What They Won't Tell You About Farm Bills

        On August 1, Froma Harrop, in her syndicated column, discussed the Farm Bill.  I usually read her column, recommend it, and frequently agree with it. I agreed with the Aug 1 piece, and am sending her a fan letter, which is something I very, very rarely do.   And I will also provide a link to her piece.  We have had a farm program since the 30s, but at no point has your gov't  disclosed its real purpose.  I hope to remedy that oversight.
        This is a long post.  But if you don't know what the real purpose of the farm program is,  (and you probably don't, because both parties have spared no expense to conceal it from you) then it's about time you found out.
An open letter to Froma Harrop:

                                                                                                           

Dear Ms. Harrop,

                  This is a fan letter.  I rarely write fan letters, but if we are to complain about those things we object to, then it’s only fair that we should occasionally communicate our approval to those voices with which we agree.  I have read your column for years and usually agree with it. I hope that you have time to read this letter, and perhaps respond to it.  But if not, no matter.  Since I would like to encourage more people to read your column, I will post this opus as an “open letter to Froma Harrop” on my blog, along with a link to your original article.  The number of people who read it there may be far fewer than originally read your article, but it’ll be a bunch. Today you wrote about the farm program, and I agree with most of what you say—but there is so much more you could have said that I would have agreed with even more strongly.

                  I live in rural Iowa, I am a 73 year old liberal Democrat, and I’m not a farmer. (My branch of the family got squeezed out of farming even before the great Depression.) But my uncles farmed till they died twenty years ago, my wife was raised on a farm, and many of my friends and neighbors farm.  Living in Iowa, everyone I know is in some way dependent on agriculture, whether they farm or not. You mentioned that you are not happy with the farm program. You are in good company.  I have never met a person who liked the farm program. Some of my friends are Democrats, and some are Republicans. Some are liberals, and some are conservatives, some are old, and some are young.  Some farm, some work in the city.  Some are uneducated, and some have PhDs.  But none of them like the farm program.  In fact, none of them have particularly liked any farm program we have ever had since 1936.  Which is amazing, because since then, we have tried almost every possible permutation of farm policy.  And no American, rural or urban, has ever approved of any of it, except as a temporary stop-gap measure till something better could be devised.  Yet no American, if old enough to remember the Great Depression and the farm crisis which caused it, wants to go back to the totally chaotic farm markets of the Coolidge years. Contrary to myth, the depression did not begin in 1929—that was merely the year that a severe depression of the farm sector which had been growing since 1924 finally spilled over into the wider economy.  Roosevelt fully understood this, and his first project was to try to put a floor under farm prices.

                  Also amazing is the fact that the very programs which our own agriculture department has felt required to apologize for would have been judged a resounding success by the agriculture ministers in any other country. This is a long letter, but if you will bear with me, I will explain why almost every farm program we have ever had has actually achieved the objectives of experts who designed it.  The trouble is that our agricultural bureaucrats have never disclosed to the public just what our objectives actually were.  In order to gain political support, both from farmers and city dwellers alike, we have had to pretend that the farm bill had something to do with “saving small family farms.” This was never the real intent—such an outcome was never a serious possibility, nor would it have been desirable.

                  There are three things about farm policy that no one will ever tell you:

1.      1. What the real objectives of all farm programs were and why most of them were a brilliant success, but a success that we can never publically acknowledge.

2.     2.      Why the production of corn, wheat, soybeans, and cotton does not respond to free market forces, even though production of fruits and vegetables does, (and even though the families involved in grain production still have more faith in free markets and less faith in government than you do.)

3.    3. Who the intended beneficiaries of farm programs were.  (It wasn’t the farmers.)

                  First:  The original objective of the first farm program was to help end the depression by reducing the oversupply of food that had caused the collapse of farm prices and the tragic bankruptcy of farmers. This was done not just out of compassion for farmers, but because about one fourth of all goods produced in the country were produced for the farm population, because a quarter of us still lived on farms. If all farm income stopped, then all these goods would go unsold.  This fact alone could be expected to produce 25% unemployment—which it did.  And this disaster would be compounded by the legions of destitute ex-farmers flooding into cities and swamping the labor market.

