I was recently invited to present testimony as part of an economics panel assembled by the Committee for “Twenty-First Century Systems Agriculture”. This committee was created by the Board on Agriculture and Natural Resources (BANR), a program unit of the National Research Council (NRC). The NRC functions under the auspices of the National Academies of Science and Engineering and the Institute of Medicine. The Committee asked me to address four areas when it met in Kansas City on March 27th: (1) the economic and policy conditions necessary to foster sustainable food and farm systems; (2) the policy lessons and models from Europe and other countries that might help the Committee frame issues; (3) alternative agriculture and the value chain—making alternative agriculture successful in today’s economic structure; and, if time permits, (4) the financial aspects of sustainable practices in the Midwest. In this posting, I summarize the major points I made in area (1). In a subsequent posting, I will summarize my testimony in area (2).
The purpose of the Committee for Twenty-First Century Systems Agriculture was stated in early March on the Board on Agriculture and Natural Resources website to be the following:
The National Research Council has appointed a Committee on Twenty-First Century Systems Agriculture to conduct a study to identify the scientific foundations of sustainable farming systems and management practices, and the social, economic, and political factors that influence their use and wide social adoption by farmers in the US and abroad. The study will build on the Academies 1989 report, Alternative Agriculture, that highlights the economic and environmental benefits of what were at that time unconventional or alternative farming practices, such as conservation tillage, integrated pest management, and crop rotations. Many of these practices have since been adopted widely by agricultural producers in the United States and have even had significant beneficial impact on small scale farming systems in the developing world. The new study will examine technologies and practices that have emerged over the past two decades, and define key drivers that are applicable to sustainable farm production throughout the world. The study is sponsored by the Bill & Melinda Gates Foundation and the W.K. Kellogg Foundation.
Alternative visions of U.S. agriculture
Policy proposals for a nation’s food and farming system always rest on some vision for the system, whether or not the analyst or advocate recognizes that vision explicitly. Although there are many competing visions for the future of U.S. agriculture at this time, most of the visions underlying proposals for a new U.S. farm bill—originally to be enacted into law in 2007 and now possibly in 2008—fit roughly into one of the following two categories:
• The global competitiveness vision—The recurring theme of policies proposed by those with this vision is maintaining and strengthening the competitiveness of U.S. agriculture in international markets. Individuals and organizations with this view have advocated agricultural policies intended to provide bases for successful resumption of World Trade Organization (WTO) negotiations under the current Doha Round. They also want U.S. agriculture to be on a strong footing to compete in an environment with reduced trade barriers and market distortions worldwide. This is an export-oriented vision, based on comparative advantage economic theory. Often implied in this vision is a U.S. agricultural system based on high-input, high-yield production of ‘commodity’ crops.
• The sustainable agriculture vision—This vision is more inward looking than the global competitiveness vision. The primary concerns of individuals and groups with this version are environmental quality, ecological sustainability, and the economic viability of small and moderate-sized family farms. Policy advocates with this vision are not ‘anti-trade’, but they place greater emphasis on the ‘Jeffersonian’ idea of a nation populated by independent family farms and on natural resource use that is sustainable for the indefinite future. This vision has evolved in recent years to be very similar to the European Union multifunctionality view of agriculture. (Multifunctionality will be addressed in Part 2 of my Daily Kos posting.) Healthy food has taken on much greater importance in this vision in recent years.
Policy options to support the sustainable agriculture vision
My concern in this testimony is with the sustainable agriculture vision. This does not imply that policies cannot sometimes support both visions. Groups representing both of these alternative visions of U.S. agriculture have advocated similar reforms in the system of ‘commodity supports’ in the new farm bill.
Policy options to support sustainable agriculture can be grouped in four categories:
• Regulatory policies
• Environmental compliance measures tied to agricultural and energy subsidies
• Environmental stewardship payments
• Markets for environmental services (‘payments for environmental services’)
I briefly discuss each of these types of policies in terms of their roles in encouraging the adoption of more sustainable agricultural systems. Most of my focus is on what it will take to induce more farmers to adopt biologically diverse farming systems—organic and other ecologically integrated systems. The first step up from chemical intensive systems with little or no biological diversity are systems that incorporate somewhat more sustainable practices, such as reduced or minimum tillage or better fertilizer timing and placement. These practices can make particular farming systems—such as the Midwest corn/soybean system—more sustainable, or less unsustainable. However, it is very questionable whether systems that do not contain considerable biological diversity can keep agriculture in any given agro-climatic region truly ecologically sustainable over the long term. Therefore, I believe the challenge before the Twenty-First Century Systems Agricultural Committee is to chart paths to achievement of whole systems changes, in other words, transitions to much greater use of ecologically integrated systems.
