Abridged from Issue #23 / February 28, 1999 / THE AGRIBUSINESS EXAMINER
Judging from the nature of the research by American Corn Growers Association (ACGA) board member Dan McGuire it is clear why members of Congress continue to go out of their way to avoid hearing from critics of the disastrous and misnamed 1996 "Freedom to Farm" Act.
McGuire, who also serves a member of the state board of directors of the Nebraska Farmers Union, decries the fact that the majority of those testifying on various agribusiness panels before Congress are still doggedly attached to promoting the concepts embodied in the "Freedom to Farm" law.
Thus, he emphasizes that it is essential that information be submitted for the record that first, exposes the fundamentally flawed assumptions of the 1996 farm law; second, documents the glaring failure of that law and the serious economic disaster continually facing the farm economy as a result, and; third, verifies what the vast majority of U.S. farmers want as changes in federal farm policy.
"My farm has been in our family since the turn of century. I've also held two public policy positions for twenty years representing farmers' economic interest in the marketplace. I was a strong opponent of current farm and trade policy, testifying against the 1985, 1990 and 1996 farm bills. There is little consolation having been right in predicting the failure of this farm and trade policy.There is little consolation in having predicted that exports would neither materialize nor be sustained, and prices would indeed plummet.
Thus, using the U.S. Department of Agriculture's own figures, McGuire asserts that the 1996 law was based on eight fundamentally flawed assumptions.
FLAWED ASSUMPTION #1:
Farmers rely on the export market for most of their sales. The reality is that, with the exception of those few producers that make some specialty crop, identity-preserved export sales, farmers do not export their grain or oilseeds at all! Farmers sell nearly 100% of their grain and oilseeds into the domestic market. They deliver and sell those commodities to local or regional commercial grain elevators or processors. Those elevators or processors act as "gathering agents" for the multinational exporters who actually do the exporting of the grain and ag products from the United States and those of this nation's foreign competitors! Thus, it is the domestic market price that farmers receive and it is for that reason that the farm program price support loan rate must be raised in order to provide farmers a fair price for what they produce.
The combined total tonnage of corn, soybeans, wheat, grain sorghum, barley, oats and rice, McGuire notes, that was exported in Marketing Year (MY) 1996/97 and MY 1997/98, as a percent of production, only averaged 25%. When soybean oil, soybean meal, beef and veal, pork, lamb-mutton and goat, and poultry meat are added, the total tonnage exported as a percent of production stills remains at 25%. Multinational exporting companies only exported 19.4% of U.S. corn production in MY 1996/97 and only 16.3% in MY 1997/98.
"Why should Congress or U.S. farmers allow exporters to set the corn price when our market is entirely the domestic U.S. market?" McGuire asked the Committee.
FLAWED ASSUMPTION #2
Lowering commodity loan rates and prices increases exports.
Doing away with nonrecourse price support loans, changing to recourse "marketing loans" and dramatically lowering the loan rate has not increased U.S. grain exports. What it has done is lower the grain prices and income received by farmers, while greatly enhancing the profits of the Cargills, ADM's and Continental Grains. Using official USDA export and price records, McGuire's documentation verifies that U.S. corn exports have never reached the 2.4 billion bu. exported in MY 1979/80 and MY 1980/81.
During that 3-year period of 1979, 1980 and 1981, the regular corn loan rate was $2.10, $2.25 and $2.40 respectively. The regular loan was $2.55 in 1982 and $2.65 in 1983, while the loan rate for corn in the farmer-owned reserve was $2.40 in 1980, $2.55 in 1981 and $2.90 in 1982. The U.S. exported more corn each of the three years MY 79/80, MY 80/81 and MY 81/82 than in the most recent three marketing years(including MY 98/99 projections). Indeed, corn exports over those three "high loan rate" years of the 1980's averaged 2.26 billion bushels while corn exports over MY 96/97, MY 97/98 and MY 98/99 are averaging only 1.675 billion bushels under the low loan rate of $1.89.
McGuire also shows that the 13-year average of corn exports (MY 1985/86 through MY 1997/98), since the so-called "market and export-oriented" farm law was passed in 1985, is only 1.756 billion bushels. That compares to the six-year average U.S. corn export volume of 2.057 billion bushels from MY 1979/80 through MY 1984/85 when the U.S. had higher loan rates that averaged $2.42 per bu. In fact, the loan rate for corn in the farmer-owned reserve within that period averaged $2.63.
