'Freedom to Farm' Results in Failure
By A.V. KREBS
There is an emerging consensus within this nation's agricultural community
that the much touted "Freedom to Farm" legislation which became
law in 1996 should be more aptly titled "Freedom From Farming,"
for it has turned into an economic disaster for the nation's family farmers.
Testimony by American Corn Growers Association (ACGA) board member Dan McGuire
to the House of Representatives Committee on Agriculture hearing in Grand
Island, Nebraska, on February 15 underscored that fact.
McGuire, who also serves a member of the state board of directors of the
Nebraska Farmers Union, decried that the majority of those testifying on
the various panels represented organizations that almost unanimously promoted
the concepts embodied in the "Freedom to Farm" law.
In written testimony to the committee, he emphasized that it was essential
that information be submitted for the record that first, exposed the fundamentally
flawed assumptions of the farm law; second, documented the glaring failure
of that law and the serious economic disaster facing the farm economy as
a result; and third, verified what the vast majority of U.S. farmers want
as changes in federal farm policy.
Citing U.S. Department of Agriculture's own figures, McGuire showed how
the 1995 "Freedom to Farm" law was based on eight fundamentally
FLAWED ASSUMPTION #1: Farmers rely on the export market for most
of their sales. Except for those few producers of specialty crop, he noted
that farmers do not export their grain or oilseeds at all. Farmers sell
nearly 100% of their grain and oilseeds into the domestic market. They deliver
and sell those commodities to local or regional commercial grain elevators
Those elevators or processors act as "gathering agents" for the
multinational exporters. Thus, farmers receive the domestic market price
and for that reason the farm program price support loan rate must be raised
in order to provide farmers a fair price for what they produce.
The combined tonnage of corn, soybeans, wheat, grain sorghum, barley, oats
and rice exported in marketing year (MY) 1996/97 and MY 1997/98, McGuire
notes, only averaged 25% of production. When soybean oil, soybean meal,
beef and veal, pork, lamb-mutton, goat and poultry meat are added, the total
tonnage exported remains at 25%. Multinational exporting companies only
exported 19.4% of U.S. corn production in MY 1996/97 and only 16.3% in MY
"Why should Congress or U.S. farmers allow exporters to set the corn
price when our market is entirely the domestic U.S. market?" McGuire
asked the committee.
FLAWED ASSUMPTION #2 Lowering commodity loan rates and prices increases
exports. Doing away with non-recourse price support loans, changing to recourse
"marketing loans" and dramatically lowering the loan rate has
not increased U.S. grain exports. With the old non-recourse loan, the farmer
stored his crop with the Commodity Credit Corp. in exchange for a loan at
a price established by Congress. If the market price exceeded the loan,
the farmer could repay CCC, take the crop out of storage and sell it on
the open market. If the market price did not reach the loan price, the farmer
simply kept the loan and the CCC owned the crop. So the loan rate acted
as a floor price for the commodity. The Freedom to Farm law has replaced
the non-recourse loans with recourse loans, which do not allow the farmer,
except in extreme low market price situations, to forfeit the collateral
grain if the market price stays low. This and a hybrid of other programs
lower the grain prices received by farmers, while greatly enhancing the
profits of the Cargills, ADMs and Continental Grains.
McGuire documented that U.S. corn exports have never reached the 2.4 billion
bushels exported in MY 1979/80 and MY 1980/81, when the regular corn loan
rate ranged from $2.10 to $2.40 per bushel. Loan rates were as high as $2.90
in 1982. Indeed, corn exports over those three "high loan rate"
years of the 1980's averaged 2.26 billion bushels while corn exports over
MY 96/97, MY 97/98 and MY 98/99 are averaging only 1.675 billion bushels
under the low loan rate of $1.89.
McGuire also shows that the 13-year average of corn exports (MY 1985/86
through MY 1997/98), since the so-called "market and export-oriented"
farm law was passed in 1985, is only 1.756 billion bushels. That compares
with the six-year average U.S. corn export volume of 2.057 billion bushels
from MY 1979/80 through MY 1984/85, when the U.S. had higher loan rates
that averaged $2.42 per bushel. In fact, the loan rate for corn in the farmer-owned
reserve within that period averaged $2.63.