Regulatory policies. Regulatory policies for agriculture come primarily from the Environmental Protection Agency (EPA), rather than the U.S. Department of Agriculture (USDA). However, USDA programs can either support or undercut EPA regulations. The 2002 Federal farm bill changed the Environmental Quality Incentives Program (EQIP) to allow cost-share funds for manure management systems of large livestock operations—so-called Confined Animal Feeding Operations (CAFOs). At the time, CAFOs were coming under increased regulatory pressure to build and maintain more effective waste management systems, systems that were likely to be quite expensive. In effect, this change in EQIP caused taxpayers to pick up the tab for a significant share of these costs. Many people concerned with sustainable agriculture viewed this policy change as, essentially, an underwriting of costs of inherently unsustainable, large, concentrated livestock operations.
We probably now are at a juncture where we need to seriously consider the use of more regulations for control of some types of agricultural negative externalities. Failure to make large livestock systems pay their own costs of complying with EPA regulations was a major policy mistake, in my view. There may be other areas where we should also make somewhat greater use of regulations. The European Union, for example, has moved away from cost-share policies for nitrate contamination, and now relies on regulatory measures.
Environmental compliance measures. The environmental cross-compliance provisions of the 1985 farm bill have been valuable for helping induce adoption of some agricultural practices that reduce negative externalities and enhance natural capital. However, they are not comprehensive enough to induce system changes that would retain or bring about much greater biodiversity.
The partial, but important, ‘decoupling’ of commodity subsidies in the 1996 farm bill (some of which was later reversed in the 2002 farm bill) did facilitate a movement of farmers away from continuous corn, where that practice remained, to the already widely practiced corn/soybean system. Although hardly diverse, the corn/soybean system is much preferable ecologically to continuous corn. With very high corn prices the last couple of years, however, we have seen some movement back to corn-following-corn. In my view, Federal farm bill cross-compliance provisions should prohibit corn-following-corn. There may be other ecological diversity minimums in other parts of the country that should be added to our Federal farm bill compliance provisions.
Environmental stewardship payments. In contrast to regulatory measures, which are based on the ‘polluter pays’ principal, environmental stewardship payments, implicitly at least, are based on the ‘provider gets’ principal. In other works, providers of good environmental stewardship get rewarded. In reality, however, ‘good’ and ‘bad’ stewardship are really points along a continuum. Stated another way, the line that separates ‘positive’ from ‘negative’ externalities is subjective. Economics alone cannot specify that line. What deserves to be regulated and what deserves to be rewarded are up to societal decisions. Economics and other sciences, however, can help greatly in understanding the consequences of practical distinctions and associated policy responses.
The predominant approach to promoting greater ecological sustainability in U.S. agriculture up to now has consisted of environmental stewardship payments in various forms. The latest such stewardship payment program of conceptual significance is the Conservation Security Program (CSP), introduced as part the 2002 farm bill. I would like to see much greater emphasis on programs like the CSP. However, it is quite difficult for stewardship payment programs to induce widespread system changes given the extreme imbalance between ‘commodity’ payments and ‘conservation’ (stewardship, or agri-environmental) payments under U.S. farm bills. Only 5 percent of FY03-07 USDA outlays were for conservation programs, compared to 22 percent for commodity (including crop insurance) programs.
The ability of stewardship payment programs to induce adoption of more ecologically sound farming systems is severely challenged in times of high commodity (corn, soybean, wheat, etc.) prices. In fact, in the current commodity price environment, it is likely to prove difficult to even hold on to some of the ecological gains that have been made over the last decade or so.
Payments for environmental services. In a broad sense, government environmental stewardship payments constitute a type of ‘payment for environmental services’. However, there has been much policy discussion in recent years of payments for environmental services in the private or quasi-private sector. These may complement government stewardship payments when particular farming systems involve ‘public good’ and ‘private good’ co-products.
