Think Forward blog

Climate Solutions

Perhaps no industry will be more affected by climate change than agriculture. Cropping patterns, pests and plant disease, and access to water will combine to profoundly affect our ability to produce food. And rising fossil fuel prices will undoubtedgly affect fertilizer, pesticide and machinery costs for farmers. A 2000 report by IATP Board Member Steven Shrybman concluded that agriculture and the larger global food trade system, supported by free trade agreements and the World Trade Organization, was one of the larger contributors to climate change.

So what do we do about it? Peter Barnes, author and former President of Working Assets, has written an excellent new citizen's guide called Climate Solutions: What Works, What Doesn't, and Why. The short book gently dissects the limitations of poorly designed cap and trade systems currently being considered by Congress. The two main problems: 1) giving away pollution permits thereby reducing incentives to cut carbon emissions; 2) rising energy prices for consumers that will disproportionately hit middle and low income households.

To address these weaknesses, Barnes proposes a hard cap and dividend to reach an 80 percent carbon reduction by 2050. Under this plan, a steadily declining number of carbon emission permits would be auctioned off. Money from the permits would go directly into a trust which would give checks back to citizens to help offset rising energy costs. The Political Economy Research Institute outlines how such a cap and dividend approach would benefit middle and lower class families.

Steadily rising carbon prices would also make investments in cleaner energy, conservation and mass transit more cost competitive. And would spur the government to shift the enormous subsidies that currently go to the fossil fuel industry, as outlined in research by Doug Koplow at Earthtrack, toward renewable energy and conservation.

Barnes' book primarily focuses on U.S.-based solutions, both because of the U.S. historic contribution as the world's largest greenhouse gas emitter and because Congress and Presidential candidates are all talking about climate solutions. But he also puts forth some interesting ideas related trade and a global system for carbon reduction. On trade, he proposes carbon border fees on goods that have carbon fees lower than the U.S., basing the fee on the amount of carbon required to make the product and the carbon price differential between the U.S. and the exporting country. He argues that such an approach would protect U.S. companies who are lowering their carbon and encourage other countries to lower their carbon emissions.

A more ambitious proposal is an Earth Atmosphere Trust which would work similarly to his domestic proposal: A declining number of pollution permits would be auctioned globally and proceeds would go into a global fund. A portion of the fund would then be disbursed to people around the world on a per capita basis or to local institutions in an effort help the poor deal with increasing costs, and the rest invested into renewable energy and climate mitigation.

Dealing with climate change can be overwhelming. And the details matter in how we move forward. Barnes' ideas shed light on many of the tough choices we need to make going forward.

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On "War and Peace" and a Second-best World

I am immersed in rereading Tolstoy's classic, "War and Peace." It is a new translation by Pevear and Volokhonsky and it is marvelous. I read the book first as a teenager, partly for show, and mostly because I love books. But if I loved the novel the first time around, I can appreciate so much more of it now.

Take Tolstoy's digression on the various strategists and generals who advise the Russian Emperor, Alexander I, as Napoleon threatens and then crosses into Russian territory. I was struck by the description of Pfuel, a German "theorist-general." Tolstoy is unkind to the Germans in his description of Pfuel (see Book II, Part I, Chapter X if you want to read Tolstoy's views on how various European nations exhibit self-assurance). But what stood out was this quote, "Pfuel was one of those theorists who so love their theory that they forget the purpose of the theory -- its application in practice."

The quote leapt out at me because it applies so readily to the debates on free trade. These debates involve too many rounds of one side, usually people living the consequences of a policy, saying, "This does not work!" And those on the other side, usually people who have the power and position to advise, but who do not live with the negative consequences, saying, "That is because you did not try hard enough. You didn't follow all the policy prescriptions - go back and try harder." At what point can we abandon a world driven by mathematical economists, to get back to our real, imperfect world? A theory of perfect markets is a wonderful intellectual tool, but it cannot substitute for public policy.

In the end, the pure theorists can only take the same grim satisfaction as Pfuel, who does not deem Napoleon's campaigns in Austria, Prussia and Russia to be worthy of the label war, because they don't conform to the theory of how a "proper" war is waged. Yet the cannons and rifles are fired, the soldiers are killed, and the local population and their crops are raped and pillaged, as the hundreds and thousands of men, women and horses that make up the armies and their entourage seek food and fuel to survive. A war by any other name?

During the 1990s, governments created the World Trade Organization, refused to deal pragmatically (let alone morally) with the debt crisis, and insisted on privileging private interests in trade agreements, investment pacts and development spending. At the same time they signed Agenda 21, the Convention on Biological Diversity, the Convention on Tobacco Control and a dozen other agreements that committed them to putting the pubic interest ahead of private gain for a select few.

So who is winning this war of ideals? Tolstoy's Prince Andrei says a battle is not lost by the side that loses the most soldiers, but by the side that runs away. For those of us who do not believe that free trade is the answer to every public policy problem we face, it is time to stop running. More importantly, however, it is time to stop fighting, too. After all, Tolstoy was a pacifist. It is time to focus on the pragmatists, guided by a vision of a better world, but not enslaved to a theory that ignores people's experience.

