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US's Cheap Food No Bargain for Farmers

From Agribusiness Examiner #300 11/6/03
By Al Krebs

U.S TAXPAYERS PAYING A HIGH
PRICE FOR "CHEAP FOOD" WHILE
RURAL AMERICA DIES ON THE VINE

JOE ROTHSTEIN, USPOLITICSTODAY: Speaking of food, here are a few facts to chew on:

Since Congress passed the "Freedom to Farm" Act in 1996, the average price
to the farmer of the four major U.S. crops: corn, wheat, cotton and rice has
dropped by about 40%.

All of these commodities sell for far less than it costs the farmer to
produce them.

The difference is made up from direct federal subsidies totaling between $15
and $20 billion a year. From 1999 to 2001 nearly half of all farm income
from these crops came from government payments.

Say that again?

Yes, nearly half of all farm income came from checks the U.S. government
writes to farmers to fill the gap between production costs and selling
prices.

So the farmers are on a gravy train? Not exactly. About half of those
billions in farm payments goes to a few giant corporations such as Monsanto,
ADM and Cargill. Meanwhile, between 1996 and 2001, net farm income declined
by about 16*% and the exodus from small family farms accelerated.

And in case you are internationally concerned, here's another fact to chew
on: 96% of the world's farmers live in developing countries and those
farmers and their countries are being devastated by current low prices.

What's wrong with this picture?

Sounds like everything's wrong, doesn’t it?

U.S. farm policy is costing U.S. taxpayers tens of billions of dollars and
not helping U.S. farmers survive. Meanwhile, it is destabilizing developing
countries, causing the unrest we saw recently at the Cancun trade conference
and crippling our relationships with otherwise friendly governments around
the world.

Coalitions of protest are forming, and they include U.S. farm groups and
rural organizations. A few weeks ago many U.S. farm and rural groups met
with their Mexican counterparts in Iowa to share their experiences and talk strategy at
a forum sponsored by the National Catholic Rural Life Conference and
Catholic Relief Services.

Feelings there ran very high. The vice president of the Iowa Farmers Union
said under current policies, "rural America is dying on the vine. The U.S.
government basically wants to turn us into tractor drivers and barnyard
janitors."

Note to editors: Look for mass action protests in November and December.

So what's going on? To render a complicated story down to its bare
essentials, it's this:

The free marketers have done it again. They've applied free market ideas
where they don't work. By saying any farmer can plant any thing, any time,
anywhere, they have insured that there will be an oversupply. Oversupply
drives down prices.

When you have this situation in business, corporate decision-makers lay off
people and cut back on production and inventory until the market adjusts and
prices recover.

In agriculture, individual farmers, making individual decisions, don't lay
themselves off. Instead, they plant more crops to make up in quantity what
they are losing in price. But with all that extra food supply, consumption
doesn't increase. People can only eat so much. So prices keep dropping here
and on the world markets where the trans-national grain traders are dumping
the excess U.S. production at less than it costs our farmers to grow. It's a
deadly cycle.

The answer is obvious, and it's one the free marketers don't want to hear:
manage the marketplace, specifically the supply. Get a lot of the land out
of production so that prices will rise and everyone can make a living.

The U.S. used to have such a program. Excess crops could be stored until
climate or other conditions caused production shortages. Then the stored
crops would be sent to market to stabilize supply and prices, or donated
through our private voluntary organizations to the millions of poor around
the world who are going hungry despite the record low grain prices. The
government loaned the farmers money for storage and got its money back when
the stored products were sold. If farmers defaulted on their loans (only a
small fraction did) the government sold the grain and kept the money,
usually at higher prices than it paid for it. It wasn't a perfect system by
any means, but it was a lot cheaper for the taxpayers and more predictable
for the farmers.

That type of system doesn't fit in with the Deregulate Everything,
Laissez-Faire Above All philosophy tha'’s now driving all White House and
Congressional decision-makers. Besides, Congress just renewed the farm
program in 2002 for six years. Let sleeping dogs lie.

Problem is, this dog is not asleep. In fact, it's getting very angry. So far
you've only heard the growls from farmers and governments in underdeveloped
countries. You're about to hear a lot of loud snarling from the American
Heartland --- just before all of those red states go in to vote.

