Talk on Agriculture and Food Security under the Free Trade Area of the Americas Negotiations: U.S. Agricultural Trade Policy and U.S. Family Farming (DRAFT)

Peasant Farming Forum: People’s Summit
Santiago de Chile – April 17, 1998

Steve Suppan, Ph.D. [email protected]
Research Director, Institute for Agriculture and Trade Policy (United States)
phone: 612-870-3413; fax: 612-870-4846

On behalf of the Institute for Agriculture and Trade Policy, I would like to thank the organizers of this Peoples’ Summit for the opportunity of discussing with you U.S. agricultural trade policy, family farming and food security. The talk I am about to give is somewhat schizophrenic because the way in which the U.S. government discusses U.S. agriculture is a kind of double-speak, a peculiar language whose cause I will try to explain.

U.S. agricultural trade policy is formulated and implemented in the name of all U.S. farmers. U.S. agricultural officials, agribusiness executives and trade negotiators speak as if their work benefited all farmers. For example, consider this remark by U.S. Secretary of Agriculture Dan Glickman: "Last year was an agriculture secretary’s dream – record farm incomes, record exports, strong prices, generous farm payments . . . our farmers and ranchers are phenomenally competitive. Our job is to keep them on a successful course."¹ But when the agricultural attaché of the U.S. Embassy in your countries tells you about how well U.S. agriculture is doing under its free trade policies, he or she is double speaking if it is stated or implied that most U.S. farmers are benefiting by U.S. agricultural policy. With five percent of landowners owning 75 percent of all U.S. farmland and four percent growing about half the nation’s food in 1996,² how are the rest of U.S. farmers doing?

Testimony about these farmers at 1997 meetings of the long overdue National Commission on Small Farms revealed the following: in 1994, 83.4% of U.S. farm households had earnings from farm income that put them below the U.S. federal poverty line; another 10.8% had earnings that were less than a $1,000 above the poverty line.³ With incomes so low that 57 percent of all dairy farmer qualified for federal food assistance programs in 1996, how do the remaining farmers survive?⁴ The first answer is that many of them don’t. From 1994 to 1996 about 25 percent of all U.S. hog farmers, 10 percent of all cash grain farmers and 10 percent of all dairy farmers went out of business.⁵ Those that survive do so by working off-farm jobs, renting out land and machinery to other farmers, selling off part of their land and/or machinery, and putting part of their land into conservation reserve programs in return for what will be a declining payment from the government. It is no wonder that headlines in U.S. farm newspapers read, for example, "Depression, isolation taking root in heartland," and "Western Output, Rock-Bottom Milk Prices Devastate Industry."⁶

As you can see by the following transparencies, handouts of which I have distributed, there is good reason to ask the question "Is there farming in agriculture’s future?" (ad lib commentary) Despite this sorry history of the farmer’s declining share of agriculturally generated wealth, agribusiness and the U.S. government never tire of pointing to agricultural exports as the promised land. Although U.S. agricultural trade largely benefits a very small share of U.S. farmers, because it generates, for example, an average 15% annual return on equity for agribusiness, compared to an average two percent return for all U.S. farmers,⁷ agricultural trade policy is a key component of U.S. trade policy. Let me now try to give an overview of some issues of importance to family farmers in the FTAA negotiating process.

Agriculture is one of the most complicated and controversial topics of trade policy negotiations. It has been among the few sectors accorded a separate agreement in multilateral trade negotiations. After considerable debate in Free Trade of the Americas (FTAA) discussion at the San José, Costa Rica trade ministerial in March, an Agriculture Working Group was negotiated as a slight concession by the United States to Brazil, which had insisted that there would be no FTAA without a Working Group on Agriculture.⁸ A U.S. Department of Agriculture report on March 26th predicted a less than one percent rise ($180 million) in U.S. farm income as a result of an FTAA agreement, if U.S. farmers become more efficient in the face of an three percent increase in anticipated agribusiness imports. One would imagine that after the glowing predictions and feeble performance for U.S. farmers of NAFTA, that the USDA would be shy about predicting any benefits. But if we concede the accuracy of this prediction, why all the controversy then over such a small projected market increase? U.S. agricultural trade policy advocates answer in two short words — the Europeans — in other words, the U.S. needs to hold on to the agricultural share of its so-called backyard.⁹

To judge by the short history of such Working Groups on Agriculture, the proceedings of the FTAA Group will be very contentious, perhaps enough to derail the FTAA process. Consider the Working Group's chief historical precedent: without the deal cut between the European Union and the United States to preserve their export subsidy programs and other forms of support to agribusiness, disputes over agricultural trade nearly sunk the Uruguay Round.