A similar set of numbers can be provided for U.S. wheat exports under the farm laws since 1985, except the export track record is even worse. The U.S. exported 1.135 billion bu. of wheat in MY 1972/73 or 110 million bushels more wheat exports 25 years ago than what is projected for MY 1998/99. Additionally, wheat exports set their all time record in the early 1980's when price support loans were nearly $1.50 higher than today. Indeed, U.S. wheat exports were higher in 21 of the 25 years prior to the 1996 farm law than every year since the 1996 law was enacted.
"Obviously," the former Agency Director for the Nebraska Wheat Board concludes, "the farm policy philosophy in place since 1985 lacks credibility and must be changed. It hasn't worked and it won't work! It's time for a major change. Furthermore, the U.S. national "strong dollar" policy vis-a-vis foreign currencies is great for Wall Street but flies-in-the-face of the stated "export-market-oriented" farm policy. It cuts the legs out from under main street and rural America. So, forego this monetary policy or change this farm policy quickly!
FLAWED ASSUMPTION #3:
1980's style "higher loan rates" encourage both excessive domestic and competing foreign grain production while 1990's style lower loan rates discourage such increased grain production.
Here again the reality is the nine-year average corn production from 1977 through 1985 was 7.268 billion bushels, when loan rates ranged from $2.00 to $2.65. Compared to that period, the 13-year average U.S. corn production from 1986 through 1998 was 8.059 billion bushels, under the low loan rate period since the 1985 farm law. U.S. corn production, in the three years since the 1996 "Freedom to Farm" law was enacted, has averaged 9.417 billion bushels. This major increase in U.S. corn production has taken place under the low, and extremely low loan rates ranging from $1.57 to the current $1.89.
Meanwhile, under these policies, total world grain production has risen from 1,671 million metric tons (mmt) in 1989/90 to 1,850 million metric tons in 1998/99 as forecast by USDA's Economic Research Service. That's an increase of 179 million metric tons or about seven billion bushels. So, low U.S. price supports did not discourage foreign grain production. Just the opposite scenario unfolded.
Meanwhile, according to USDA data, total world grain exports dropped from 220 mmt in 1989/90 to 205 mmt forecast for 1998/99. That's a drop of 15 million metric tons or about 570 million bu.
"So," McGuire observes, "the farm laws since 1985 have been working exactly opposite to what was promised. Again, it raises the credibility issue relative to those continuing to promote this policy."
FLAWED ASSUMPTION #4:
U.S. grain exports will steadily increase through the year 2007.
The reality, McGuire reveals, is that it's only one year since USDA-ERS issued its report, "International Agricultural Baseline Projections to 2007/AER-767" and they've already missed their projections for U.S. corn exports by over half a billion bushels. That report projected U.S. corn exports to be 2.251 billion bushels in MY 1998/99. The most recent World Agricultural Outlook Board supply/demand report, issued on February 12, only projects U.S. corn exports at 1.725 billion bu., a shortfall of 526 million bushels, yet it is these baseline projections that are being used to make a case for continuing the 1996 farm law through 2007.
"Furthermore, the projections in that report indicate U.S. corn exports will reach 3.27 billion bushels in the year 2007. How can anyone believe those unrealistic numbers?" McGuire asks.
FLAWED ASSUMPTION #5:
The 1996 farm law would bring about profitable grain production for U.S. farmers.
The reality, however, is that the full economic costs of producing a bushel of corn in 1996 was $2.82 according to the "USDA-ERS Corn Costs and Returns, 1995/96 Costs of Production from the Farm Costs and Returns Survey." Because the 1995 corn crop was reduced by over 2 billion bushels, farm prices were a little over the cost of production. However, using 1995/96 production costs and USDA's average yield, U.S. farmers spent $2.88 to produce a bushel of corn in 1996/97 and only received an average price of $2.71, a loss of $.17 on every bushel.
Using the same approach, it also cost $2.88 to produce a bushel of corn in 1997/98 and farmers only received $2.45, a loss of $.43 on every bushel. Based on USDA projections for 1998/99 yields, the cost of producing a bushel of corn will be about $2.82, using the questionable assumption that input costs did not go up since 1995/96. Even using the $2.82 figure and optimistic yields, farmers will only receive $1.95 per bushel, a loss of nearly $1.00 per bushel.
"That record can hardly be considered as bringing profitability to corn production under the 'Freedom to Farm' law," McGuire adds. "This data isjust more glaring proof that this farm law is not about helping farmers at all. It is clearly about subsidizing multinational grain processors, grain traders and grain exporters on the backs of farmers. This farm policy forces farmers to use the equity in their land and equipment to subsidize that handful of multinational corporations that were already some of the most profitable corporations in the U.S. and world economies before the 1996 farm law."
