchell can run five-and-a-half flocks through his operation every year, a staggering total of more than half a million birds (let’s say 3.5 million dinners). And aside from a few guys he calls in to wave their arms and make fox noises when it’s time to herd a mature flock into the processing plant’s trucks, he does it all alone.
Despite the tremendous productivity they make possible, the new patterns in broiler raising are controversial with some farmers, who consider contract-growing just one step above being a hired hand. One worry is that the trend could ultimately turn some farmers into little more than assembly line workers without much independence. Not all farmers, though, want the responsibility of running a complicated top-to-bottom business. Many complain about the heavy capital investments that farming requires today, the difficulties of managing so many different facets of an operation, and the crazy swings they face in commodities markets.
To a considerable extent, contract growing relieves farmers of these burdens. It brings infusions of money, machines, and management help. It moves price risk to the supplier/processor’s shoulders. And it can make a bigger pie for everybody, because integrated processors like Frank Perdue can do sophisticated marketing and advertising that individual farmers cannot easily get into.
Farming was dying out in the Eastern Shore counties around Mitchell’s place when the eight integrated companies reorganized local chicken production. Today, the region is the most concentrated broiler producing area in the United States, sending 150 tractor trailer loads of poultry across the Northeast every day, providing a huge market for local corn and soybean growers, and spreading ripples of prosperity through a territory that was once one of the poorest on the north Atlantic seaboard.
Rather than just concentrating on one stage of the growing process, some farmers are capturing more of the agricultural profit that once went to middlemen. Richard Justiss and other grain farmers interviewed in this series have put up elevators on their places and started storing and trading grain. Wheat grower David Magness got a spraying rig and buys wholesale chemicals so he can do for himself what he used to hire out. Vegetable farmer Charles West built his freezer a few years ago and now not only runs his own stuff through it but also packs branded vegetables for wholesalers and retailers.
The freezing plant now generates more than twice as much income as his farm. Leonard Martens is about as near a polar opposite to the empire-building Charles West as can be imagined. But using his own diversification strategy he, too, has stayed in the farming business long after many of his neighbors have moved on. A kindly man with a gently rounded belly and a big sense of humor, Martens was originally an egg farmer. He was squeezed out of that by a drop in U.S. consumption and the increasing decrepitude of his laying sheds. Today, he markets and delivers in his old van the eggs a partner produces. Though it is clear Martens hasn’t made much money farming for some time, his egg partnership and the cattle he runs on his pasture land allow him a living.
The slanting spring sun ricochets off a long necklace of “Property Available” signs on both sides of the road leading to his place, and it obviously gives him some satisfaction to have kept intact one of the largest pieces of contiguous land in his area. Despite some tough scrapes, Martens has made adjustments and preserved his way of life without accepting a single government subsidy. He points out with quiet pride that all of his cattle are registered Beef Master hybrids, beautiful light chocolate animals, with sturdy young calves thick among them.
Recognizing that it can be hard to make a living just producing bulk commodities that are in chronic surplus, farmers have long tried to add value to their output by feeding some of it to animals who transform it into something pricier. A few head of cattle can serve as a kind of shock absorber on a small farm, because they can be grazed on fallow land, damaged crops, or harvested stubble, “finished off’ when grain prices are low, and sold when beef prices turn favorable. Likewise, a dollar’s worth of corn thrown to a piglet can bring a farmer more than two dollars’ worth of hog six months down the road.
Other kinds of specialization and “value-adding’’ are available to farmers who want to stay in agriculture but are feeling squeezed out of traditional farming. Instead of trying to wring ever higher yields of unprocessed food commodities from their land, some small farms have turned to producing low volumes of high-quality specialty products like pond-raised trout, hydroponic vegetables, game meats, unusual cheeses, seasonal fruits, or local wines.
This usually requires getting into the business of marketing and selling. Some high-value farmers run their own stands or stores, deliver to regular buyers at urban restaurants or gourmet food shops, or run phone or mail-order operations. Their goods generally command price premiums over competing mass-produced products.