Agriculture hasn't become any less controversial since the signing of the Uruguay Round agreements. The food import bills jumped 68 percent for Least Developed Countries and 85 percent for Net Food Importing Developing Countries from 1993 to 1996, according to the Food and Agricultural Organization.¹⁰ How much of this increase was due to weather related crop failures compared to how much was due to Uruguay Round induced reductions in publicly held grain reserves is a matter of greater controversy. However, it is beyond dispute that the theory of comparative advantage, the intellectual bedrock of trade liberalization and structural adjustment, has not been shown to work for these countries, as the increase in the food import bill not been offset by a comparable increase in export earnings.

We may be in a trade policy world without protection for family farmers and for food security, but calls for protection still ring loud in trade policy circles. The chief protections called for by industrialized government officials — often once and future industry executives — are for complete and total investment and intellectual property protection. Such protections are of great interest to the agribusiness interests, who, for example, have threatened to move hog production from the United States to Argentina, or who are planning to license seed technology — formerly known as selling seeds — in Brazil. Protectionism, the ideology of capital, with no protection for anyone else involved in the trade investment process is a leitmotif of the IV Business Forum of the Americas. The main elements of the discredited Multilateral Agreement on Investment negotiations are succinctly and comprehensively conveyed in the recommendations of the Forum Working Group in March in San José, Costa Rica.

Nonetheless, I would encourage you to get involved in the Business Forum process through your trustworthy business colleagues, if only because the official reporting of the Forum continues to relegate labor, environment and other civil society organizations to outside the FTAA process: For example, in the Forum Workshop on "Standards, Technical Barriers and Sanitary and Phytosanitary Measures," the second recommendation, not at all proper to the terms of reference for such a Group is "We believe that the FTAA should not contain clauses related to the environment, labors [sic ] and other social issues so as to avoid such clauses becoming non-tariff barriers." Despite the creation at the FTAA trade ministerial in San José, Costa Rica of what U.S. Trade Representative Charlene Barchefsky called "an academic issues committee" for environment and labor,¹¹ I will discuss with you during the question and answer session about why it may be worthwhile for civil society to find business groups with whom to intervene in this Forum.

In a press conference on March 20^th, Ambassador Barchefsky alluded to one of the themes of my talk — the relation between agricultural trade and competition policy, and how this relation affects family farmers. Ambassador Barchefsky stated: "There are three broad areas that may intersect with competition policy. The biggest area is market access, a lesson of the Asian financial crisis. Second biggest area, agriculture. The Canadian Wheat Board, for example, which is a monopoly purchaser and seller. There's a competition policy element there. Third, in the dumping area . . . And we've no objection if [competition policy] is looked at in the context of the dumping law, [but] we're not going to repeal our dumping law."¹² Ambassador Barchefsky is referring here to the intersection of the FTAA negotiations between the Working Groups in Competition Policy; Subsidies, Antidumping and Countervailing Duties, and the newly created Working Group on Agriculture. (We can talk later about what the U.S. thinks has been taught by the crisis in Asia and the crisis of Wall Street bankers in Asia.)

Ambassador Barchefsky's refusal to consider repeal of U.S. dumping laws is not surprising. Such laws authorize the investigation of charges that foreign gods have been exported at unfairly low prices, thus harming domestic producers. Despite charges that dumping laws are merely new barriers to protect U.S. business, the frequency of anti-dumping investigations has increased dramatically since removal of tariff and non-tariff trade barriers following the signing of the Uruguay Round agreements.¹³ Since the U.S. Congress is considering approving legislation to establish a Section 301 law and bureaucratic apparatus to unilaterally determine and sanction all agricultural trade practices — not just dumping — that the U.S. government and its political constituents consider unfair to the U.S.,¹⁴ it would be most surprising if U.S. negotiators would put repeal of Section 301 or any so called trade remedy law on the table as a bargaining chip.