In her 2006 WIDER Annual lecture, Nancy Birdsall, President of the Center for Global Development, points out how economic policies that ignore existing inequalities exacerbate them. In her lecture, Birdsall points out that the "level playing field" so beloved of trade negotiators and their economists does not reflect the real world, with the result that their policy prescriptions increase poverty and disparities among countries.

Untidy though it may be, so-called "second-best" economics grounded in the real world is richer, more interesting, and much more likely to recognize the whiff of gunpowder than the first-best crowd. Read Dani Rodrik on the subject - he is clear and succinct on the differences.

Whoever wins the U.S. election in November, let us hope he or she is firmly guided by a respect for diverse opinions and a refusal to embrace ideal solutions, where the messy question of who loses and what will happen to them is left for someone else to answer.

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Farmer Agreement Offers Alternative to NAFTA's Failures

On January 1, 2008, the North American Free Trade Agreement (NAFTA) came into full effect after a 15-year phase-in for more sensitive agricultural products like sugar, white corn, beans and dairy. This means the last remaining tariffs are no longer legally binding, including those on sugar imported from Mexico to the U.S., and vice versa. Additionally, the Mexican government will no longer block imported high fructose corn syrup from the U.S., which competes directly with sugar in the Mexican sweetener markets.

The expected fallout threatens to hurt sugar farmers on both sides of the border. This threat is so dire, that it has provided an impetus for Mexican and American sugar growers to reach an historic agreement to modify the final implementation of NAFTA. 

First, let’s look at the chaos NAFTA is expected to bring to sugar markets in the U.S. and Mexico.

An expected import surge of U.S. corn syrup will likely displace Mexican sugar from the Mexican sweetener market. Mexican sugar growers also face the prospect of increased U.S sugar imports, because the current U.S. cost of production for sugar is less than in Mexico. Moreover, increased imports from other countries have created a substantial U.S. surplus of sugar that could be dumped into Mexico.

In the U.S., sugar displaced from the Mexican market by corn syrup could be exported to the U.S. This could overwhelm the delicately balanced U.S. inventory management system, already under siege by increased imports from World Trade Organization (WTO) and Central American Free Trade Agreement (CAFTA) obligations. 

All these threats taken together would likely depress sugar prices below the cost of production on both sides of the border, resulting in a shutdown of most of the North American sugar industry. 

However, there is more at stake here than the fate of an agricultural commodity. Sugar is Mexico’s largest remaining agricultural industry. According to the U.S. Department of Agriculture Foreign Agricultural Service, there are an estimated 158,000 sugar farms in Mexico that average 10 acres in size. These farms supply 58 mills located in 15 of the country’s poorest 35 states. The Mexican sugar industry directly employs more than 300,000 workers, including cane cutters, seasonal field workers, and factory workers; and indirectly supports another 2.2 million jobs. 

The NAFTA-mandated destruction of the Mexican sugar industry would likely cause a new wave of immigrants to try to find work in the United States. This new migration would rival the well documented surge of Mexican migration caused by U.S. export dumping of yellow corn into Mexico facilitated by NAFTA over the last decade.

Thus far, Mexican sugar farmers have been spared the devastating effects of dumped imports because the Mexican government has refused for 15 years to deregulate their sweetener market.  Just as importantly, U.S. sugar growers have had enough political clout to defend their own sugar program that—unlike other U.S. farm programs—manages inventories, prevents overproduction and export dumping, and guarantees farmers a fair price at no cost to U.S. taxpayers.   

For decades, high fructose corn syrup has competed with sugar in an increasingly integrated sweetener market. In fact, the rules for this sweetener war under NAFTA have been continually in dispute literally since the signing of the agreement in 1994. As NAFTA forced Mexico to deregulate its sweetener market, cheaper U.S. corn syrup began taking market share away from Mexican sugar growers, especially in the soft drink market. Mexico tried to protect its sugar growers: first with anti-dumping measures; and then with a tax on corn syrup. However, the U.S. government, on behalf of the Corn Refiners Association (including Cargill and Archer Daniels Midland), dutifully challenged Mexico’s actions before international trade tribunals under both NAFTA and the WTO, and won.

Significantly, the agreement reached by U.S. and Mexican sugar growers sets the stage for managing the sweetener market between the two countries in a way that could benefit farmers in both countries. Specifically, the deal would modify the implementation of full NAFTA deregulation of Mexican and U.S. sweetener markets by:

·         Building on a provision currently included in the pending Farm Bill that would allow the use of some sugar to produce ethanol as a means to manage excess supplies.

·         Managing sugar supplies used for ethanol production separately from sugar used for human consumption; a prudent step given the growing controversy over fuel versus fuel.   

·         Limiting import surges of Mexican sugar exports to the U.S. caused by displacement of Mexican sugar from the anticipated import surges of high fructose corn syrup being dumped by multinational agribusinesses into Mexico.

·         Managing the two countries’ sugar re-export programs to provide a smoother and more predictable transition to a more integrated North American sweetener market. 