The best example of this is organically certified food. Consumers have shown willingness to pay some price premium for organic food products, not only because of what they think organic agriculture does for the environment (a ‘public good’ or ‘positive externality’), but also because of perceived ‘private good’ aspects, including food safety and nutritional quality.
Another much cited example is that of the New York City water authority. In this case, water users, through their collective water authority, have paid farmers in the Catskills watershed to carry out whole farm plans to satisfy their water quality objectives.
Therefore, one important policy tool for government authorities is to help create the conditions and circumstances for these environmental service markets to function. We did this in the case or organic agriculture through Federal legislation in the 1990s that eventually led to national standards and procedures for more uniform organic certification. This has not been without its problems and shortcomings, however.
While private or quasi-private sector payments for environmental services can play an important role in helping promote some aspects of agricultural sustainability, they are no panacea. Most major sustainable agriculture challenges contain significant ‘public good or externality’ components that can only be effectively addressed if regulations, cross-compliance measures, or government stewardship payments also are part of the policy package.
Contextual factors. I have already alluded to a couple of contextual factors that strongly condition the ability of policy measures to promote greater environmental sustainability. I noted the high proportion of USDA spending on commodity programs, relative to conservation programs, and currently ‘high’ commodity prices as inhibiting factors.
Related to the relatively high Federal spending on commodity program subsidies is the form of those subsidies. There was much discussion of the form of these commodity subsidies in the National Research Council’s 1989 Alternative Agriculture report. Tragically, the magnitude and form of these commodity subsidies have continued to constitute a major inhibiting factor over the ensuing two decades. The 1996 Federal farm bill was intended to make a break with the past by ‘decoupling’ major portions of the farm price and income support program from farmers’ planting decisions. This was something consistently called for by economists, whether their concerns were international trade or sustainable agriculture. Unfortunately, rather than building on and further extending this decoupling process in the next farm bill, the 2002 farm bill took a major step backward. One commodity subsidy mechanism that had been eliminated with the 1996 bill (the target price/deficiency payment mechanism) was restored in a different form (the counter-cyclical payment mechanism) in 2002, and farmers also were able to update acreage and yield bases. If there was any expectation on the part of American farmers that we were truly on a decoupling path, these actions certainly undermined such expectation for many years into the future. The net result is that farmers continue to have very powerful incentives to keep much of their acreage in the few crops to which most of the commodity payments are directly or indirectly tied—namely corn, soybeans, wheat, rice, and cotton.
Interestingly, reform proposals for farm policy to replace the 2002 legislation coming from both those with the global competitiveness vision and those with the sustainable agriculture vision have strongly emphasized much greater ‘decoupling’. At this stage in the new farm bill legislative process, however, it is quite clear that this kind of reform will not happen in 2008 (recall that this testimony was presented on March 27th).
The structure of agriculture that has evolved in the post-World War II period increasingly inhibits the adoption of organic and other ecologically integrated farming systems. These farming systems tend to be more labor and management intensive than what have come to be considered ‘conventional’ systems. Both very large and small, part-time farms often are more conducive to specialized and capital intensive farming systems. Moderate sized farms, in which at least one family member can devote full-time attention to the farm, are best suited to the time requirements and complexities associated with ecologically integrated systems. Yet even moderate sized farms have less available family labor than in earlier eras.
Small-acreage farms devoted to fruits, vegetables, or animal products—especially if the products are primarily for local markets—can be well suited to ecological farming, however, if there is at least one family member involved full time in the farming operation.
Although the current America farming structure is, indeed, an inhibiting factor, we should not consider it to be a prohibiting factor. Just as the current structure gradually evolved over time with the adoption of farm chemicals and ever-larger machinery, some aspects of our farming structure could evolve to be more compatible with ecological farming systems if those systems were to become much more widespread.
Part 2 on lessons from Europe and ‘multifunctionality’
My next Daily Kos posting will summarize the second portion of my March 27th testimony before the Committee on Twenty-First Century Systems Agriculture. There, I draw policy lessons from Europe, especially the use of ‘multifunctionality’ to under gird farm and food system policies.