This strategy has made a big difference in some parts of the country. The number of farms in several northeastern states actually rose during the 1980s. Maine added 400 farms in five years. In Massachusetts, the number of farms went up by more than 10 percent in just four years. The number of farms in New Jersey rose 9 percent from 1982 to 1987, to 9,032. Most of these new operations, and many of the older existing farms in New England and the Atlantic states, prosper by running diversified low-cost operations, by taking advantage of their proximity to major urban centers, by selling direct to consumers, and by concentrating on under-served niches for high-value products. “Niche farming is particularly important if one views agriculture from the point of view of practitioners rather than acres,” says Bill Baumgardt, director of agricultural extension services at the Purdue Agriculture School. It can occupy lots of farm labor even while the vast bulk of land remains devoted to conventional husbandry. And niche farmers need not turn out a brand new, or especially exotic, product. Soybean farmers, says Baumgardt, may simply concentrate on the slightly different varieties that are exported to Japan for tofu making. Some corn farmers may plant only the strains that are desirable for industrial starch uses.
Missouri corn farmer Blake Hurst hopes to break out of the bulk commodity strait jacket by relying on a commonplace yet nontraditional crop. He and his bright, high-energy wife Julie have just built four large greenhouses behind their home and recently bought a flower shop in a nearby town. They plan to run a bedding and ornamental-plant business, selling to local homeowners. They hope that business, plus perhaps some journalistic income from Blake, will allow them to get out of the row-crop trade.
Hurst writes that some of his Corn Belt neighbors are venturing out in similar fashion to put their family finances on firmer, more independent footing: “West of town, land that used to grow the best corn in Atchison county is now planted to potatoes, a crop that doesn’t depend on subsidies, but rather on America’s appetite for potato chips. North of town, some neighbors are experimenting with broccoli, another nonsubsidized crop. Further north, a group of farmers’ wives distribute their handsewn clothing to yuppies nationwide.”
Not all diversification ventures will succeed, and they can be oversold. “Some of these things come and go. I can remember talk about rabbit farms, worm farms, you name it, and none of them took,” warns Martens. Adds Iowa extension agent Mike Duffy, “There is a lot of room for more diversification on Iowa farms--an acre of strawberries, three acres of blueberries, whatever. But high-value crops have higher variances. Only if a farmer has the labor and management skills, and if he markets the crop before it goes into the ground, is it a good idea.”
“I know a guy who planted 100 acres of asparagus without giving a thought as to how he was going to sell it,” reports farm consultant Eldon Hans. “He ended up plowing 85 percent of it under.” Says Hurst, “We’re not going to solve the farm problem by everyone growing shiitake mushrooms. But people are trying new things, and efforts to broaden the agricultural economy will eventually pay off. I know our greenhouse is growing rapidly and helping us a lot.”
Other families eager to stay in small-scale farming have turned to what Missouri Farm publisher Ron Macher calls “agripreneurship.” Writer Anita Evangelista, who herself lives on a farm, describes how one Missouri farm wife signs up families in her small town on a “subscription vegetable” list. Every couple weeks, she delivers 10 to 20 pounds of just-picked veggies to each home, taking away $15 at each stop.
She hopes to have 25 or so enrollees next year (that’s $750 a month), and she does it all on less than four acres. A six-acre family operation in Maine provides 100 families with a full spring/summer/fall array of garden crops for about $320 each annually. Comparable crops, less fresh, would cost about $550 in the supermarket.
In the mid-l950s, Robert Bitz began to focus his family’s small central New York farm on turkey raising. Today, the operation, thriving and no longer small, is both remarkably specialized and astonishingly complete in its field-to-dinner plate production cycle. Robert and son Mark supervise the growing of corn on more than 600 acres of land, the combination of that corn and other ingredients into turkey feed at the farm feedmill, the raising of 400,000 turkeys a year, and the processing of all of those gobblers right at the farm plant-not only as roasting birds but also into a growing range of specialized products like turkey pastrami, smoked turkey, and sausage.
The Bitzes market and transport their products throughout upstate New York and run a broad promotional effort for their own Plainville Farms brand, including a popular visitors center and an ambitious advertising campaign with its own cartoon character. As if that were not enough, the farm also operates two restaurants-one sit-down, one fast-food-that serve prepared Plainville Farms products directly to the public.
In addition to allowing careful quality control at each step, this remarkable string of value-adding processes lets the farm capture for itself more of the income that derives from its product.