·         Providing Mexican and U.S. sugar growers with preferential market access to North American sugar markets—both for human and ethanol consumption—while still fulfilling the two countries’ existing WTO and other international trade commitments.

·         Establishing a Joint Mexico-United States Sugar Commission to resolve future disputes, rather than leaving them up to secret NAFTA tribunals.

The agreement has been circulated among appropriate government officials in both countries, and various options have been suggested for moving the agreement forward.

The mutual threat of lost markets and livelihoods has compelled Mexican and U.S. sugar farmers to work out an agreement that will give both sides a fighting chance to survive. The deal could help resolve the endless trade disputes and uncertainty that have wreaked havoc in the sweetener market since NAFTA was signed. It could curtail the otherwise inevitable increase in cross-border dumping of sweeteners that threatens to irrevocably damage the North American sugar industry, which is so important to both the Mexican and the U.S. economies. Finally, it could help us avoid another displacement of Mexican agricultural workers who will be forced to migrate north if we allow NAFTA to be implemented unencumbered.

For more information on the connections between agriculture, trade and immigration, go to Trade Observatory.

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Leveling the Playing Field

Much of the recent Farm Bill debate has focused on subsidies for rich farmers, but what about government support for some of the largest multinational agribusiness companies in the world? Research released last month suggests that stripping away direct and indirect subsidies benefitting meat and poultry companies could bring dramatic changes to our farm economy.

Elanor Starmer and Tim Wise at Tufts University's Global Development and Environment Institute first looked at how underpriced animal feed allows big poultry, hog and beef companies to undercut smaller, more diversified farmers. They found that industrial livestock operations (hog, broiler, egg, dairy, and cattle) that contract with the big meat and poultry companies got a $35 billion boost from under-priced animal feed from 1997-2005 - amounting to a 5-15 percent reduction in operating costs.

How did animal feed become so under-priced? The 1996 Farm Bill stripped away the last remaining production controls for most major commodities. So, in the nine years following the 1996 Farm Bill, production rose (28 percent for corn and 42 percent for soybeans), and prices fell (32 percent for corn and 21 percent for soybeans), according to Starmer and Wise. In the nine years following the 1996 Farm Bill, corn prices averaged 23 percent below production costs and soybeans averaged 15 percent below production costs.

And the big boys in the increasingly consolidated meat and poultry sectors cashed in. According to Starmer and Wise, the nation's largest industrial broiler chicken company Tyson Foods saved $1.25 billion a year, or $11.25 billion over nine years, from under-priced animal feed. And the nation's largest industrial hog company, Smithfield Foods, saved an estimated $2.54 billion over nine years from under-priced feed. Starmer and Wise concluded: "taxpayers and farm families have, in effect, been subsidizing factory farms' feed purchases."

The next step was to consider the various environmental costs associated with CAFOs that have been subsidized by taxpayers. The New York Times' Andrew Martin reported this month about how the Farm Bill's Environmental Quality Incentives Program (EQIP) has devolved from its original intent to help farmers with small scale conservation projects to providing a direct subsidy to CAFOs to deal with the "mountains of excrement that their farmers generate." In 2006, taxpayers sent these mega farms about $179 million for animal waste management, Martin reported. Early this year, Congress will renew the EQIP program as part of the new Farm Bill and is actually considering expanding the program to provide more subsidies for CAFOs to clean up their mess. IATP's David Wallinga has written on a number of problems CAFO operations can create through air pollution, water pollution, and health risks to farmers and workers - all costs not accounted for in the price we pay at the supermarket.

In focusing on hog production, Starmer and Wise calculated the additional cost to these operations if they actually paid for environmental clean-ups and mitigation. They found that if CAFOs had to pay the cost of alternative manure-management to protect the water and reduce over-application, it would raise hog CAFO's operating costs by 2.4-10.7 percent. In a climate of full cost feed and environmental regulation, CAFOs would see their operating costs rise by between 17.4-25.7 percent. This increase would eliminate the apparent cost advantage CAFOs currently have over mid-sized diversified hog producers.

This new research is a blunt reminder that the U.S. agriculture market is massively distorted by misplaced priorities. Our current system is no accident or the result of market forces. Rather, it is the deliberate outcome of a U.S. farm policy geared toward fewer farmers and larger more industrial operations. U.S. government leaders going back to President Eisenhower's Secretary of Agriculture, Ezra Taft Benson, have been telling farmers: "to get big or get out." And our policies have reflected that bias.

One bump in the smooth ride for the big meat and poultry companies is the recent rise in corn and soybean prices. Corn prices have risen to over $5 a bushel, soybeans to over $9 a bushel. But what happens if prices crash? Al Kluis of Northland Commodities told the Star Tribune that "the history of commodity bull markets is that prices will drop twice as fast as they went up."

Unfortunately, neither the House or Senate versions of the Farm Bill address price volatility, despite a number of proven policy tools that could help ensure prices don't go too high for consumers or too low for farmers. A system of fair prices for farmers and consumers, combined with a full accounting of environmental and health costs, would help level the playing field for farmers of different sizes. In that alternative future, our farms and supermarkets might look a lot different.

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