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1996 Farm Bill disaster

Solutions require fresh thinking from ag producers

By Tom Lauridson, Ph. D.

Farmers as individuals tend to increase production in years when prices are low because we cannot manage industry wide supply ourselves. We can’t manage supply alone because of the large number and geographic diversity of farmers in the United States.

No one farmer can personally make an agreement with thousands of other producers to reduce production after a big crop year. Prior to 1996 I had a partner, the USDA, who helped me manage the supply and stabilize the price of our grain and cotton.

The understanding went something like this… I willingly set aside or conserved acres in order to reduce production, and my partner paid me to do so. In return, my partner (USDA) was able to offer a stable supply of grain for both domestic use and export. This had the beneficial effect of keeping a lid on domestic monetary inflation; allowed for a consistent supply of grain for export (helped provide a consistent foreign policy); and, helped shield meat producers from price shocks caused by weather effects on crops.

Similarly, manufacturing businesses control their production and supply. For example, if Ford Motor Company has a surplus of Taurus’s at the end of a production year, Ford doesn’t increase Taurus production in the next year to make up for lost profit, they respond to customer demand. With USDA assistance, we used to manage our grain supply and maintain stocks of grain for situations when we could not fully meet grain demand, and limited production when supply was too large.

True, USDA paid me for these benefits, and true, I was also benefited by having a more stable price and a meaningful price floor. In return, I sacrificed varying amounts of production acres. I also accepted, as a consequence of having a secure grain reserve, that my partner (USDA) would use grain reserve stocks to place a cap, as well as a floor, on price.

The price cap on feed grains had a beneficial effect for meat producers, as it reduced some of the upside price risk to feed caused by weather of unusual export demand. My vegetable grower friends benefited indirectly by keeping grain committed to grain farming, and reduced the likelihood of them jumping into vegetable farming when grain prices might have become extremely low without supply management.

In 1996, this relationship was lost when the Freedom to Farm act was passed. We no longer give up acres and accept a cap on price. Nor does the government receives benefit from those payments.

The Freedom to Farm house of cards came tumbling down. Just as supply control was lost in the 1996 Farm Bill, grain demand collapsed, at least in part due to devaluation of currency in Asia and the subsequent recession in Asia. At the same time our farmers, now released from production controls, attempted on an individual basis to maximize profit by increasing production, farming “fence row to fence row”.

As a consequence, a huge chunk of the low price problem we’ve had the last couple of years has been directly caused by the Freedom to Farm Act. Under previous Farm Bills, supply would have been reduced as demand declined. Thus, Congress has been asked to provide the largest supplemental funding package for ag support in history, a direct consequence of the very farm bill that was supposed to end farm payments!

My personal concern for Agricultural Market Transition Adjustment (AMTA) payments is twofold. One, many conservative congressional aides believe that we are receiving money for nothing and they would like to put a stop to it. When they check previous budget requests for farm program dollars, they know that we have been receiving more money annually than ever in history. Realistically, agriculture can easily justify a base level of support, as I outlined above. But clearly, we can’t expect to get money in the future without giving something back, because an increasingly suburban based congress will eventually balk at that kind of farm program budget.

Two, I don’t like getting money for nothing. Call me what you might, but when I get paid for environmental benefits, or supply and price stability, or to help me produce a better product, I’m not a bit ashamed. However much I needed the AMTA payments the last couple of years, I don’t like those programs, and never will.

What farm programs would be politically sustainable and effective?

1) Supply management and secure grain stocks.

I am very impressed with the Flex Fallow plan submitted to USDA by South Dakota Farmers Union member, Phil Cyrea. Flex Fallow would allow farmers to reduce the amount of acres in production in order to increase farm program payments, or sacrifice payments for increased production acres. It keeps the favored “flexibility” of the Freedom to Farm Act, but accomplishes coupling payments with production. Most importantly, it gives farmers incentive to cut production in years with big stocks, and raise production when stocks are low. Along with a return to a strategic grain reserve, payment levels should be reduced but prices should rise to more than compensate reduced payments.

2) Support for environmental benefits to American society.

I wholeheartedly support efforts to improve the environment. However, I expect that if many Americans benefit from improvements that I make that I should be compensated for the cost of those improvements. In fact, I hope to see greater communication between the environmental community and the farm community in the future, because they can help insure that environmental improvements made by farmers are compensated fairly. The environmental community and the farm community actually have a lot in common, because both wish to see healthy food production and a healthy environment long into the future.

Examples could include Conservation Reserve Program (CRP), Welland Reserve Program (WRP), compensation for endangered species management, compensation for predator and wildlife losses, more Environmental Quality Protection (EQUIP) assistance for manure management, groundwater protection, and soil loss reductions.

3) Tax breaks to producers that invest in value-added cooperatives.

This helps the farm economy in at least three ways:
One: Long term, farmers reduce risk by having equity and income stream from a secondary source.
Two: Cooperatives can provide competition for otherwise fewer and fewer mega corporations that do not compete for our product unless pushed.
Three: Co-ops give farmers a place to invest income other than buying out a neighbor and reducing the numbers of farmers. This could play a small part in keeping more farmers on the land, and act as an incentive for young people to return to farming, knowing that all their eggs were not in the traditional commodity basket.

4) Disaster insurance.

I like the assistance I receive to pay for private crop insurance. I have some concern that this program could be used to my disadvantage at some point if disaster payments are cut because of participation in the insurance program. However, I think that long term, disaster risk insurance could be extended to non-program producers, such as livestock and vegetable producers. This would especially help producers in large counties or areas with localized disasters such as hail that have not received assistance when such disaster was not county wide.

We are losing about three percent of farm producers per year on average. If this remains the case for the next twenty-five years (about the remaining amount of my career as a farmer), the farm population will only be about one third of today’s farm population. If entry to farming continues to decline, that number may be about a quarter to a fifth of today’s farm population. This is flatly unacceptable to me, and represents the total loss of the family farm as we know it today.
Existing farm programs alone are not going to change this situation, although they can slow the rate of loss. I am concerned about barriers to entry for young producers, especially high (and now increasing) interest rates. We need relief in this area.

We need value-added solutions as well as traditional political and USDA supply management solutions for the reasons listed above (#3). In order to stem the loss of farmers, we need to begin thinking differently about solutions to our problems. In addition to traditional solutions, we need to look for other ways to address our problems, value-added representing one answer, but hopefully not the only alternative. For example, I applaud the SDFU member for his Flex Fallow alternative, which even if not adopted, represents fresh thinking on the part of farmers.

When things are not working for us, it is time to look for new approaches and different solutions to our problems.