Although many farmers can prosper by selling more effectively in their own backyards, most of the future demand for U.S. agricultural products will come from abroad. Purdue University Agriculture Dean Robert Thompson argues that American farmers “have viewed the export market too often as a place to get rid of transitory surpluses, not as a regular and planned outlet for a significant fraction of their product.”
To build export markets, U.S. agricultural groups need to further develop offices and long-term relationships abroad, and to help American farmers tailor their output to the needs of other countries. The Third World in particular offers enormous export potential. As people become wealthier, they sharply increase the amount of meat in their diets, and those animals must be fed grains and protein meals that in a great many cases can be supplied at low cost only by American growers.
Another area where farmers need to become much more active is in what might be referred to as private price insurance. Farmers have price problems: They sell an undifferentiated product into a market made up of thousands of small suppliers all selling the same thing. As a result of this intense competition, they have no control over what price they get. And in some cases the price shifts dramatically in the brief interval between planting and harvest-turning an expected profit into a loss.
Insulating farmers from some of the shock of these price swings has long been a major aim of government farm programs. They have done so fitfully, with many strings attached, and at great cost. But for most of this century farmers had few alternatives. Fairly recently, however, a host of new trading institutions and pricing mechanisms for farm products has sprung up, giving farmers a chance to shift much of the risk inherent in cultivation onto their customers and onto financial speculators.
Futures markets (which allow farmers to sell their crops in advance of harvest, locking in today’s price for goods that won’t be delivered until later), commodities options (which for a slight premium give farmers the right-but not the obligation-to sell their crop in the future for today’s price), and various forward pricing contracts (which do similar things) are becoming easily accessible. Farmers now have the chance to lock in their returns months before harvest, removing much of the terrifying uncertainty that has long dogged farming.
Unfortunately, only a minority of farmers have bothered to take advantage of these new possibilities. “I would guess only 10 to’ 12 percent of farmers are hedging on traditional major crops like corn, beans, and so forth,” says Terry Franc1 of the American Farm Bureau. “If you include contracts at local elevators and so forth maybe one third to one half of all crops are priced before harvest.”
Farmers have real economic power in commodities trading, if only they develop the knowledge and confidence to exert it. In the 1988 Iowa State University Farm Finance Survey, farmers who hadn’t used a forward contract over the previous two years were asked why not. Fifty-four percent reported that fear or lack of information held them back, 46 percent said they “didn’t have enough time” to do a good job, 68 voiced the opinion that futures markets carried “too much speculation and manipulation,” and 12 percent said such tools were “morally wrong.”
“Farmers are already speculating every time they put a seed in the ground, they just aren’t acknowledging it. They’re flying blind,” says wheat grower Magness. “I started getting the Wall Street Journal three years ago and following futures markets closely every day. It makes me feel a lot better to have my crop hedged. We ought to be as excited about commodities options contracts as we were about hybrid corn, but few farmers are.”
Commodity options, as opposed to futures, notes University of Maryland economist Bruce Gardner, duplicate “the kind of protection that farm programs give-a price floor but no limit on profits from high prices.”
But, he says, “Sometimes farmers will say that selling forward is just as much a gamble as taking one’s chances on the cash market. If you sell forward at $8.00, and the price rises later to $10, you have gambled and lost. In part, this is just a confusion about the meaning of gambling. It’s like saying you are gambling by staying home from Las Vegas because you might have won big if you had gone there.”
Farmers have been conditioned from long experience to shoot for the jackpots in peak years, because lean times will surely be coming. Widespread forward pricing, if it takes hold, represents an entirely new psychological environment-the peaks may not be quite so exciting, but the troughs will be moderated.
So much for what farmers can do to heal themselves. What about the federal programs? Perhaps the first thing that ought to be acknowledged is that the 1985 farm bill was a step in the right direction. It lowered price supports to 75 percent of the most recent five-year average of market prices, throwing out the high and low years. This was the first time price supports had been tied to actual supply and demand conditions instead of just some political calculation-and it was a breakthrough.