FLAWED ASSUMPTION #6:
Current farm and trade policy, including funding the IMF, World Bank, etc. and bailing out failing foreign economies enhances U.S. export potential.
But here again the reality, McGuire insists, is that the U.S. federal treasury has been and is being used to finance the very foreign competitors that U.S. farmers are told this farm program helps us compete against in the world market.
"That's nonsense! Those conflicting policies are working at cross purposes. Indeed, IMF policies work against U.S. competitiveness."
A most recent example of these "conflicting policies" can be seen in Brazil which recently received a $41 billion IMF bailout. Following IMF guidelines, Brazil then devalued its currency (the real) which raised the domestic Brazilian soybean price by nearly 30% since January 13,1999. Meanwhile, compare the cash soybean price of about $4.90 received by Central Illinois farmers to the price paid to central Brazil's Rio Grande do Sul farmers of $6.37 per bushel.
Far from helping make the U.S. more competitive, these policies have encouraged expanded soybean production in Brazil. Farm columnist Alan Guebert recently quoted a USDA economist who stated, "Look at it this way, says the staffer: Farmers don't sell beans internationally, they sell them domestically."
Again, referring back to IMF austerity policies in the context of extra Brazilian soybean production, that extra production must be sold mostly on international markets because a) Brazil cannot absorb the increase and, b) the country needs to generate cash through international sales to pay off its debts.
But those sales, Guebert emphasizes, when added to the already glutted global soybean market, will, of course, only drive world prices lower which, in turn, will encourage Brazil to export even more beans to generate the money it needs to meet its international debts. And it will have the beans to export because high domestic prices will fuel soybean expansion.
Guebert goes on to make a strong case for raising the U.S. loan rate on corn. He states, "If the corn loan rate isn't raised to atleast the par level of the soybean loan, U.S. soybean prices already at 12-year lows could drop even more."
"These facts," McGuire adds, "make an even stronger case for changing current farm policy! If our federal government is going to bail out foreign competitors in the interest of the U.S. and world banks, then our government owes farmers and the rural economy a much better farm program to offset the damage done.
"Neither U.S. farm policy nor our federal treasury should be subsidizing international bankers and our foreign competitors while wiping out our family farm infrastructure. The export of U.S. ag production technology should not have been subsidized and transferred to foreign competitors,but it was.
FLAWED ASSUMPTION #7:
Corporate concentration in agriculture provides benefits to U.S. consumers via lower food prices:
This flawed assumption is demonstrated by the recent takeover of the pork industry by mega factory farms and the resulting massive drop in pork prices received by family farmers demonstrating again that corporate concentration does not benefit consumers. Indeed, pork prices in the supermarket have not gone down while family farmers are meanwhile being forced out of business and while packers made record profits. Such concentration also ultimately poses serious issues for consumers.
Just as corporate concentration allows packers and their related mega hog factories to use predatory pricing to force farmers out of business, once the pork (beef, grain, etc.) production sector is in the hands of a few giant corporations, they will be able to dramatically raise the price of food.
McGuire challenged the testimony provided to the House Agriculture Committee by an economist for the Center For Study of Rural America at the Federal Reserve Bank of Kansas City who told the lawmakers that consolidation in agriculture is "generally a positive trend that leads to lower-priced and higher quality food for consumer."
"Ask the consumers," McGuire implored the Committee, "who have dealt with e-coli or other dangerous micro-organisms that have shown up at the same time that the concentration trend has escalated in agriculture, if consolidation leads to higher quality food."
McGuire also suggests that the large money center banks have a conflict of interest relative to corporate concentration and consolidation. He quotes the president of the Independent Bankers Association of America who recently wrote:
"If small farmers leave the business and their land is taken over by large farms the lending business heads toward large cooperatives, the Farm Credit Banks or large commercial banks. Family farmers are vital customers for rural banks but generally have not done as well as "mega-farms" in recent years. Our bread and butter, day in and day out, is the small farmer, the small business and consumer loans. That's what we do.
FLAWED ASSUMPTION #8:
Lower loan rates and eliminating set asides were necessary in order to achieve "planting flexibility."
Yet the reality, McGuire declares, is that planting flexibility will work just fine with both higher commodity loan rates and voluntary acreage set asides.
Excerpted from THE AGRIBUSINESS EXAMINER. Past issues of the newsletter can be found at the Corporate Agribusiness Research Projectss web site on the Internet. http://www.electricarrow.com:
