Category Archives: over-production

Farmers Should be Protected During the Long Periods of Low Prices

This post is by Daryll E. Ray and Harwood D. Schaffer of the Agricultural Policy Analysis Center, University of Tennessee, in Knoxville. They write Policy Pennings, and I use their excellent analysis on this site from time to time.

Today’s writing by Harwood and Schaffer tells us that long periods of low prices which don’t cover crop inputs historically can last a very long time and thus they need greater policy support. (My impression is that the latest farm bill supports farmers better during periods of low prices – readers in the know are encouraged to weigh in to help enlighten us.) Beyond that issue we should perhaps be asking ourselves instead why our policy covers these monoculture crops so heavily in the first place, when the end result is always overproduction.—Kay M.


Commodity policy choice: Treat the symptoms or address the cause of low crop prices

When it comes to developing policy prescriptions to deal with the dynamic of long periods of low prices interrupted by much shorter periods of high prices, two approaches are possible: one approach provides symptomatic relief and the other treats the cause of low crop prices. One must choose one approach or the other.

If policy analysts develop and policymakers adopt public policies that treat the proximate cause of low prices—the presence of a supply that exceeds demand—there is no need for symptomatic relief. On the other hand, providing symptomatic relief (to short term price disturbances when prices are high and little relief when prices are low) ultimately becomes very expensive and risks losing public support for agricultural programs when farmers need them the most.

For many years, agricultural economists understood that agriculture was different from many other sectors of the economy in that an oversupply of grain and oilseeds and the ensuing low prices did not bring about a timely self-correction in agricultural markets. Low crop prices did not cure low crop prices within a reasonable time frame.

In other sectors of the economy, low prices cause suppliers to reduce their production of the item in excess supply and consumers to increase their purchases. The result is that supply and demand come back into balance at a profitable price level quite quickly. This timely self-correction does not occur in agricultural commodity markets.

Because they understood the dynamics of the market, policy analysts worked to develop policies that would isolate a portion of the supply from the marketplace, bringing about a balance between supply and demand and the return of prices that kept producers in business. To keep from accumulating ever-larger isolated stocks, policies were also developed to reduce production to allow demand to catch up with production.

Understandably, farmers were often frustrated with these policies. And from the perspective of an individual farm operation this made sense. If they had been allowed to produce more they could have earned more, they reasoned. And that is true for an individual farm. But when all farms seek to increase production, the result is an oversupply that drives prices downward for everyone, and the size of the decline in prices is greater than the increase in production.

In recent years, policy makers and many agricultural economists have simply chosen to ignore these dynamics and instead argue against policies that manage supply. In place of traditional supply management policies, they have advocated for policies that use crop insurance to protect farmers against variations in prices—symptomatic relief.

The problem is that these policies only work well when prices are at or above the cost of production. If prices remain low for an extended period of time, farmers end up paying premiums for policies that do not even cover the cost of production.

We understand that farmers do not want to hear this kind of analysis; they would rather hear about booming export demand, a growing ethanol demand, and a new “price floor.” When we are invited to speak to farm groups, producers come up afterwards and emphatically say, “I don’t like what you are telling me!” and then they continue, “But I needed to hear that.” When prices were high, many economists were telling farmers that there was a new price floor undergirded by increased input costs.

During this period, we continued to tell farmers about the low prices that would come when the yearly increases in ethanol demand began to stagnate and supply continued to increase. We cautioned farmers to put some of the increased profits in the bank instead of buying lots of new machinery and driving up the price of land. Today, some of those who talked only about high prices and a new plateau are saying to farmers, “I hope you put some money away during the good times.” Good advice, but a couple years late.

The trend in recent decades is toward policies that tend to provide producers with little income support when prices are low for an extended period of time. As a result, the associated costs of maintaining a vibrant agriculture can actually be more costly to U.S. taxpayers through emergency programs/payments. Failing that the results could be devastating to a large swath of farmers. For farmers in less developed countries, lower prices have severe consequences. When prices are low in countries where agriculture is a large portion of the economy, the impact on the economy is severe.

The challenge of policy analysis is not to design public policies that make the good times even better; rather it is to have policies in place to help protect farmers during the long periods of low prices. Over the last century, the periods of low prices have been much longer than the boom times.


Photo: FlickrCC by Rae Allen, c.1958.