                  Roosevelt understood that unless farming could be made at least minimally profitable, there would be no hope in fixing the depression.  At first the government bought up commodities and stored them.  It set up a program for limiting the number of acres planted in certain commodities. And it also tried to reduce production of pork by buying baby pigs and selling them for slaughter, thereby insuring that next year’s crop of hogs would be smaller.  (I remember a story told by my mother, of hauling the last hog to market, a 300 pound sow, and receiving only three dollars for it.)   Another central part of the New Deal farm program was the establishment of a commodity loan program.  The problem was that no matter how low the price of grain went, the farmer had to sell his crop immediately to pay his debts, and to have money to live on. But the commodity loan program worked like a big pawn shop.  The farmer, instead of selling his grain, could simply surrender possession of it, just put it in a bin with a government lock on it,  and borrow money against it at a rate set by Congress.  If, later in the year, the price climbed higher than what he owed against it, he could pay back the loan, redeem his grain, and sell it on the market.  If the price did not recover, he could just let the government keep the grain. 

                  But just as a pawn shop owner eventually ends up owning a lot of guitars, the government began to amass a lot of grain.  At first, this was not seen as a problem.  The country had just seen the dust bowl, and the idea of a general crop failure did not seem farfetched.  And going into WWII with a little stored grain was not all bad.  But by the late 1950s, it had been many years since the last really disastrous crop failure, and we had so much stored grain that we could have endured a multi-year crop failure with no ill effect. Any other country would have seen this situation as the crowning achievement of a perfect farm program. But Americans, rural and urban alike, saw it as a problem and began complaining about it.  They asked, “If we already have more grain than we could ever eat, why do we keep spending taxpayers’ money to buy more of it?” Mostly, people complained because it appeared that production and distribution of grain had become totally detached from the market.

                  Second:  Why is it that the production of corn, wheat, soybeans and cotton, has not, since WWI, responded to normal market forces of supply and demand?  When I was at University of Northern Iowa  in the late 50s, any professor in the economics department could have answered this question.  But these people were all old leftists who had gotten their degrees during the depression and did not feel obligated to prove that free markets always worked. But in the late 60s, conservative politicians who control funding for public colleges and conservative donors who control funding for private collages all felt that colleges had come under the influence of communists, and they demanded that no professor of economics ever be hired or given tenure except those who were ideologically pure, free-market conservatives.  Since then, economics, as taught in our major universities, has become more of a religion than a science. Asking a professor why the free market has not successfully controlled corn price is like asking a bishop why God has not answered your prayer. In both cases, you’ll get an answer, but it comes more from the realm of faith than science.  But I left college before this change occurred, so I can tell you the answer.

                  If you were growing lettuce, or strawberries, or celery, or any other table vegetable,  and if the price of what you were growing dropped too low, you could simply switch to growing less of that item, and more of something else.  If the price of Romaine lettuce gets too low, some of the producers switch to something else and there is less production, and the shortage forces the price up a bit. But if the price gets too high, this attracts others producers into the market--and the price goes down a bit.  This is what we think of as a normal free market process.  The market is “dynamically stable.”  Every time the price gets too high, the market itself causes more production to occur, which lowers the price. And every time the price gets too low, the market itself causes less to be produced, which raises the price.  But the market for major grains is different.

                  What makes the vegetable market stable is that producers have a choice. Anyone who can grow romaine lettuce can grow at least 50 other things instead.   But a wheat producer can grow only wheat.  In wheat country, no other useful plant can be grown, except perhaps grain sorghum.    And if you have acres that can grow corn and soybeans, that’s really about all you can grow.  Oh, it’s true that corn/soybean acres can also grow oats or hay, but these crops do not yield the massive return per acre needed to pay the interest on the bank loan that bought these acres, or pay the rent on any acres you may be renting.  Yet growing corn on top of corn, year after year is not very good for the soil.  This increases the rootworm problem, so that more pesticide is required.  And it also requires more nitrogen than if the corn crop were rotated with a legume.   So any responsible farmer (and most of them are)  will try to rotate away from corn once every few years, if he can afford the short term loss that growing an unprofitable crop entails.  Also, most farms include some marginal land that shouldn’t be in corn at all, but could be pressed into service growing corn occasionally, if that corn were badly needed. Farmers do switch between corn and soybeans in response to market price, but for that reason, the price of these two commodities usually moves in tandem, so from a financial standpoint, it doesn’t really help much.