Joe Rothstein, editor of USPoliticstoday.com, is a former daily newspaper
editor and long-time national political strategist based in Washington, D.C.

PURDUE ECONOMISTS SEE U.S.
POSSIBLY EXCEEDING AGRICULTURAL
EXPORTS WITH IMPORTS BY 2007
IF CURRENT TRENDS CONTINUE

STEVE LEER, PURDUE UNIVERSITY: For more than 40 years the United States
has exported more agricultural products than it has imported. That could
change within a few years, said two Purdue University agricultural
economists.

The gap between American export and import values is narrowing, said
economists Phil Paarlberg and Phil Abbott. They predict imports could
overtake exports by 2007, if current trends continue.

U.S. agricultural exports are projected to climb by $500 million in the
coming fiscal year, which begins in October, to $56.5 billion. Imports are
estimated to jump as much as $3.5 billion in 2003-04.

"What we've seen in the last several years is that agricultural exports have
been relatively flat in real dollars while imports have been rising quite
rapidly, even through our so-called recession," Paarlberg said. "A couple of
years back imports were $41 billion, and last year they were $45 billion. W
e
expect them in the coming year to climb to $47 billion or $48 billion.

"The last time we were a net ag importer was in the 1950s."

Fiscal year 1958-59, to be exact. At that time Europe had completed the
rebuilding of its agricultural industry following World War II, and demand
for U.S. agricultural products stagnated.

The current sluggishness in the U.S. ag export trade dates back to 1996.

The rise in imports is closely tied to diet and lifestyle changes, Paarlberg
said. Americans are consuming more foods either that aren't produced in the
U.S. or produced in insufficient volumes to meet consumer needs, he said.

"Take a pizza," Paarlberg said. "If it's got black olives, where did they
come from? They probably came from Morocco. If it's got sausage, that might
be from a hog that came from Canada.

"If you go to a Mexican restaurant and order guacamole, chances are that
came from outside the country because we don't produce that many avocados.
We import even simple things like babyback ribs. We kill 100 million hogs a
year, but we eat so many
babyback ribs that there's a good chance those ribs came from Denmark."

Many restaurants stopped serving ribs two years ago when an outbreak of
foot-and-mouth disease in Europe stemmed the flow of livestock imports into
the U.S., Paarlberg said.

But Abbott said Europe's refusal to accept genetically modified (GMO) grain
has little to do with the tightening ag trade balance. The U.S. is a world
leader in biotech crops, which are genetically modified to resist insects
and herbicides.

Instead of looking across the Atlantic Ocean, U.S. exporters should be
focusing their attention on the other side of the Pacific Ocean, Abbott
said.

"We put too much emphasis on the European market," he said. "The markets
that really matter to agriculture now are in Asia. I think it's a bigger
concern what the Chinese do with GMOs than what the Europeans do. There's a
big uncertainty in how the Chinese are going to handle the trade agreements
they've made with us. Those agreements revolve around a lot of technical
issues in terms of inspections at the border and
approvals and whether the agreements are temporary or permanent. We're
watching that play out now."

Abbott said it is a misconception that the rest of the world relies on
American farm products for survival.

"The thing we need to remember is that in the rest of the world most
countries are reasonably self-sufficient in agricultural commodities," he
said. "Other nations produce most of their own needs, and trade meets a
fairly small portion of those needs.
Trade policy is important in determining how much countries let in at any
given time."

Agricultural exports will continue to be a major segment of U.S. trade, even
as import values grow, Abbott said.

"We need to understand that the products we're importing are different from
the products that we're exporting," he said. "There's a danger in looking at
agriculture as an aggregate sector and not understanding that there's a
great deal of diversity in that sector. Some parts of agriculture will
always be competitive with the rest of the world, and there are some things
that we're better off getting from the rest of the world, and we should
import them."

U.S. import-export trends actually prove how strong the nation's economy and
agriculture are, Paarlberg said.

"Gains from trade occur on the import side," he said. "You export
commodities in order to pay for the commodities that you import. The benefit
is on the consumption side, not the sale side.

"I think we get that confused all the time. We think mercantilist --- we
need to sell, sell, sell. But why are you selling? So that you can buy other
goods from overseas."


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