Financial Times Features Global Grain Surplus Story Plus Video

The Financial Times and commodities writer Gregory Meyer are known for their quality articles. They’ve covered the U.S. and global surplus of grain story in an article including a video (below).

Story here: Commodities: Cereal excess By Gregory Meyer. “Global grain supplies are soaring, which will cause an eventual slowing of food price inflation”

Remarkable Graphs of Corn & Soybean Profitability

CORN

Blue blocks: Profitable time periods. Note that I’ve altered the graph by adding red and blue blocks to show profitable years vs. profit-loss years. Source: Ag Cycles: A Crop Marketing Perspective By Chad Hart/Iowa State.

The remarkable graph above, showing corn profitability since 1972, says it all.

The article in which the graph is embedded, by Iowa Ag economist Chad Hart, begins like this… “Over the past seven years, corn and soybean producers in the United States have enjoyed their best run of returns in history.”

Hmmmm. Let me think. What happened about seven years ago?

After that he explains that profitability is cyclical in a competitive industry such as commodity farming, and that “economic theory indicates the long-run profitability of a competitive industry is zero.”

Hart says, “When we examine the average return to a bushel of Iowa corn over the entire time period from 1972 to 2012, it is a positive 5 cents per bushel. However, if you looked at 1972 to 2011, the average return was negative.” !!!

He then warns of a near-term downward cycle of lower commodity and farmland prices.

It’s already happened. Corn prices have fallen. This year’s producers who are renting land that is priced according to yesterday’s profits, may see a tough bottom line.

Unfortunately, from there on out in this paper, Hart goes off on economist tangents about interest rates and input costs during recessions that aren’t as relevant as what I see as the biggest story when one talks about an over-produced commodity crop, which is policy. Furthermore, policy is what has driven down exports and feed demand for corn in recent years.

If we were dealing with a commodity that feeds the world’s growing populations, like Jim Rogers always tells investors, the price of corn would go up because of natural, growing demand. Instead, we’ve had overproduction of corn for decades on end, and it feeds agribusiness, not the world’s growing populations. The Energy Independence and Security Act of 2007 created a new and rapid demand for this input-heavy crop, rewarding the producer, the machinery maker, the fertilizer, seed, and chemical companies. Policies have supported corn growing both on the demand side, and through direct payment programs and crop insurance.

If we really wanted food and energy security, we’d promote fuel efficient vehicles instead of Chevy Tahoes and F350s that burn E85, and we’d preserve our soil, waterways, biodiversity, and aquifers so that future generations have healthy land on which to grow food.

Corn and soybean production in America today is mostly all about policy.

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SOYBEANS
Also interesting is the same information on soybean profitability as viewed on the following graph:

Source: Ag Cycles: A Crop Marketing Perspective By Chad Hart/Iowa State.

We can generalize that soybeans have, on average, had more profitable years than corn. They have enjoyed a boost in price, too, as a consequence of ethanol’s recent, large demand for corn. Plus, around 15 percent of our nation’s soybean crop is going to produce biodiesel these days.

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SOURCE: Ag Cycles: A Crop Marketing Perspective

Synthetic Biology. What Does it Mean for Agriculture?


Today’s post was prompted by an invitation from Andrew Revkin to join in on a discussion spawned by his recent post at NYTs “Dot Earth” titled, “Will Synthetic Biology Benefit or Threaten Wild Things?”. A recent conference at Cambridge University brought together two unlikely groups for a groundbreaking conversation between conservationists and synthetic biologists over the subject of synthetic biology. The two groups attempted to discuss all aspects of the subject — including ethics, the science, concerns, regulation, purpose, and the technology’s potential. The groups also speculated as to whether synthetic biology that utilizes plants for food, energy, and medicine might lead to an increase or loss of biodiversity. The framing paper for the conference was “How will synthetic biology and conservation shape the future of nature?

FIRST, NOTES FROM the CONFERENCE’S FRAMING PAPER
I’ve read through the lengthy paper and will share with readers here a few of the key points and statements made. The framing paper for the gathering was a very worthwhile read and the authors did a good job of at least touching upon many of the issues surrounding the use of this new science. The importance of global awareness concerning this subject cannot be overestimated since today’s DNA lab technology which is becoming very accessible and less expensive makes for a great deal of future uncertainty, with the potential for really good or really bad to come of it.

