Dakota Marketing Coalition, National Farmers Organization, and South Dakota Farmers Union brought a couple of speakers to Aberdeen Monday evening to talk about the chronically dire financial position of American farmers and ranchers. As I waited for the program to start, I heard one of the guys behind me (very few gals attended) joke to his compadre, We don’t have to register Democrat at the end, do we?
I saw no voter registration forms in the hall… although Ron Wieczorek and a guy from D.C. were at the door promoting Lyndon LaRouche, a Hamiltonian National Bank, and fusion power as the solutions to farmers’ problems and everyone else’s.
I dig fusion, but our NFO speakers—NFO board member Frank Endres from California and Agricultural Policy Analysis Center director Dr. Harwood Schaffer from Tennesse—flew a flag in their speeches as unfamiliar to me as some of Ron’s LaRouchisms: parity. From what I gathered from the speeches, parity is simply farm-activist talk for a fair price, a living wage for food producers. I heard no quantitative threshold for parity—although USDA calculates “parity prices” based on farm prices, wages, rates, and taxes from 1910 through 1914, and Endres did have charts showing parity above 100% during the “Golden Era of Agriculture” from 1941 to 1952 and now at a meager 29%. Dr. Schaffer said NFO’s goal is 100% parity, which I must assume means not just breaking even but having enough left after paying Case IH, Monsanto, the elevator, the bank, and Uncle Sam to buy shoes and college and maybe some fishing tackle.
If free markets worked, we probably wouldn’t have two-and-a-half-hour meetings to talk about the lack of parity in farm prices. People making things of value would win fair compensation for the work they do. People making the most valuable things, things we can’t do without, like food, would get some of the best compensation.
But one main message of Monday night’s program was that the free market doesn’t work today in American agriculture. Endres noted that Adam Smith’s theory of supply and demand assumes that buyers and sellers have equal strength in the marketplace. Big-industry consolidation among ag suppliers (Monsanto, read Endres’s slide—Bayer, Chem China, Syngenta, DuPont) and buyer/processors (Cargill, Saputo, JBS, ADM, Tyson, Bungee) squeezes farmers, ranchers, and dairy operators from both sides. Unless ag producers form their own conglomerate (there’s the NFO/Farmers Union pitch!), they cannot compete against the oliogopoly vise.
Even if farmers can organize effectively and counterbalance the market power of Big Ag, they may not be able to get parity without government intervention. Dr. Schaffer noted that, just like healthcare, the food market “does not meet the textbook conditions of a free market.” Ag demand has low elasticity—we eat about the same amount of food whether prices are high or low. Ag supply has low elasticity, too—when prices go down, farmers don’t quit planting; they “maximize production to reduce fixed costs.”
Dr. Schaffer also rebutted the contention of the American Farm Bureau Federation that free trade is good for American farmers. He noted that since peaking in the late 1970s, U.S. exports of the eight biggest crops have remained mostly flat while imports have doubled. Since the implementation of NAFTA in the mid-1990s, U.S. stockgrowers have seen our negative trade balance in beef with Canada and Mexico go deeper. We import more livestock from 20 free-trade agreement countries than we export to them, while we maintain a positive livestock trade balance with the rest of the world.
The free market doesn’t serve American agriculture well; government apparently does. Dr. Schaffer argued that the four most recent periods of relative propserity for American agriculture all resulted from government decisions:
- During World War I, farm prices rose because the federal government asked for more hogs to make up for the decline in European production.
- World War II again drove ag production, but farmers benefited further from production supports maintained through 1952.
- The Nixon Administration laid the foundation for the 1970s farm boom by agreeing to Soviet purchases of U.S. grain to make up for crop failures down on the kolkhoz.
- In the past decade, corn prices went up when the Bush Administration briefly, minutely overcame Cheney’s petro-fixation and backed ethanol as a fuel additive.
With crop prices on course to remain low for the next decade, Dr. Schaffer contends that we need government action again, in the form of a good federal Farm Bill, to bring agriculture back to parity prices. He proposes a host of measures on which I will not pretend expertise, including a market-driven inventory system and a reform of crop insurance based on yield (“random risk”, in Schaffer’s words) and not on price (“systemic risk”).
The policies needed to restore fair prices in agriculture won’t happen by themselves. Farmers can’t just plow and plant, take their products to market, and hope everything works out. They’ll need to work together, in the marketplace and in Congress, and recruit allies to check the failings of the free market and win the parity prices that will keep them up on the farm.
That, and maybe fusion-powered tractors.