A similar set of numbers can be provided for U.S. wheat exports under the
farm laws since 1985, except the export track record is even worse.
"Obviously," McGuire, the former Agency Director for the Nebraska
Wheat Board concludes, "the farm policy philosophy in place since 1985
lacks credibility and must be changed. It hasn't worked and it won't work!
It's time for a major change. Furthermore, the U.S. national 'strong dollar'
policy vis-a-vis foreign currencies is great for Wall Street but flies in
the face of the stated 'export-market-oriented' farm policy. It cuts the
legs out from under main street and rural America. So, forego this monetary
policy or change this farm policy quickly!"
FLAWED ASSUMPTION #3: 1980's-style "higher loan rates"
encourage excessive domestic and competing foreign grain production while
1990's-style lower loan rates discourage such increased grain production.
Here again, the reality is the nine-year average corn production from 1977
through 1985 was 7.268 billion bushels, when loan rates ranged from $2 to
$2.65. Compared with that "high loan" period, U.S. corn production
from 1986 through 1998, under lower loan rates since the 1985 farm law,
averaged 8.059 billion bushels. Since the 1996 "Freedom to Farm"
law was enacted, U.S. corn production has averaged 9.417 billion bushels.
This major increase in corn production has taken place under the low--and
extremely low--loan rates ranging from $1.57 to the current $1.89.
Meanwhile, total world grain production has risen from 1,671 million metric
tons in 1989/90 to 1,850 million metric tons in 1998/99, as forecast by
USDA's Economic Research Service. That's an increase of 179 million metric
tons or about seven billion bushels. So low U.S. price supports did not
discourage foreign grain production. Just the opposite scenario unfolded.
FLAWED ASSUMPTION #4: U.S. grain exports will steadily increase through
the year 2007.
It's only one year since USDA issued its report, "International Agricultural
Baseline Projections to 2007" and they already have missed their projections
for U.S. corn exports by over half a billion bushels. That report projected
U.S. corn exports to be 2.251 billion bushels in MY 1998/99. The most recent
World Agricultural Outlook Board supply/demand report, issued on February
12, only projects U.S. corn exports at 1.725 billion bushels, a shortfall
of 526 million bushels, yet these USDA baseline projections are being used
to make a case for continuing the 1996 farm law through 2007.
FLAWED ASSUMPTION #5: The 1996 farm law would bring about profitable
grain production for U.S. farmers.
When the full economic costs of producing a bushel of corn in 1996 is taken
into account, the cost was $2.82, according to the USDA. Because the 1995
corn crop was reduced by over 2 billion bushels, farm prices were a little
over the cost of production. However, using 1995/96 production costs and
USDA's average yield, U.S. farmers spent $2.88 to produce a bushel of corn
in 1996/97 and only received an average price of $2.71, a loss of 17 cents
on every bushel.
Based on USDA projections for 1998/99 yields, the cost of producing a bushel
of corn will be about $2.82, using the questionable assumption that input
costs did not go up since 1995/96. Even using the $2.82 figure and optimistic
yields, farmers will only receive $1.95 per bushel, a loss of nearly $1
"That record can hardly be considered as bringing profitability to
corn production under the 'Freedom to Farm' law," McGuire adds. "This
data is just more glaring proof that this farm law is not about helping
farmers at all. It is clearly about subsidizing multinational grain processors,
grain traders and grain exporters on the backs of farmers.
"This farm policy forces farmers to use the equity in their land and
equipment to subsidize that handful of multinational corporations that were
already some of the most profitable corporations in the U.S. and world economies
before the 1996 farm law."
FLAWED ASSUMPTION #6: Farm and trade policy, including funding the
International Monetary Fund (IMF), World Bank, etc., and bailing out failing
foreign economies, enhances U.S. export potential.
Here again the reality is that the U.S. Treasury is being used to finance
the very foreign competitors that U.S. farmers are told this farm program
helps us compete against in the world market.