Underlying questions from the conservationists are, “do we really need this technology?” and “do the scientists really know what they are doing?” This new field of biological engineers appears reckless at times to the conservationists because of their prevailing enthusiasm and optimistic outlook about a technology that is so difficult to predict at this point. Both sides see that it is coming at us rapidly and is unstoppable, however, and so the discussions need to begin.

First, the paper’s three “concepts” of synthetic biology:

● “the design and construction of new biological parts, devices, and systems and the re-design of existing, natural biological systems for useful purposes”
● “a scientific discipline that relies on chemically synthesized DNA, along with standardized and automatable processes, to address human needs by the creation of organisms with novel or enhanced characteristics or traits”
● a scientific focus on the design and fabrication of biological components and systems that do not already exist in the natural world, and on the re-design and fabrication of existing biological systems

Or, as explained by Paul Freemont of the Centre for Synthetic Biology at Imperial College in London, “We can now chemically synthesise very large sections of DNA, and that allows us to design biological systems from scratch, just as an engineer designs and builds a piece of equipment starting from basics.”

The paper also sums up the six sectors in which innovation of synthetic biology will have an important role to play:

● bioenergy: synthetic fuels, biofuels, electricity, hydrogen, etc.
● agriculture and food production: engineered crops, pest control, fertilizers, etc.
● environmental protection and remediation: restoration, monitoring, detection, etc.
● consumer products: computers, sporting goods, cosmetics, etc.
● chemical production: industrial compounds, high-value compounds, plastics, chemical synthesis, etc.
● human health: medical drugs and devices, over-the-counter medicine, clinical therapies, etc.

This field has taken on a life of its own due to economic incentives:

In 2010, U.S. revenues from genetically modified systems reached over $300 billion, or the equivalent of more than 2% of GDP. These impressive revenues are generated within three sub-sectors: genetically modified drugs (i.e., “biologics”) at $75 billion; genetically modified seeds and crops at $110 billion; and industrial biotechnology (e.g., fuels, materials, and enzymes) at $115 billion. U.S. biotech revenues are growing at an annual rate of approximately 15%. Global revenues are similarly growing at a rapid clip; China and Malaysia may each have biotech revenues in excess of 2.5% of GDP, and both countries plan to at least double that share by 2020. These revenues are primarily generated through the application of more than three decades of experience with recombinant DNA technology. In this context, a very generous estimate of 2012 total international revenues from synthetic biology would be $1 billion, primarily consisting of engineering tools and reagents, including synthetic genes.

The paper points out that our own Obama administration has embraced “garage biology entrepreneurs” here in the U.S.

The relevant document, signed by President Obama, can be paraphrased as “garage biology is good and necessary for the future physical and economic security of the United States.” This position acknowledges the historical analysis that because entrepreneurs and small organizations – i.e. “garages” – have been critical drivers of diverse technological innovation in the U.S. for several centuries, so are garages likely to be critical for future innovation in biotechnology.

And it really entered the Star Wars realm when it quoted this, by Freeman Dyson:

“Genetic engineering, once it gets into the hands of housewives and children, will give us an explosion of diversity of new living creatures, rather than the monoculture crops that the big corporations prefer. Designing genomes will be a personal thing – a new art form, as creative as painting or sculpture.”

So much of this discussion potentially relates to agriculture. The authors of the paper, Kent H. Redford, William Adams, Georgina Mace, Rob Carlson, Steve Sanderson, and Steve Aldrich, admit that a discussion of conservation and biodiversity as it relates to synthetic biology must address the topic of land use changes, and so far, the most important category for land use change has come from biofuels policies.

A few things that synthetic biology might bring to us in agriculture are: the ability to raise crops using fewer pesticides; an offer of greater food security; improved nutrition; livestock which produce medications or biological substances such as spider-silk; and an optimal source of biofuel. For our health, we may see new ways to target infectious diseases and cancer, develop vaccines and cell therapies, enable regenerative medicine, or make cancer cells self-destruct. The potential seems limitless.

The paper’s bioethical discussion was on target for including this key paragraph:

Synthetic life delivers private benefits. Many forms of life being developed by synthetic biology are being patented. The benefits provided by these organisms will reflect the economic interests of those able to invest in and develop them. This may well favor applications in existing industrial processes and commodity chains (energy, agriculture, aquaculture) and the operations of large business corporations. Impacts on the wider environment will tend to be treated as an externality. Corresponding impacts on price and other economic changes for smaller producers (e.g. smallholder farmers) will affect their decisions about land conversion and management, and hence future patterns of biodiversity loss. How will a balance be struck between private risk and gain versus public benefit and safety?

