The New Deal era farm programs are models for an economic stimulus that we greatly need today. We must remember that these programs were supported in the banking committees, in the Steagall Amendment of 1941. (This is not the depression era Glass Steagall Act.) Economists argued that one dollar in agricuture generated seven more dollars throughout the economy. Today we desperately need this kind of a powerful economic multiplier. We need to have this worked out between the Agriculture Committees and the Banking Committees. We need the money. This was a successful Democratic approach in the past. We need work on it today.
Iowa Senator and Senate Agriculture Committee Chairman Tom Harkin is the key "person with the power to decide" on this issue. He was the national leader on it, with his Harkin-Gephardt farm bill of the 1980s and 1990s. Banking chair Chris Dodd also needs to be brought into the discussion. Dodd expressed understanding of Harkin-Gephardt issues when he campaigned in Iowa prior to the caucuses. The Democrats switched away from Harkin-Gephardt to a greened up version of the Republican "Freedom to Farm" act when Harkin became chair prior to 2002. They apparently wanted something that was winnable for Harkin in that political context. Remember, however, the 1996, 2002 and 2008 farm bill Commodity Titles were worse than Reagan/Block (1985) and Nixon/Butz (1970s).
Today we have entered a "teachable moment," as in the New Deal, and we are very well positioned. We have the Democratic victory and the huge Obama symbolic victory. We have Harkin as Agriculture Chairman and Dodd as Banking Chairman. But we also have a new farm bill that will very likely fail, well before its five year time period is up, for the simple reason that cost of production is skyrocketing (Iowa State University projections up 45% 2007-2009), but the farm bill made no cost of living increase (again) in compensatory farm subsidies. For all of these reasons, we have a new winnability potential, given the mobilization of appropriate leadership. The stage is set for a return to Democratic, New Deal, non subsidy, farm based wealth creation.
The New Deal era farm programs featured price floors and supply mangement on the bottom side, and price ceilings with strategic commodity reserves on the top side, just like the Harkin-Gephardt farm bill of the 1980s and 1990s, and the current Food from Family Farms Act of the National Family Farm Coalition. There were no commodity subsidies (ie. none, 1933-1961, except for some cotton subsidies 1934-1939, "Direct Government payments by program, United States, 1933-95" USDA-ERS). The government actually made money on the programs, $13,000,000 1933-1952 according to Mark Ritchie ("Crisis by Design," League of Rural Voters Education Project; all sources here are online).
In the Steagall Amendment of 1941 these programs were supported at levels that brought parity (or "100% of parity") with non agricultural sectors of the economy. The Steagall Amendment went through the Banking Committees. Parity is a term of equity (comPARITIVE). 100% of parity is basically a standard for "living wage" prices and "fair trade" exports. U.S. agriculture then had 100% of parity or more every year, 1942-1952, until Eisenhower reduced the price floor levels. At the same time, they never exceeded 115% of parity, moderating price spikes, volatility, and speculation, factors that have raised havoc recently.
One indication of the success of these programs is that we had no farm depression following World War II, as we had after World War I and as we had in the 1980s following the price spike of the 1970s (resulting from the massive purchases during the secret Soviet grain deal). Recently we've again had an incredible farm price spike. The dramatic speed of the spike has fueled huge cost increases AND a huge push for supply increases, setting the stage again for future oversupply and low prices. As agricultural economist Daryll E. Ray has warned, "...extraordinary increases in crop prices ... sets up a world supply response that sentences farmers everywhere to years of low prices" ("Supply response to sky-high prices," 12/5/08).
The "parity" farm programs of the Democratic New Deal and Steagall Amendment were degraded from 1952-1996 as price floors were lowered and supply management was reduced. These mechanisms were ended in 1996 (in farm bills: 1996, 2002, 2008). Overall agricultural parity fell below 100%, decade by decade: (1960: 80%; 1970: 72% 1980: 64%; 1990 54%; 2000: 38%). As of September 2005, parity figures for major commodities were: corn: 25%; rice and cotton: 26%; wheat and soybeans, 32%. By this fair-trade, living-wage standard, 2005 prices were in need of quadrupling or tripling. (This has been misunderstood in almost every article I've read on the "food crisis." Typically export dumping, the key issue behind this poverty for decades, (up to a few years ago,) is forgotten, no standard of fair trade prices is even considered, and a call for a return to more dumping is emphasized (without using that word,) or at least implied.)
Compensatory subsidies were added, not as a price or supply affecting mechanism (which they have never been,) but as political tools to placate farmers. Feedgrain (ie. corn, barley, oats) and wheat subsidies were added in 1961, cotton subsidies in 1964, and rice subsidies in 1976). The 1985 Republican farm bill, in response to the 1980s "farm crisis," "pumped a lot of money into the rural economy," they spun. In truth, the subsidies were increased downwards. The corn price floor was lowered from $2.55 in 1984 to $1.57 in 1990, a drop of 98¢. The compensatory subsidy trigger for corn was lowered a smaller amount, from $3.03 to $2.75 over the same period, resulting in an increase in the maximum potential subsidy from 48¢ to $1.18, an increase of 70¢. So prices floor mechanisms were lowered by 98¢ and compensatory subsidy mechanisms increased by 70¢, resulting in a potential net loss of 28¢ under this Republican program of "pumping in money." Reagan even subsidized "the evil empire" with below cost grain.