A most recent example of these "conflicting policies" can be seen
in Brazil which recently received a $41 billion IMF bailout. Following IMF
guidelines, Brazil then devalued its currency (the real) which raised the
domestic Brazilian soybean price by nearly 30% since January 13, 1999.
Far from helping make the U.S. more competitive, these policies have encouraged
expanded soybean production in Brazil.
And with IMF austerity policies, that extra soybean production must be sold
mostly on international markets because a) Brazil cannot absorb the increase
and, b) the country needs to generate cash through international sales to
pay off its debts.
But those sales will, of course, only drive world prices lower, which, in
turn, will encourage Brazil to export even more beans to generate the money
it needs to meet its international debts. And it will have the beans to
export because high domestic prices will fuel soybean expansion.
"These facts," McGuire adds, "make an even stronger case
for changing current farm policy! If our federal government is going to
bail out foreign competitors in the interest of the U.S. and world banks,
then our government owes farmers and the rural economy a much better farm
program to offset the damage done."
FLAWED ASSUMPTION #7: Corporate concentration in agriculture provides
benefits to U.S. consumers via lower food prices:
This flawed assumption is demonstrated by the recent takeover of the pork
industry by mega factory farms. The resulting massive drop in pork prices
forced upon family farmers has demonstrated again that corporate concentration
does not benefit consumers. Indeed, pork prices in the supermarket have
not gone down while family farmers are being forced out of business. Meanwhile
packers are recording record profits. McGuire challenged the testimony recently
provided to the House Agriculture Committee by an economist for the Center
For Study of Rural America at the Federal Reserve Bank of Kansas City who
told the lawmakers that consolidation in agriculture is "generally
a positive trend" that leads to lower-priced and higher quality food
"Ask the consumers," McGuire implored the Committee, "who
have dealt with e-coli or other dangerous micro-organisms that have shown
up at the same time that the concentration trend has escalated in agriculture,
if consolidation leads to higher quality food."
FLAWED ASSUMPTION #8: Lower loan rates and eliminating set asides
were necessary in order to achieve "planting flexibility."
The reality, McGuire declares, is that planting flexibility will work just
fine with both higher commodity loan rates and voluntary acreage set asides.
"If it is determined by the Congress that the national policy of the
United States is to export grains and oilseeds at prices below the farmers'
cost of production (plus a profit), then the Congress should subsidize the
exporting companies directly," he said.
"BUT," McGuire quickly warns, "grain and oilseed exporting
cannot continue to be done on the backs of farmers, at these ridiculously
low prices. I'm certain that U.S. consumers and taxpayers do not expect
farmers to subsidize all other sectors of this thriving U.S. economy, as
we are today, under the 1996 farm law."
He argued that the U.S. Congress should give considerable weight to the
federal farm policies supported by the majority of farmers surveyed by professional,
independent and reputable research firms as opposed to a handful of multinational
grain and livestock exporters, processors and futures traders who have a
fundamental economic conflict of interest regarding support prices and other
federal farm program provisions.
McGuire pointed out to the committee that the farm program policies supported
by the corn growers association are the policies supported by 75% of the
nation's farmers, based on data in a national scientific survey of 1,000
U.S. grain farmers conducted in September 1998 by Rockwood Research, a subsidiary
of Farm Journal, Inc..
The study showed that 73% of the farmers surveyed agree that "Congress
should lift the loan caps and raise loan rates 59 cents per bushel on wheat
and 32 cents on corn." Seventy-five percent of farmers agreed that,
"A farm program should retain planting flexibility and include normal
crop acreage set asides."
"The 1996 'Freedom to Farm' law has created a disastrous situation
in the farm economy.
"Farmers need a referee in the marketplace," McGuire stated."That
referee role can only be provided by the federal government. Congress must
pass a stronger farm program that serves as a price referee to give farmers
some bargaining power against the giant corporations that buy the grain
and livestock produced by farmers. A much higher loan rate in the farm program,
combined with a farmer-owned and controlled reserve and acreage set asides
will provide the such needed bargaining and marketing tools."
A.V. Krebs is the author of The Corporate Reapers: The Book of Agribusiness
(Essential Books: 1992)
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