Linking price supports to market prices reduces the chances they will encourage overproduction, and keeping them down at the 75-percent level means the government will only get into the costly and destructive business of buying up surplus commodities in rare years. Low, market-tied price supports are also less likely to force prices above prevailing world levels, and this has helped U.S. agricultural exports rebound. The Reagan administration also wanted to change deficiency payments (the money above and beyond price sup- ports that is paid directly to farmers to give them a guaranteed income) so that they would give farmers an annual return equal to 100 percent of the previous five-year average of market prices. This would have transformed our farm subsidy program from its current status as a politically driven income supplement to something more like a real safety net: The government wouldn’t let a bad year take place, but in the long run it would guarantee farmers a return equivalent only to what they could earn in the marketplace. Unfortunately, Congress insisted on maintaining high deficiency payments, prolonging a whole host of overproduction and misproduction incentives
And, of course, subsidy levels are only one part of farm policy. There are also mandatory land set-asides, various types of interference in export markets, conservation regulations, strict cropping controls, huge credit giveaways, disaster-relief protocols, and so forth.
In most of these areas the 1985 farm bill made little progress, and in several it notably worsened government interference with agricultural functioning and farmer independence. Worst of all, there is nothing to protect or preserve the few reforms where the 1985 bill did make progress. Next election, or cyclical downturn, the feds are quite likely to revert right back to old patterns: more welfare, more interference, more central planning, all in the name of the family farmer.
Clearly, sharp departures in U.S. farm policy are needed. Ignore the damage current policies do to farmer morale. Ignore the costs in economic efficiency. Ignore the environmental harm we are subsidizing. Ignore the huge balance-of-payments losses that come from forfeited exports. The single fact that the last decade’s farm policy has cost every single family in this country $300 to $400 a year in extra taxes and consumer costs, without much to show for it, is reason enough to justify a break with business as usual.
And for practical reasons the present may be a good time to try something bolder. The federal government has just finished spending $200 billion on various farm programs during the 1980s. A painful farm shakeout has worked itself through only 7 percent of all operations are today classified as under severe financial strain. Experts say 85 percent to 90 percent of the individual-debt problem that dogged farmers for most of the last decade has finally been digested. Exports, blasted by the disastrous ’81 farm bill, have begun to rebound. Farm income stands at a record high.
All in all, it is hard to imagine a time when changing directions will be any easier.
Farm bills are written from a notoriously short-run viewpoint. That is why we haven’t had real improvement in the federal programs in more than 50 years, despite wide agreement that the current system has lousy long-term effects. It is time to begin some gradual, inexorable, structural reforms that do more than just tinker.
Our general goals ought to be several: to privatize the many functions of farm programs that can be done better or as well nongovernmentally; to redirect what the government does spend toward education, agricultural research, and support for rural and farm infrastructure instead of output subsidies; to end altogether practices that encourage destructive farming; and to otherwise reduce or reorient farm aid so that production choices and decisions are made by farmers on the basis of what crops are in demand rather than what is most favored by USDA programs. Even ignoring their potential for enormous taxpayer savings, these measures could be justified on efficiency and fairness grounds alone.
One clear blunderland where a beginning on reform could be had is the disaster-aid regimen. As we discussed in article three of this series, the disaster program, first set up in the 1970s, has encouraged environmentally damaging practices and sloppy management. (See “Technology, Ecology, and the American Farmer,” December.) It costs a fortune, and it is distributed to farmers inequitably. All this the Congress already acknowledged in the early 1980s when it began a program to encourage farmers to hazard-insure their crops privately, swearing that once the private insurance network was in place not another dime of federal disaster pay would be doled out.
But the first year out, a dusty one in Texas, the Lone Star delegation broke ranks, and the boys on the Hill decided they’d pass out a little manna to the unfortunate after all. There’s been a sad series of disasters nearly every year since, with the same result. Not surprisingly the demand for private insurance hasn’t come on too strong. It’s time to try another blood oath and forswear disaster-aid slush funds once and for all. Here’s betting that the private underwriters’ shingles will spring up thicker than daisies along farm roads if Congress does so with conviction.
Another dead zone for U.S. farm policy is subsidized credit. The government sponsors a separate credit system in this country for farmers, and it is huge-Uncle Sam is behind half of all U.S. farm debt. One of the central goals of the federal credit agencies is, literally, to give money to individuals who have been turned away from at least two regular banks because they are bad business risks. Surprise: The system is riddled with bad paper and required a multibillion-dollar bailout from Congress a couple years ago. We are about to see a rerun. Two-thirds of the U.S. (Farmers Home Administration’s $93 billion in loans outstanding is owed by delinquent borrowers. (For political reasons, Congress has made it next to impossible for the agency to foreclose.) FmHA could lose up to $10 billion a year for the next decade. Proportionally, that makes the nation’s ailing S&L industry look like a financial pillar.
