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Pursuing a new vision for agricultural policy: Basic principles

(Friday, Aug. 19, 2005 -- CropChoice news) --

1. OCM: 2007 Farm Bill must address competition and concentration
2. Canada not the key to salvaging WTO agreement
3. Pursuing a new vision for agricultural policy: Basic principles

1. OCM: 2007 Farm Bill Must Address Competition and Concentration

Date: August 15, 2005
Contact: Chase Carter
P.O. Box 6486 - Lincoln, NE 68506 - http://www.competitivemarkets.com

Lincoln, NE ~ The Organization for Competitive Markets (OCM) is launching the effort to include pro-competition provisions in the next U.S. Farm Bill. OCM joined, in a letter to Congress, more than 200 other organizations representing farmers, ranchers, consumers, labor and faith-based groups to launch this effort.

"The federal government needs to establish and enforce the rules of the marketplace," said OCM President Keith Mudd. "Congress should focus upon increasing choice, price and entrepreneurship for America's independent farmers."

The USDA is now holding hearings around the country seeking comments about the next Farm Bill. Agriculture Secretary Mike Johanns has not included competition and market fairness among the topics of USDA concern.

"Today, a small handful of corporations dominate the nation's food supply, and the concentration continues to accelerate. Price manipulation risks increase accordingly," continued Mudd. "Livestock producers in some areas have only one packer available, and no competition. Poultry growers are forced into deceptive, changing contracts which take away their Seventh Amendment right to a jury trial in a dispute. Smithfield Foods is buying cattle feedlots with enough production to supply 90% of its needs if it buys the Swift Foods cattle processing plants."

OCM is urging Congress to enact the following legislation in the 2007 Farm Bill:

Prohibition on Packer-Owned Livestock: Packer owned livestock is a major market tool for large meat packers. This practice fosters industrial livestock production and freezes independent farmers out of markets. Prohibiting packer-owned livestock addresses the problem of captive supplies, which packers use to manipulate markets.

Producer Protection Act: This legislation would set minimum standards for contract equality in agriculture by addressing the worst abuses of production contracts. The legislation would include 1) clear disclosures of producer risks; 2) prohibit confidentiality clauses; 3) prohibit binding arbitration in contracts of adhesion; 4) recapture of capital investment so that contracts that require a significant capital investment by the producer cannot be capriciously canceled without compensation; and 5) a ban on unfair trade practices including "tournament" or "ranking system" payments.

Captive Supply Reform Act: This legislation would bring secret, long-term contacts between packers and producers into the open and create a market for these contracts. The Captive Supply Reform Act would restore competition by making packers and livestock producers bid against each other to win contracts. Currently, forward contracts and marketing agreements are negotiated in secret, in a transaction where packers have all the information and power, with the end result that these contracts and agreements depress prices and shut small and independent producers out of markets.

Closing Poultry Loopholes in the Packers & Stockyards Act: USDA does not have the authority to bring enforcement actions against poultry dealers. The P & S Act omits this authority. This legislation would clarify that USDA's authority over poultry applies not only to broiler operations, but also to growers raising pullets or breeder hens. Mandatory Country of Origin Labeling (COOL): COOL was passed as a provision of the 2002 Farm Bill. This measure allows consumers to make informed food purchases as to where the products were grown and processed. It also showcases U.S. grown and processed food products. This legislation would limit the ability of global food companies to source farm products from any country while passing them off as U.S. in origin. Meat packers and retailers have, thus far, successfully stymied efforts to implement the law. Congress should immediately implement COOL to benefit both domestic producers and consumers as intended in the current law.

"The upcoming Farm Bill represents a new chapter for America's agricultural producers," noted Mudd. "This is an opportunity to correct the imbalance of market power and influence. We ask Congress for nothing more than fair, competitive markets, which can be easily achieved by incorporating certain mechanisms into farm bill legislation. OCM will lead this effort in the upcoming farm bill debates."