                  But a farmer has fixed costs.  Few large farmers own their land free and clear. Generally, a farmer has a large bank loan.  His wealth is measured in terms of equity position—the present market value of the land minus what is owed against it.  In good years, the principle is paid down a bit. In bad years, more is borrowed.  It goes on like that for generations.  But the interest must be paid every year.  Since he has a specific number of dollars he must generate every year, if the price per bushel of grain drops, a farmer must then produce more bushels to generate that same number of dollars.  But if the  price of grain rises, he can then slack off and take some of his more fragile land out of corn and put it into hay, and he can rotate from corn to beans for much of his land. In short, instead of maximizing short term grain production, he can concentrate on trying to preserve the long term health of the land.   But then if the price of grain drops again, then the only way he can make the interest payment is to plow up every acre, clear up to his screen door, and put it all in corn, regardless of the consequences.  So we have the absurd situation of a higher price not causing an increase in production, but actually causing a  decrease—and a lower price causing an increase in production.  The grain market is dynamically unstable, in that the market not only fails to correct price problems, it immediately makes them worse.

                  In most businesses, when prices fall below the cost of production, some producers go bankrupt and are forced out of business.  This lowers production, which improves prices for those producers still left.  But this does not occur with grain producers.  When times are tough, farmers do indeed go bankrupt.  So many have been forced out of business that I now have a neighbor who farms 6,000 acres. But these bankruptcies did not in any way reduce the supply of grain.  Why?  Because farmers don’t produce corn—acres of dirt produce corn!  Farmers go broke and go out of business, but the acres of dirt do not.  At a farm bankruptcy sale, one of the neighbors buys the land and all the equipment, and continues planting the same amount of corn, often with the same equipment.   So if grain markets cannot ever be self stabilizing, then some kind of a scheme will always be needed to stabilize them. But what kind?  The kind of scheme you would choose will depend of what your objectives are.  Let’s look at the structure of some of the programs we tried to use—and see if that sheds any light on what we really wanted to accomplish.

                  When we set up the acreage allotment program, each participating farm reported how many acres of each commodity they grew. Then each farm agreed to plant only a specific percentage of that base in any year, with the Dept of Agriculture determining what percentage would be allotted in any given year. If you are going to have a commodity loan program, then you have to have some control on production, because once you guarantee that the government will buy grain at a set price, then there will be a natural tendency for all producers to maximize production and exacerbate the glut which the farm program was supposed to eliminate. Yet without such a guarantee, farmers would continue to go bankrupt.  The answer they chose was to say, “Yes, we will be the buyer of last resort and buy your grain at a price above your cost of production—and, no, you cannot produce all you want.”  Therein lies the reason farmers always complained about the farm bill.  The farmers wanted it both ways.  They demanded a price floor, but chafed under production controls, even though one necessitates the other.  But every snide remark you have ever read about the government “paying farmers not to grow food” comes from one fact:  There is no way the government can simultaneously guarantee a fair price for every ton produced without placing some kind of limit on the number of tons.   By limiting production, the government could usually force the price high enough that the cost of maintaining the commodity loan program was not really excessive.   But the devil is in the details.  Let’s look at exactly how they curtailed excess production.  There was no limit on the total amount of grain any one individual could market.  If a farm could squeeze more bushels per acre out the acres which that farm was allotted, that was allowed.  The government went out of their way to avoid retarding the annual increases in yield per acre that were then occurring, and still occur today. By using hybrid seed corn, farmers had already increased their yield from 25 to 40 bushels per acre, and that was one of the causes of the problem. Today, yields of over 200 are not uncommon.   By limiting acres but not limiting total production, you actually encourage investments that will increase yield per acre. Also, there was no limit on the number of farms one individual could own.  If you owned 160 corn acres and  were allowed to plant 140 acres of it,  and if you bought out your neighbor who had a similar acreage, then you could plant not 140 but 280 acres of corn.  So the farm bill went out of its way to avoid interfering with the consolidation of small units into large units.