Even ignoring mismanagement, it is a mistake to pump below-market-rate credit into agriculture. It encourages over-expansion of capacity in an industry already plagued by surpluses. It quickens the substitution of capital for farm labor, unnaturally hastening shrinkage of the farm population. It pushes intensification of tillage, with unhappy environmental ramifications. And with its current bias toward bad risks, government credit favors less business-worthy farmers over their more-efficient brethren.
In the short run, the government at least ought- to get out of the business of underwriting and convert its farm credit to simple loan guarantees, letting commercial lenders cut the actual deals (as they do with small FHA mortgages and student loans). Medium term, the government ought to altogether quit forcing extra credit into farming. And if it wants to do something interesting to help get market-rationed capital into the hands of tillers it could encourage, perhaps through tax incentives, some sort of mechanism to encourage outside investors to buy stock in farms.
Another little corner where a redirection of government activity ought to take place is in stockpiling. Reserves hang over markets like an axe, and politicians have discovered that they can drive farm prices in convenient directions around election time by making little alterations in national stockpiles. To avoid this temptation, we ought to aspire to a largely private system of food reserves. (For national security reasons, the government might maintain some limited stockpiles. But they should be managed remotely, by officials not subject to reelection pressures much as the Federal Reserve is insulated from short-term political considerations.) Food would still flow in and out to dampen price swings but the ebbs and flows would take place organically, without central direction, for economic reasons (to avoid sharp changes in food prices) rather than political ones.
This is yet another thing that the private sector could do easily, if only it were not crowded out by a government program. Corporate food processors currently do remarkably little stockpiling, because they know the USDA will protect them at no cost. For the same reason, Japan keeps on hand only one month’s supply of the commodities it imports from us.
If current USDA tinkering with supply is problematic, the full-blown version of supply control now being promoted in Congress ought to strike terror in our hearts. One of the main alternatives being proposed for the next farm bill is a scheme to bolster farm prices essentially by creating artificial shortages. The government would take authority over land use and ration farmers’ “rights” to plant. Just in case mandatory acreage controls didn’t do the trick (current land set-asides are commonly defeated via such practices as denser seeding and exaggerated fertilization), there would also be mandatory controls on what farmers would be allowed to sell.
This policy would indeed keep ag prices high. It would also create all sorts of unwanted feedback effects, wipe out many farm-servicing businesses in rural areas, completely destroy our export sector (two acres out of every five), and turn farmers into low-level employees of a kind of nationwide public utility in charge of food and fiber generation.
If this all sounds too outlandish to have any chance of taking root in the land of the free and the home of the brave, think again. Among other influential sponsors, the main supply-control backer is Richard Gephardt, once-and-maybe-future Democratic candidate for president and present House majority leader. There is one thing to be said in the policy’s favor: Even a brief experience with full-fledged supply control would turn the vast bulk of American farmers into craving enthusiasts for free markets in agriculture.
Recognizing that Congress doesn’t like to sit on its hands, it makes political sense for any agriculture reformer to suggest more appropriate channels for its intervention. “There are lots of things the government can do to help farmers without writing them a check,” says Jim Baxter. An example would be more help with marketing abroad through U.S. embassies. Federal funding for agricultural research, which has been flat for more than a decade but yields high returns, could be increased.
Another thing governments ought to do is tax farms gently. We ought to go lightly on farmland as well. A related matter is the government’s direction of the larger economy. “Macroeconomic policy will prob- ably be more important to the well-being of American agriculture in the 1990s than farm policy,” says Purdue’s Thompson. The wrenching financial traumas of the early 1980s were basically fallout of the stagflation and interest-rate rocket launch of the late 1970s.
Government also must avoid overregulating bioresearch and new agricultural technology, the development of which is critical to the future health of the industry. It ought to avoid, as an instrument of conservation or environmental policy, taking property-or farmers’ use of property- without compensation. Within the farm programs, it ought to maximize flexibility in farmers’ land-use choices, so acreage can flow in and out of various crops quickly and without penalty. This is particularly important at the state and local level, where many jurisdictions have already instituted agricultural tax abatements. As a group, farmers toil quite hard for relatively modest incomes. Their land assets make them “wealthy” on paper only. Taxing land really doesn’t make much sense—land is an input, not a product. We don’t tax machinery in factories.
