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Price, supply management key to healthy agriculture, rural economy, ACGA executive tells Iowa conference
CropChoice editor's note: Larry Mitchell, CEO of the American Corn Growers Association, gave the following presentation to the 2003 National Summit on Agriculture and Rural Life Conference on Saturday, Nov. 15 in Des Moines, Iowa. Other speakers were: Darryl Ray, Ph.D. of the Agricultural Policy Analysis Center; George Naylor of the National Family Farm Coalition; and Steve Cady of the Organization for Competitive Markets. -- RS
by Larry Mitchell
(Wednesday, Nov. 26, 2003 -- CropChoice guest commentary) -- Let me first tell you a few things about the American Corn Growers Association. We were founded in 1987 as an alternative to another corn organization because of the disgust felt by so many corn farmers due to the lack of and misguided leadership exhibited by that other corn organization during the deliberations of the 1985 farm bill. I will offer one example of where we differ on policy. ACGA supports COOL while the other organization, verified in writing from them just this past week, support voluntary COOL for fruits and vegetables and have "no position" on COOL for meat. It is sometimes hard to understand those that call for voluntary COOL and mandatory check-offs. For more information on the difference between our two organizations, please visit our website – ACGA.org.
ACGA is a leader in economic analysis for production agriculture – the farmers' view as it were. Just a few months ago, we took on the current administration by pointing out that their net farm income report was inflammatory, irresponsible, and intentionally timed to do U.S. farmers the most damage at the WTO ministerial in Cancún. USDA issued a formal statement forecasting net farm income figures for 2003, which are totally absent of the reality of the real economy facing America’s farm families. According to data released by USDA on Sept. 12, farmers' net cash income this year is forecast at a record high $60.2 billion. What they failed to report, and why their announcement is so misleading, is the fact that forecast earnings for the entire year in 2003 for farm operator households from their farming activities is only $3,968, or about $330 per month.
Another good example of our ongoing work on economic analysis can be found at our website where we display the "Key Indicators of Major Crops. This data shows that while we have been promised by our policymakers that if we were to reduce our crop prices to a more "competitive" level we could export more and improve our economic status. The numbers show that we did reduce prices, some 67 percent in the case for corn over the past 25 years, when adjusted for inflation, but that our exports have remained flat. In fact, because we have increased our productivity, we now export only one in five rows of corn, while 25 years ago we exported one in four. It should be noted that over that same 25-year period, grocery prices increased over 250 percent.
For many years now, we have been pondering how to quantify several key points that we, as farmers, have observed. First – farmers farm. They farm every available acre and produce every pound, bushel or hundredweight possible. That’s what farmers do. They will produce as much as they can when prices are high to maximize profits. They will produce as much as they can when prices are low to service debt and survive. Second – while low prices in many sectors of the economy may drive producers out of business, reduce production and put it back in line with demand, we find that, although farmers are put off the land with low prices, the land stays in production. Third – Low prices have not expanded our exports and are detrimental to farmers, not only in the U.S., but also around the globe.
Over the past couple of years, several leaders in ACGA have been working to find a way to prove these observations and find a way to correct the problems I have just mentioned. John Dittrich, ACGA’s Senior Policy Analyst, and Dan McGuire with ACGF, who by the way produced a thirty-page set of facts, charts and graphs as the initial part of this endeavor, have been the key leaders in the work. Next time you see them, thank them for their work.
Last year ACGA approached Dr. Ray at APAC, who went to work advancing our cause. This fall, APAC introduced their study "Rethinking U.S. Agricultural policy – Changing Course to Secure Farm Income." We are about to hear more about Dr. Ray’s work.
Government has been involved in agriculture policy since the beginning of recorded history by expanding production, improving technology, managing stocks, establishing weights and measures, supporting prices, etcetera. There were those seven fat years followed by seven lean years. The Chinese started a grain reserve program in 54 B.C., and operated it for 1400 years. When Queen Isabella asked Christopher Columbus to take her fleet down to the Bahama Boat Show, government was expanding agriculture. When government-backed military force removed the indigenous people from the land on our continent, government was again expanding agriculture production. The same can be said of the trans-continental railroad, where the government gave away ten miles of land on both sides of the tracks for settlement and, later, crop production. Then we had the homestead programs, USDA’s research and development, land grant universities and even the federal interstate highway system, which means that today 4,000-head dairies in New Mexico drive down the price of milk in Wisconsin.