The Organization for Competitive Markets is an independent, nonpartisan, nonprofit public policy institute working for American food producers, consumers and rural communities.

2. Canada Not the Key to Salvaging WTO Agreement

by Paul Beingessner
Canadian farmer, writer

Sightings of an Ivory-billed Woodpecker in Arkansas last year sent the bird-watching world into a tizzy. One of the world's largest woodpeckers, the Ivory-billed had been thought to be extinct for the past 60 years. A shaky home video and a number of visual sightings were proof that the bird is not gone, but has only been hiding for more than half a century.

Similarly, in western Canada, it was thought at one time that the Western Canadian Wheat Growers farm lobby group was extinct. A combination of silly ideas and obsessive rantings about the Canadian Wheat Board was thought to be the main cause of the extinction. However, the Wheat Growers were not gone for anything like 60 years. They resurfaced, claiming to have seen the error of their ways.

There is recent evidence, though, that the Wheat Growers cannot shake the one-track thinking that contributed to their downfall. It came in the form of a claim from the Canadian Agri-Food Trade Alliance that Canada could "kick start" the flagging world trade talks if it would only signal its willingness to negotiate away the benefits of the Canadian Wheat Board. Note that the Wheat Growers are members of the Alliance through their membership in the Grain Growers of Canada.

The claim by the Alliance was a classic ploy with Wheat Grower written all over it. The ploy is to publicly make a ludicrous claim, and then try to convince gullible politicians and farmers that it's true.

I suppose if you don't read the international press, or much else, the claim that Canada holds the key to a successful conclusion to the WTO talks might seem plausible. However, only in Canada does this pretentious idea seems to be given any credibility. In discussions about the problems at the WTO, news agencies, analysts and governments around the world don't seem to know Canada exists. Giant new agency Reuters, for instance, continually carries stories that say it is the U.S. which is holding up the talks by its reluctance to reform its subsidy web.

The U.S. is seen as key for several reasons. It subsidizes farmers heavily, it produces a vast array of crops and it carries immense weight internationally. Canada, on the other hand, subsidizes farmers far less, produces a limited number and quantity of crops and is a feather-weight on the international political scene, despite the grandiosity of its politicians.

The U.S. is showing few signs it will change. American politicians believe they can duplicate the results they got in the previous round of WTO talks. Here, they got to keep their subsidies, but got concessions on market access to other countries. At a time when developed nations were supposed to be cutting their trade distorting agriculture programs, the U.S. Farm Bill of 2002 increased support to farmers by over 6 billion dollars. This move by the Bush Administration paid off in last year's American federal election. George Bush garnered huge support in areas that got the largest ag subsidies. Republicans are not likely to support a trade agreement that would alienate the farm vote.

Farmers in different parts of the world view success at the WTO in different ways. Some Canadian farmers think that an end to export subsidies and trade distorting domestic supports would reduce production in the U.S. and EU, give them better prices in certain markets and reduce the import into Canada of some products - Scandinavian oats, for example.

American farmers seem to think they can have their cake and eat it too. They want to maintain their current levels of over-production, sell them into rich and poor countries alike, collect fat subsidy cheques from their government and keep out products they already have enough of, like Canadian cattle and Caribbean sugar.

Farmers in Third World countries want an end to dumping of cheap, subsidized American and European products like corn, soybeans and cotton into their markets. They also want tariff barriers to come down so they can successfully export to the countries that have all the money - countries like the U.S., for example. The main conclusion farmers in many of these countries and analysts in major think-tanks are coming to is that the benefits of free trade largely accrue to the traders - the huge companies that market agricultural products around the globe.

Freer trade does hold some possibilities for bettering the situation of farmers world wide. If Third World farmers got a better shake, the standard of living in their countries would rise, as would their purchasing power. That would work to everyone's benefit. But the current model of free trade, which does nothing to control the trading oligopolies, will not provide significant benefits to farmers anywhere. It will result, instead, in a race to the bottom. In this situation, even the farmers that win will be losers.