USDA-ERS data illustrate the expected results. Between 1981 and 2006 corn, wheat, cotton, rice, soybeans, grain sorghum, barley and oats rarely netted above zero in the marketplace (excluding subsidies and versus full costs). (ERS, "Commodity Costs and Returns: U.S. and Regional Cost and Return Data") If you multiply this net per acre by acres and sum the eight crops, only 1996 was above zero. The yearly amount below zero averaged in the billions, with U.S. corn and wheat each netting nearly $70 billion in the red overall over the period.
The U.S. lost billions of dollars on farm commodity exports under these programs, because we weren't willing to charge prices above our costs. This was true, even though we are said to have 40% of the export market. We had as high as 80% to 90% export market share for some commodities and still chose to lose money, exporting our wealth out to foreign mills, processors and livestock interests (and also exporting our own meat and processed items fed/created with these below cost raw materials). This contrasts sharply with OPEC, for example, which, has managed supply and charged higher prices. Decades ago you could get a barrel of oil for a bushel of wheat. Today wheat is about $5-$7 per bushel. Oil is no longer $140, but it's way above wheat.
These low prices, of course, are the main general cause of poverty behind the "food crisis." Decades of export dumping (far below costs) has devastated Least Developed Countries around the world. Least Developed countries are 73% rural (UN, 2005). Farming is huge in their economies. With low prices (and with WTO pressure to open their markets to dumping) their economic multipliers are gutted and wealth creation bottoms out. Though food has been plentiful, nearly a billion people can't even afford to pay "dumped" grain prices. And we've lost billions of potential customers, as rural based wealth has shrunk, fomenting poverty around the world over these decades.
From an economic point of view, there are several additional considerations. First, these policies have had a dramatic impact on infrastructure (U.S. and world). We massively built up whole industries on the foundation of below cost pricing, including things like high fructose corn syrup, transfats, ethanol, and concentrated animal feeding operations. We built it up, first of all, with these massive below cost gains. Timothy Wise and Elanor Starmer of Tufts University have estimated that Tyson and Smithfield got more than $2.5 billion each in these non compensatory, hidden, (not in the government budget like compensatory farm subsidies) gains 1997-2005. We've also built up some of these infrastructures with very large governmental subsidies.
With recent higher prices, however, this infrastructure got into trouble. We've seen recently that, with higher corn prices, the ethanol industry has taken a huge hit. This has been a front page story in the farm press for months.
At the same time, alternative agricultural infrastructure was allowed to decay (U.S. and worldwide). The prime example here is on-farm livestock, diversified livestock-based farming. With grain available at prices far below costs to feed livestock, large corporate entities have been encouraged to take these key value added enterprises away from diversified farmers. Here in Iowa, on most farms, livestock facilities (buildings, fences) are no longer used, and younger family members may not know how to raise livestock.
This has been a major blow to sustainability. Pastures and hay ground, often put on the most hilly or highly erodible land, are no longer needed. Row crops are grown there instead. Small grains, also protective of the soil, are taken out of rotations. Externally purchased herbicides and insecticides are needed to replace these former farm management practices. Without legumes like clover or alfalfa, more purchased nitrogen is also needed, which is more toxic and more likely to get into surface and ground water. With these changes, and with CAFOs, health risks and costs are also increased. Communities become less sustainable as social structures decay. (Note: the "way of life" of diversified, sustainable family farming provides important social services, through the private sector.) Behind it all is the fact that well below cost feedgrains compete against these other feeds: pastures/forages/hay.
These changes in the nature of investments in farm infrastructure (U.S. and worldwide) have many important economic implications. First, both crop and livestock farming becomes larger in scale. This is spun as an improvement in efficiency, as it is claimed that now one farmer can feed a lot more people. In truth there has been a large hidden increase in the number of non farmers producing this very same food, hiding inefficiencies in these systems. As agricultural economist Stewart Smith has shown, the farm share of the food dollar fell, (not to 20-25% as is typically claimed using USDA figures, where input costs are not taken out, but,) to below 8%, and is projected, (not predicted, in his latest figures,) to disappear by 2020. That's down from a 41% farm share in 1910 and probably over 50% in 1900, according to Smith. Don't blame farmers for your food costs! The farm share of corn flakes and wheat bread in the U.S. is probably already down around 1% (Smith, "Sustainable Agriculture and Public Policy," and USDA food dollar figures for individual items like bread and cereal). The "marketing share" (output complex) grew from 48% in 1910 to 73% in 1997, and the input share grew from 14% to 20%.
Second, the economic multipliers underlying the corporatized infrastructure change for livestock are much weaker than those for what they replaced. For example, supporters of CAFOs have pointed out that in building them, jobs are created. That's "value added." They don't tell you about the value subtracted. For jobs alone, the impact is devastating, according to agricultural economist John Ikerd. For every CAFO job created, 2 or 3 independent farmers are lost ("The Economic Impacts of Increased Contract Swine Production in Missouri: Another Viewpoint"). That is, we've invested (via farm market policies and direct subsidization like EQIP, which offers up to $450,000 per CAFO,) in infrastructure that hugely reduces jobs. Clearly, these are not the kinds of diversified farms that can create $7 throughout the economy from each $1 invested, or 6 jobs from each 1 job. Ikerd summed up the conclusions from dozens of recent studies on CAFOs (and important older studies): "Virtually every study done on the subject in the past 20 years has confirmed the inevitable negative community impacts of CAFOs. Research consistently shows that the social and economic quality of life is better in communities characterized by small, diversified family farms." ("CAFOs vs Rural Communities") He then gives detail about a number of these specific economic findings. Even the communities that got the most CAFO infrastructure investment were hurt. That's surely an economic multiplier below 1.0.
Today, we need to update our study of economic multipliers in agriculture, and update the New Deal Parity programs. Bold new work in sustainable agriculture must be fully taken into consideration. Organic farming has held its own and better against industrial farming, in spite of getting much less commodity subsidization, and only a tiny fraction of the research subsidization. Organic markets have grown 20% per year. The Rodale Institute found that yields were significantly higher in organic corn than in conventional corn, after a couple of decades. Studies are also finding that organic corn is cheaper to produce per bushel, even without subsidies.
Findings about sustainable agriculture fit with the view of Charles Hampden-Turner that the key to wealth creation is the reconciliation of values, not a mere adding of values. When the most values are reconciled, as with sustainable agriculture, much wealth is created. When there are inherent ecological, social, health and economic contradictions, in the case of CAFOs and large industrial farms, for example the little wealth is generated. It's a bit like military spending, making investments, then stockpiling the results or blowing them up.
We also need to look at international supply management, commodity reserves and price mechanisms. The Africa Group at WTO has taken the lead on this. (IATP, "On the Right Path to Development: African Countries Pave the Way"). Some years back the EU was also on board, pushing for the United States to implement these kinds of policies, according to Mark Ritchie, when he was president of the Institute for Agriculture and Trade Policy.
All of this can be viewed in light of the economic crisis and the new farm bill, which could very possibly fail, well before its five year term is up. "Freedom to Farm" failed, and four emergency farm bills were passed, 1997-2001 to prevent an economic disaster (which LDCs, nevertheless, experienced). The new farm bill will also fail, (if continued long enough,) because it has no provision to insure that we make a profit on farm exports. Currently farm costs (ie. 2009 projections, corn following soybeans $4.32, corn following corn, $5.10, Iowa State University) are well above market prices (ie. probably since summer 2008, with corn, now around $3.50s-$3.70s). Meanwhile there is no cost of production or inflation increase in the main farm program compensations (DCP). For example, Target Prices for corn have been raised only 1% since 2002, and Loan Rates have been raised only 3% since 1996. Meanwhile, Iowa State University Extension's cash cost projections for corn have increased regularly, including a whopping 45% just since 2007.
Here it is: 1. no price floors or supply management, AND, farm commodities lack "price responsiveness on both supply and demand sides, so prices usually fall below costs in the free market (Daryll E. Ray, "It's Price Responsiveness! It's Price Responsiveness!! IT'S PRICE RESPONSIVENESS!!!" or "Agricultural Policy for the Twenty-First Century and the Legacy of the Wallaces"). 2. Farmers get Direct Payments to compensate for expected failures of the free market of about 83.3% of 28¢. That's like bringing cash costs down to about $4.08 per bushel. But CounterCyclical compensations don't kick in until prices drop down to $2.63! Then you can get 85% of 36¢, more or less (less because it doesn't account for production increases since the 1980s). That takes you down to $2.27. 3. But LDP compensatory subsidies don't kick in until prices fall to about $1.95, leaving another gap! The ACRE program, an alternative to countercyclical payments, works better if prices in the short run are good, but worse if prices fall. ACRE has no cost-based compensation standard, only a floating and relativistic "market oriented" mechanism. But again, these farm markets lack "price responsiveness."
My family remembers 7¢ corn here in the Great Depression. The future is unknown, in our free (volatile) farm markets, but with no price floors and recent massive efforts toward overproduction, there is nothing to prevent a massive farm depression, even with the various compensations. So far, we've had two years of agricultural prosperity heading into the current economic crisis. We must not squander this moment by neglecting to stimulate the powerful economic multipliers in diversified, sustainable family farming. Obama is new to this. Vilsack too. Harkin, however, is ideally positioned to mentor them both on these huge issues. Harkin is the key. We must support Senator Tom Harkin in leading us now to move in this crucial, historically Democratic, direction.