Let me repeat this point – government has been involved in agriculture since the beginning of recorded history -- and will continue to do so. We must change course to make government involvement in agriculture to work for all of use, not just the processors and merchants.
A good farm program includes not only a good commodity program, but also good programs for conservation, research, rural development, nutrition, credit, and etcetera. Having said that let me point out the three components of a good commodity program:
1. Price support, not subsidies, 2. Tools to manage stocks, and 3. Tools to manage production.
I know many of you may feel that the difference between price support and subsidies sounds like a semantic splitting of hairs. But I can assure there is a great difference. The biggest difference is who pays. The user pays for the support and the government, i.e. taxpayers, pay the subsidy. The best analogy I can give you to share with your urban friends is the difference between the minimum wage, a support program, and food stamps, a subsidy program. And you do not have to an economist to realize that if we raise the support program, we can reduce or eliminate the subsidy program. By the way – Monsanto believes wholeheartedly in government price supports. They call it patent protection. Think about it.
One of the most timely discoveries in Dr. Ray’s work, during these times when so many developing nations are demanding an end of U.S. farm subsidies as a way to improve the economic situation for their farmers, shows that the simple elimination of U.S. subsidies will not help. Such a policy change would devastate U.S. farmers and would even reduce the prices for some commodities worldwide. What would help is a policy to improve prices in the U.S., a world price setter for many commodities, and thereby help farmers worldwide.
Managing stocks, as I mentioned before, is not a new government policy. From the Joseph Plan as Henry A. Wallace called the 7 fat years, 7 lean years program, to his Ever Normal Grainery, to the Chinese program I mentioned earlier up to the farmer Owned reserve we lost in the 1996 farm bill, governments have previously provided the tools to manage stocks with positive results. In the early 90s, the GAO determined that the government grain reserves cost about $14 billion dollars between 1985 and 1990, but the savings to U.S. consumers in the midst of the drought years of the late 1980s approached $40 billion. Doesn’t it make obvious sense that a $14 investment to save $40 is the wise course? Then wouldn’t it also make a billion times more sense if we add 9 zeros to the equation? One last note on government stocks, another from the ACGA farmer view of agriculture economics. Did you realize that when our nation went to war last March, we only had 5 hours worth of corn in the CCC reserve? We only had 8 hours worth of soybeans and 11 days worth of wheat. We had 30 days supply of petroleum in the Strategic petroleum reserve, but only 5 hours worth of corn.
Tools to manage production are available and used by most every sector of the economy. The generals all use production management – General Dynamics, General Electric, General Foods, General Mills and General Motors. Even both the House and Senate agriculture committees believe in production management by government. During the last farm bill deliberation, they spent hours discussing the loan rate. Their concern was that the higher the loan rate, the more incentive producers have to produce more. An erroneous assumption as we will see later. But given the fact that they decided to keep the loan rate low in order to curb over-production, it is clear that they support government tools to manage production.
Before we move onto our panelists, let me give you one more example of ACGA’s farmer’s view of agriculture economics. First, I apologize to the real economists in the room, as this is an unscientific approach. But stay with me here. According to USDA’s definition, there are about 2 million farmers left in the U.S. But that definition – and I would never suggest changing it – includes all producers that can sell $1,000 of agriculture production or more. Now if we were to raise the threshold to $10,000 we would eliminate over half of those 2 million farmers. But the assumption I usually use – and I am told by many I am too liberal in the assumption – is that there are about 750,000 farmers left in the U.S. Did you know that there are 150,000 grocery stores in the nation? Simple math then reveals that only 5 farmers are responsible for all of the food that crosses the scanner at your local grocery store, each and every day, 365 days a year. But we also export about 20 percent of our production, so now we are down to 4 farmers supplying the needs of you local grocery store. We also know that the commerce department has now determined that Americans eat just over half of their meals away from home, and that production would not be in your local grocery store, but would find other channels for distribution. That leaves only 2 framers supplying everything that crosses the scanner of your local grocery store, each and every day, 365 days of every year. May question is this – how much more efficient must farmers become before they can get paid a decent return for the fruits of their labor?
We must change course to secure farmer livelihood worldwide. We must realize this is worse than a "race to the bottom." This is a "forced death march" for farm families around the world.
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