Nothing in the Uruguay Round authorizes the use of unilateral sanctions, such as Section 301, which certainly violate the spirit, if not the letter, of the claim of multilateralism in the Uruguay Round. Despite the widespread criticism of Section 301, the threat of Section 301 for U.S. agribusiness exports will be maintained, if only because one of the chief proponents of an agribusiness Section 301 is a likely presidential candidate, Senator Thomas Daschle of South Dakota. Since the use and/or threat of Section 301 is one of the favorite tools used by U.S. diplomats to achieve their ends, particularly in bilateral negotiations, there is likely to be great support for an agribusiness 301 in the State Department. Given the support for an agribusiness 301 authority, reducing the effectiveness of Section 301 will require a multilateral effort that would require the rest of the nations of the Hemisphere and the European Union at a minimum. However, any multilateral effort to outlaw Section 301 at the World Trade Organization could lead to U.S. Congressional calls withdrawal from the WTO.

Trade law specialists tell us that only the United States and Canada have experience in the Hemisphere in enforcing competition rules, with the implication that other prospective FTAA members should look to the U.S. and Canada as models.¹⁵ However, U.S. enforcement of anti-competitive business practices is extremely weak, particularly in agribusiness, and hence is vulnerable to criticism by those who charge that the FTAA will not result in more market oriented economies, but in further entrenchment of anticompetitive practices by transnational oligopolies. How weak is U.S. enforcement of anti-competitive agribusiness practices, you ask? Consider the statistics reported by U.S. Assistant Agriculture Secretary Mike Dunn in response to questions about a March 1997 U.S. Inspector General's report: from October 1994 to September 1996, the USDA Grain Inspection and Stockyards and Packers Administration (GIPSA) reported that it had received over 2000 of violations of GIPSA rules; in GIPSA's estimation 800 of the complaints pointed to clear violations of the law; due to chronic funding, staffing and training shortages, only 84 cases were investigated, of which three were forwarded for enforcement actions.¹⁶ How has the U.S. government responded to the findings of the U.S. Department of Agriculture’s own Inspector General?

Since 1989 ranchers and farmers of the Western Organizing Resource Council have been seeking U.S. federal rule changes in how meat packers are allowed to contract for cattle, hold them off the public market until the packers are ready to slaughter the cattle, and then keep the prices for the contracted cattle secret, so as not to encourage competition in the market place.¹⁷ The need for such competition is clear in the beef industry in which in 1997 three meat packing companies, IBP, Excel (owned by Cargill) and Monfort (owned by ConAgra) slaughtered about 83% of all beef.¹⁸ Numerous academic studies show that prices for farms fall and rural communities collapse when industrialized agriculture is able to concentrate its operations by means of such contracting practices. For example, a University of Nebraska study determined that when 10 percent of pork production is controlled by corporate contracts, the pork packers pay 6 percent less than they pay for hogs bought from independent hog farmers. When 50 percent of pork production is controlled by corporate contract, the price paid to independent farmers drops 26 percent. As you can imagine, with this kind of price drop, a lot of independent farmers go out of business, and the benefits go straight to corporate headquarters and not to the communities that support the farmers. A Virginia Polytechnic Institute study compared the economic benefits for local communities when 5,000 hogs are produced independently compared to 5,000 corporate contracted hogs. Independent farmers "produced 10 percent more jobs, 20 percent more retail spending and 37 percent more local per capita income."¹⁹

The small budget increase Secretary Glickman announced on March 24^th that he would seek from Congress to enforce anti-competitive agribusiness practices does not promise great change from the status quo. Neither does the Secretary’s announcement of further studies and better federal data gathering on cattle sales promise to improve this sorry record of competition law enforcement any time soon.²⁰ In the meantime, if U.S. government agencies hold seminars to show your governments how to write and enforce competition law, you may wish to get a second or third opinion from a U.S. farmer or rancher who has dared to file a formal complaint against a business on which his or her income depends, and then waited and waited and waited some more for enforcement of the law.