© Paul Beingessner (306) 868-4734 phone 868-2009 fax beingessner@sasktel.net

3. Pursuing a new vision for agricultural policy: Basic Principles

by Daryll E. Ray, Ph.D.
Agricultural Policy Analysis Center
University of Tennessee

As we begin the process of thinking about the shape of the 2007 Farm Bill, we need a new vision for agricultural commodity policy. This new policy vision needs to be based on a clear set of principles. Here is our list:

First, farmers should receive the bulk of their income from the marketplace and not the government. Government payments should not be used to subsidize integrated livestock operations, agricultural commodity processors and exporters with a below the cost of production supply of grains and oilseeds.

Second, agricultural policy needs to be based on a clear understanding of the unique characteristics of the marketplace rather than ideology. In response to low prices, consumers do not switch to eating 4 or 5 meals a day. Similarly, in the short-run, farmers do not reduce aggregate crop production in response to lower prices.

What this of course means is that producers produce and consumers consume about the same amount of total agricultural output with little regard to changes in price. That in fact is the crux of aggregate crop agricultureís price and income problems: self-correction does not occur adequately when inventories swell and prices go into a free fall, because neither producers nor consumers react much.

Third, the policy should not contribute toward the dumping of agricultural products on international markets. And, fourth, given the current budget pressures, the policy should cost less than the $20 billion that the U.S. currently spends on farm programs.

One concept that could meet such criteria is the merging of agricultural and energy policy. If some cropland were switched from corn and soybeans to the production of dedicated bioenergy crops like switchgrass, the carryover stocks of major crops could be reduced so that farmers would receive higher prices for their food crops. Instead of relying on idled acres to manage the production of major crops, the USDA could subsidize the purchase of perennial biomass crops like switchgrass by utilities for co-firing with coal to generate electricity.

Support would continue for the production of ethanol from corn and biodiesel from soybeans and other oilseeds. The growing importance of these two biofuels, particularly ethanol, has been instrumental in increasing the domestic demand for these crops at a rate faster than population growth.

Coupled with a program that diverts some cropland to the production of dedicated bioenergy crops is the establishment and maintenance of a buffer stock program of sufficient size as to be able to supply domestic and export needs in the case of a significant weather or disease related production shortfall. It is important that the production of energy crops not result in food shortages. It would be anticipated that policies would be put in place to establish this buffer stock before acreage would be diverted from food production to the production of biomass.

In the short-run, as utilities gear up to be able to burn biomass, annual setasides could be used to manage the production of major crops. This would result in higher crop prices.

In the long-run, given advances in crop yields and the increase in crop acreage, particularly in Brazil, there is the need for the major crop exporting countries of the world to establish cooperative policies to manage the production of crops.

Comparing the program with the criteria we outlined at the beginning of this article, we find that, to the extent that the nonrecourse loan rate is closer to the cost of production than typical prices of late, cattle feeders and integrated livestock producers, processors, and grain exporting firms will have to pay closer to the cost of production to meet their grain and oilseed needs, otherwise these commodities will go into the buffer stock program. With these commodities being sold at or above the nonrecourse loan rate, the issue of dumping will become moot.

Using the production of dedicated bioenergy crops to manage the production levels of feed and feed crops will provide an alternative to idling land as a means of compensating for the lack of price responsiveness on the part of producers, thus taking into account the unique characteristics of crop agriculture.

And, as a bonus, studies by our office have shown that such a program has the potential to cost half or less than current programs while still maintaining net farm income at acceptable levels.

But the program specifics are really secondary at this point. What is most important is the development of a consensus on the principles that should underlie commodity programs. Commodity producers should be at the center of that discussion. If they are not, others will fill the void.

Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UTís Agricultural Policy Analysis Center (APAC). (865) 974-7407; Fax: (865) 974-7298; dray@utk.edu; http://www.agpolicy.org . Daryll Rayís column is written with the research and assistance of Harwood D. Schaffer, Research Associate with APAC.