                    The farmer today whose grandfather tilled 80 acres with horses may be using a tractor the size of a locomotive to till 8,000 acres.  With a labor saving advantage of 100:1, it is conceivable that 99% of the families still farming in the1930s will ultimately become redundant.  Yet, at the time the first farm bill was drafted, our planners fully understood that this change would eventually happen.   And they made no attempt to stop it, nor were they convinced that stopping it was a benefit to the broad national interest, nor did they believe it was even possible to stop it.   What they did attempt to do is ensure that this transition occurred in a gradual, controlled manner.  It is one thing for a family farm to be sold at a sheriff sale and its family reduced to instant poverty.  It is quite another for that family to voluntarily sell out and use the money to put all the kids through college and pay for ma and pa’s retirement. 

                  Third:  Who were the intended beneficiaries?  If the objective is to stimulate an increase in production per acre, and also stimulate consolidation that will result in more production per hour of human labor (more production from fewer farmers), then who is the intended beneficiary?  It is you, dear consumer.    If there is one word that describes our farm policy goals, consistently for 75 years, it is a “cheap food policy.”  Today, a median income American family spends less than 15 % of its gross income on food.  That’s a third of what our grandparents spent, and half of what any European would expect to pay. Even when the taxes paid to support our farm program are factored in, we buy the cheapest food of any industrialized country on earth.   In the post WWII years, this excess spending power, the money not needed for food, paid for much of the post war boom—for the cars, washing machines, TV sets, tract houses, and eventually higher education.  The one group that gained nothing from the increase in food production efficiency was the farm sector itself.   (Unless being herded off the farm and into a better life in town is in itself an improvement.)  But if you are a typical non-farm taxpayer-consumer, you have probably spent your entire adult life complaining about every farm bill you’ve ever heard of, because your government has never chosen to explain any of this to you, nor are they likely to in the future.

                   Are there things you really should complain about?  Should you complain about the fact that the government crop insurance payouts may exceed 30 billion bucks this year?  No, not really.   That’s a lot of money, but we are now in the middle of the worst drought since 1936. Over half the counties in the U.S. have been declared disaster areas.  Natural disasters are usually expensive, and compared to the 900 billion spent to save the banks, 30 billion spent on saving the food sector is chump change. If you really want to complain, you might complain about the amount of surplus food commodities which the government now hoards. So how much is that?   None!  Not one kernel of corn, grain of wheat, or ounce of cheese.  In the fifties, we had bulging grain bins from coast to coast, enough to weather any catastrophe.  But the taxpaying public bitched about it incessantly, and eventually Congress got tired of listening to it. So they gradually sold it all off, and never bought any more.  Could we ever get these grain reserves back?   Could we ever rebuild this stockpile?   Not at $8.00 a bushel.   It may take another generation before we have another chance to rebuild these stocks. Of course, part of our surplus strategy is the ethanol program.  If you wish to support the price of grain without the expense of government grain-buying programs, you do it by encouraging people to burn off 40% of our corn in their engines.  This has the effect of creating a surplus.  How so? Well, if we ever have a really severe grain shortfall, we can just shut down the production and use of ethanol.  Then the corn that had been planted and intended for ethanol, and is under contract to be delivered to ethanol plants, can simply be diverted to other uses.  This would, under most circumstances, have the same effect as a surplus.  (And under other circumstances, it would not.) 

                  But much has been sacrificed on the altar of cheap food.  If you want to complain about food policy, complain about the hundreds of chemicals that can be legally added to our food.  None of this stuff has ever been tested for long term health effects,  and a lot of it probably isn’t very good for you. Yet we gobble it down every day and feed it to our children.  Is it a coincidence that the point where the curve of American obesity really takes off, the mid 80s, is exactly the time they began adding significant amounts of high fructose corn syrup to our food supply?  And that’s just one substance.  Read the label on any package of processed food.  You’ll find a long paragraph of chemical terms you can’t even pronounce unless you have a PhD in chemistry.  My rule is: “If I can’t pronounce it, I don’t eat it.”  Forget about the GMOs; if you want to complain, complain about the chemicals.  And then there is the issue of stewardship of the land.  Many of the farm programs in recent years have contained conservation requirements that worked, and the Conservation Reserve Program was an excellent program.  But Tea Party Republicans in the U.S. House would prefer a bill stripped of any conservation elements whatsoever.  If you want to get involved, here’s a good place to start.