Those of you who would like to use trade policy as a tool by which to reform agricultural policies in your countries might want to consider analyzing the nexus of competition policy and agriculture so helpfully identified by Ambassador Barchefsky. How to act upon such an analysis will, of course, differ from country to country, but I hope I have made a case that such analysis and action are needed. Furthermore, remember the promise of U.S. agribusiness is that if they can not do whatever they want in the U.S., that they will move whole industries abroad. Consider, for example, the threatening prophecy of Al Tank, the director of the National Pork Producers Council, a group primarily representing the interests of the 40 largest hog producers in the United States: "There is absolutely no reason why hogs have to be raised in the United States. There are clearly people who are investing in Mexico today. There are clearly people who are investing in Brazil and Argentina today . . . These are U.S. entities. They realize what the opportunities are, and if they can't produce the product in the United States, they're going to be forced to take a look at some other places."²¹ Because the expansion of factory farming has been almost unregulated and because of the environmental, not the social or economic damage, resulting from factory farms, otherwise compliant government officials have been forced to listen to their rural constituents and propose some regulations, and even moratoria on further untrammeled expansion of the factory hog industry. Among the responses of the industry has been to hire private detectives to spy on family farm groups opposed to them and to threaten legislators with removal of the hog industry from their localities, states, and, per Tank's statement, even from the United States itself.

The struggle against industrialized agriculture and to restore competition to the agricultural marketplace in the United States is very much an uphill struggle. But it is one whose experiences we can share with you and from which we shop that you can learn, so that the FTAA process does not become another vehicle for eradicating peasant agriculture, family farmers and their rural communities. Thank you for your attention, and I look forward to our discussion.

References

1 "Remarks of Secretary Dan Glickman," 1998 Agricultural Outlook (Washington, DC, February 23, 1998), USDA release No. 0089.98.

2 "Depression, isolation taking root in heartland," AGRINEWS (rpt. from DALLAS MORNING NEWS), April 12, 1997.

3 "Statement of A.V. Krebs to the National Commission on Small Farms," Washington, D.C., September 12, 1997.

4 Philip Brasher, "Dairy Farmers Struggle with Tax Credit Loss," AGWEEK, March 31, 1997.

5 Guebert, ITC report, "Family Dairy Farmers Struggle to Survive," FARM AID NEWS & VIEWS, January 1997.

6 "Depression, isolation taking root in heartland," AGRINEWS (rpt. from DALLAS MORNING NEWS), April 12, 1997, and "Western Output, Rock-Bottom Milk Prices Devastate Industry," THE MILKWEED, August 1997.

7 "Statement of A.V. Krebs to the National Commission on Small Farms," Washington, D.C., September 12, 1997.

8 "Brazil Demands Farm Deal for FTAA," REUTERS, February 11, 1998.

9 "Trade pact iffy for farmers," (rpt. from Reuters) THE WESTERN PRODUCER, April 2, 1998.

10 "The Food Situation in the Least Developed and Net Food Importing Developing Countries," Food and Agriculture Organization (Rome, November 1997), 5.

11 Barchefsky Statement on FTAA Trade Negotiations," U.S. Information Agency, March 20, 1998.

12 Ibid.

13 Kevin G. Hall, "Americas await Mexico-Chile dumping pact," JOURNAL OF COMMERCE, March 30, 1998.

14 "Administration Endorses Broad Section 301 Law for Farm Exports," INSIDE U.S. TRADE, November 7, 1997.

15 Hall, Ibid.

16 Kathleen Kelley, "Audit blasts Packers and Stockyards Administration," ROCKY MOUNTAIN UNION FARMER NEWS, March-April 1997, and Bruce Ingersoll, "Farm Unit Antitrust Watchdog Lags in Meatpacking, U.S. Says," WALL STREET JOURNAL, March 13, 1997.

17 John D. Smillie, "Concentration Chronology: Enforcement of the Packers & Stockyards Administration Act, 1989-1997," WESTERN ORGANIZING REVIEW, November 1997.

18 A.V. Krebs "USDA & Anti-Trust Enforcement: Surging Ahead At Glacial Speed," AGBIZ TILLER, June 27, 1997 http://home.earthlink.net/~avkrebs/CARP/.

19 Joel Bleifuss, "In Hog Hell," IN THESE TIMES, March 31, 1997.

20 "Glickman Announces $30 Million Beef Purchase; Other Actions To Assist Cattle Industry," USDA press release No. 0131.98, March 24, 1998.

21 Bleifuss, "In Hog Hell," IN THESE TIMES, March 31, 1997.