In general, the Agriculture Department must get out of the business of micromanaging our farm economy from above, interference that has never been worse than in the 1980s. Instead it could help farmers strengthen themselves. Farmers change slowly, and subsidies often encourage them to be even less experimental. If the government is going to be in the business of handing out money it ought to encourage-indeed require-recipients to make use of modern financial information and business practices. For the tiny cost of running most commercial farmers through one of the private courses that teach them how to use futures and options markets, for instance, the Agriculture Department could powerfully bolster their financial savvy and independence. Of course, the best thing the feds could do to encourage a move toward privatized price smoothing and insurance would be to stop giving away the same services for free via price ‘supports.'
Which brings us to the fundamental question of subsidies. The entire history of our farm programs is one of periodic government meddling, rule reversals, and course changes. This very changeability is one of the most damaging aspects of farm subsidies. And the only way to introduce some predictability into our programs is to make structural changes that leave no avenue for political intrusion. That is why the best route for U.S. farm policy-albeit a gradualist one, to give the many actors affected time to adjust-would be a policy of privatization. Take the whole thing out of the political process.
We have already suggested that such undertakings as disaster insurance: stockpiling, and credit provision could easily, and often more effectively, be done privately. The same is true of the income protection that subsidies aim to lend. It can be done outside government. One ought not underestimate the political difficulty of achieving this-former Assistant Secretary of Agriculture Don Paarlberg points out that scads of agricultural economists have railed against farm subsidies, as has “every Secretary of Agriculture since World War II.” Yet the subsidies persist.
We must understand, however, that it is only political will which is lacking. There are a whole host of alternatives to government manipulation of farm incomes. If not the private commodities markets discussed earlier, possibly the mechanism suggested in the last farm bill debate that would set income supplements by averaging the previous five years’ market prices. If not that, maybe a variation of the income insurance scheme run by the Western Grains Stabilization Board in Canada. There, every farmer pays into a pool in good years (with some government matching) and draws out funds during bad seasons. There are dozens of other possibilities if only we will consider them.
Certainly, it would help if any wind-down of U.S. subsidies were accompanied by similar actions in other nations. With agricultural trading thoroughly globalized, inequities in one place can cause pain far away. The United States is now pushing hard on this matter at the GATT international trade negotiations. Success in this area would be a boon not only to American farmers but also to consumers the globe over, who cough up an estimated $150 billion to $250 billion annually to protect crummy farming practices. An end to the agricultural cold wars would be of particular benefit to humankind’s poorest number-the peasants of the Third World.
The problem with current farm subsidies is not that they help farmers but that they also harm them, and other Americans, very much-by interfering in critical production decisions, by distorting food product prices, and by compromising producer and consumer freedoms. Our present subsidies are based on production, not income need, and so are lousy even as social transfers. They are also unjust in their effects on different kinds of growers. Worst of all, our farm programs don’t really help- as more than a half century of simultaneous subsidization and agricultural turmoil ought to suggest.
The fact is, we will continue to have grave agricultural problems in this country so long as we choose to get money to farmers in ways that prevent farm output from being sold at market prices. It is at this point a simple law of history: Market prices must be respected, they must arbitrate between supply and demand, because the only alternative is for a grossly less fair and efficient decision to be made by some bureaucratic functionary. This even communist governments in China and the Soviet Union have begun to recognize.
There is a creaky old argument that agriculture is a unique industry, a special case, because of its vulnerability to weather and other external factors and because of the importance of food to national security. All that, to the extent it was ever true, is now mostly nonsense, thanks to improved plant genetics and chemicals, modem transportation, new abilities to interchange resources, and a million other little earthquakes that have changed the world in the course of this century. Truth is, the reason we have farm programs today has very little to do with agriculture or the land and a great deal to do with naked political muscle.
The dead hand of diktat economics is something Americans have seen good reason to avoid in other sectors of our national life. It is just as much to be discouraged in agriculture.
Contributing Editor Karl Zinsmeister is a Washington, D.C.-based writer and an adjunct research associate at the American Enterprise Institute. He is writing a book on the American family. This article is the last in a four-part series.