Charles and Sue are pork and
grain farmers in the Midwest
who have established themselves
as leaders in their industry.
Graduates of their state's land-grant
university, they are smart, energetic,
hard-working, and committed to
their profession and their community.
Their four children are also active
in agriculture.
The couple's 1,800-acre farm
yields enough food to feed more
than 125 people. Last year they paid
out almost $30,000 in property taxes that went to support
their community. They are the kind of people who
truly make our nation stronger.
Charles and Sue are successful farmers. But they are
also worried. Although demand for pork is up, the price
they get for their hogs has plummeted -- at one point
down 72 percent. Grain prices have also dropped.
The couple's production costs, meanwhile, have continued
to rise. As a result, Charles and Sue's income and
equity have declined markedly during the past two
years. Their intelligence, energy, and commitment simply
can't counterbalance market prices that are lower
than production costs.
Charles and Sue are model citizens and model farmers.
As good as they are, under current market conditions
they can sustain their farm only so long. Across our
nation, hundreds of thousands of other farm families are
experiencing similar financial stress.
Today's low commodity prices and depressed farm incomes
have raised doubts about the federal agriculture
program and prompted serious talk about alternatives.
For much of the past century, federal farm policy was
based largely on subsidies to individual farmers who
signed up to participate. When prices for certain commodities
fell below a set level, Washington paid a subsidy
to the farmer. To qualify, farmers had to adhere to
specific planting restrictions and conservation practices.
In addition, Congress and the executive branch periodically
approved emergency funds to help farmers cope
with floods, droughts, and other natural disasters, as
they just did in October.
The Federal Agriculture Improvement
and Reform Act of 1996 began
a seven-year phase-out of traditional
subsidy programs. During the transition,
participating farmers will
continue to receive annual payments,
but the payments will be successively
smaller and unrelated to
market prices or the farmers' actual
production.
Although subsidy programs
helped to stabilize farm income, they
did not stem the significant decline in
the number of U.S. farms. There are slightly more than 2
million farms in the United States today, down from 7
million in the 1930s. The commodity buying and processing
industries, meanwhile, have become highly concentrated
and monopolistic. Many farmers today have very
few buyers for their commodity. Thus, for most commodities
the farmer is a price taker. Except in times of significant
shortage, farmers can expect to get an unfair or
unprofitable price for their commodities. Leveling the
playing field in a manner that is fair to producers, buyers,
taxpayers, and consumers should be a major objective of
the next generation of federal agricultural policy.
Some politicians and scholars question whether there is
any appropriate federal role in production agriculture.
Such arguments ignore the national security and social interests
in ensuring that all Americans have a safe, steady,
and affordable supply of food. These interests are just as
valid as those underpinning the federal roles in energy,
housing, and health care policy. In addition, farming is
uniquely subject to severe weather that can literally destroy
even the best managed and most successful farms.
Washington has a legitimate role in helping agricultural
producers cope with the effects of uncontrollable forces.
Rather than focus on individual producers, the next
generation of farm policy should aim to encourage and
empower producer-owned and -managed cooperatives.
Just as a lone business owner has little leverage to negotiate
the cost and quality of health care for his workers, an
individual farmer has little influence over the price he receives
for his commodity. But in the same way that
health-care purchasing cooperatives use the power of
their numbers to obtain better and less expensive care,
farmers who pool their commodities enjoy more leverage
in the market. They become more significant players in
the economy --and less reliant on government support.
Under our current policies, Washington exerts some
control over the supply of commodities; under next generation
policies, the government would give producers
incentives and tools to better manage supply themselves
in the private sector. While many farmers are members of
cooperatives and while many cooperatives are successful,
cooperatives have not reached their full potential.
Farm cooperatives can balance supply with demand
for their commodities far more effectively than can individual
producers, which leads to prices that are more
profitable for farmers and less volatile for consumers. In
addition, cooperatives that "add value" to their raw materials
(for example, by processing their grain into pasta)
can sell at the next link up the economic food chain and
earn higher profits.
Producers aren't the only ones who can benefit from
such arrangements. Commodity buyers could reap economic
efficiencies by working with a smaller number of
seller cooperatives rather than with large numbers of individual
sellers. They also could work with cooperatives
to plan and manage the flow of future supplies, which
would help stabilize prices.
Government, too, would become more efficient and
effective by working with cooperatives rather than multiple
individual farmers. Cooperatives could even help
administer certain farm programs in partnership with
federal agencies. Taxpayers, shoppers, and family farms
in rural America would all benefit from a next generation
approach to agriculture.
Under this approach, the government would give farmers
financial incentives to form and join cooperatives. For
example, Washington could grant members of cooperatives
more favorable terms under the federal loan-deficiency
program, which helps farmers when market prices
for their commodities fall below a set rate. Widespread
introduction of cooperatives would lessen today's wide
swings in commodity prices, reducing the need for loan-deficiency
payments. More stable market prices could reduce
the cost of federal nutrition programs as well.
In addition to negotiating prices on behalf of members,
in some instances cooperatives could limit their
production for a time or hold their product in storage to
better balance supply with demand. There would be a
fairer distribution of economic power between commodity
producers on the one hand and buyers and processors
on the other.
Given the international dimension of agriculture, it
may even be desirable for U.S. cooperatives to work with
producers abroad. They could work with cooperatives in
other countries to strategically plan and manage agricul
ture production and marketing. With cooperatives assuming
a greater role in managing the production and
marketing of commodities, the federal government's role
in agriculture could be reduced.
With proper oversight, cooperatives could help administer
some federal farm programs and assume new social
responsibilities. For instance, cooperatives possibly could
sell crop insurance to their members at better rates than
farmers can now obtain. Cooperatives could also assist in
the delivery of loan-deficiency payments to their members.
With changes in certain states' laws they could begin
to provide health insurance to members at group rates.
As previously noted, cooperatives that process their
commodities into value-added products can earn higher
profits for their members. Congress and the executive
branch should explore ways to make the tax code more
friendly to such cooperatives without causing an undue
impact on the federal budget. A recent law providing a
capital gains tax break to sellers of processing facilities to
farmer-owned cooperatives in rural communities was a
good step forward. Washington could also be a partner
in establishing pools of equity capital to help cooperatives
finance the purchase of processing facilities and
other business activities.
Finally, regardless of the outcome of any future debate
on next generation agriculture policies, the federal government
should toughen sanctions against those in agriculture
who engage in unfair trading practices. Legislative
proposals now under discussion include giving the
U.S. Department of Agriculture authority to bring civil
actions under the Agricultural Fair Practices Act; requiring
good-faith bargaining among commodity buyers and
sellers; and adopting a dispute resolution mechanism.
The proposals sketched above are not exhaustive.
Indeed, cooperative-based farm programs represent only
one of four pillars for a sound federal agriculture and
food policy. The others are: fair and enforceable international
trade agreements, a workable and effective risk-management
program, and conservation management.
Managing a farming operation will never be easy. But
federal policy that encourages the creation and growth of
next generation cooperatives can dramatically strengthen
such operations, to the benefit of the entire country.
Federal policies that empower farmers can help ensure
a bright future for production agriculture in the
United States. They would give farmers a greater measure
of control over their livelihoods and make them less
dependent on government. More important, a next-generation
agriculture policy would stabilize the nation's
food supply and strengthen rural America.