One point that the conservationists make is that good conservation means preservation of the natural evolutionary process of natural selection. Yet, progressive conservationists recognize that there is potential for synthetic biology to increase biodiversity, too.

Not to be overlooked, the paper noted that “population growth (and corresponding consumption) are key macro-scale drivers of biodiversity loss. It is unclear what role synthetic biology and its products will play in these relationships.” But in fact, I might argue that a bigger driver is the opportunity to profit from using land for production purposes.

REPORTS FOLLOWING the MEETING
Science writer Julie Gould covered the conference here. Gould said that the new phrase which is catching on is “biology is technology”. She reported that the conference included mention of an impressive science project by Christopher Schoene from Oxford University, who was part of an Imperial College team of undergraduates that entered the iGEM competition. In a period of ten weeks the team created a bacteria, Auxin, that they believed would be useful in solving desertification which is a huge problem in the poorest agricultural regions of the world. They engineered E coli bacteria to contain sets of genes with growth hormone and also with malate, a root detector. The bacteria were able to swim towards roots, become absorbed by the roots, and then release hormones to stimulate growth.

Ed Yong also wrote about the conferenece. He said that synthetic biology is “grander in scope than most genetic modification, which involves modestly changing a few genes. By contrast, synthetic biologists work with large networks of genes,” thus a new acronym, SMO. I enjoyed Yong’s quote of conference organizer, Kent Redford, from the Wildlife Conservation Society, “Conservationists get more pessimistic when they drink, but synthetic biologists only get more optimistic.” After all of the reading that I did about the event, the subject, and its take-aways, that statement summed it all up as well as any.

The Guardian covered the conference by focusing on a recent lab achievement to produce the anti-malarial drug, artemisinin, which has heretofore been obtained from leaves of wormwood grown by African and Asian farmers. Re-engineered yeast can now do the job in vats, so the farmers have lost their product. Along with that loss may come the loss of the plant’s diversity and a new, less desirable “monotherapy” drug. Critics say the new drug production method is potentially damaging, entirely unnecessary, and causes harm by taking away the livelihood of poor farmers. The Guardian goes on to say that similar stories will soon be told for vanilla farmers, patchouli farmers, rubber producers, coconut farmers and saffron growers. Synthetic biologist, Jay Keasling, says that “anything that can be made in a plant can now be made in a microbe”.

While many of these vats of production may help save biodiversity in some regions, they clearly come with new economic winners and losers and have an impact on human jobs.

Finally, here is the twitter feed from the event for anyone interested.

SYNTHETIC BIOLOGY, AGRICULTURE, and LAND USE CHANGES
This story is obviously huge for agriculture and has the potential to change it immensely. Is the sky the limit? I’m glad to be in new media and not a book writer, because any book written today would surely be old news by the time it was published.

An article by Eric Hoffman, “Food Made from Scratch”, tells us that Monsanto has recently joined with Sapphire Energy in an algae venture, and that J. Craig Venter has formed a new company, Agradis, which will use synthetic biology to create higher-yielding castor and sweet sorghum for biofuels, among other things. He also reports that researchers at the Department of Energy’s National Renewable Energy Laboratory (NREL) believe that they will be able to improve the efficiency of photosynthesis, using amino acid building blocks to build plants from scratch.

But skeptics at the conference also questioned how much is really possible. My impression is that Venter’s life ambition a few short years ago was engineering algae to solve our energy problems. It would now appear that since that started looking too difficult to him as suggested in this recent Rex Tillerson interview by Charlie Rose, he’s moved on to working with other crops. Biologists, even if some of them see their new role as technologists and engineers, do still have to work within the laws of physics. How much improvement is actually possible for increasing the efficiency of plant photosynthesis?

I was very intrigued by one of Julie Gould’s quotes from the conference:

It was interesting to see how the developed and developing countries saw the situations in very different ways. When it comes to land use for agriculture, the developed countries said that farming should intensify on the land being used already, so that no more needs to be used. People from developing countries said that the demand for food should be reduced.

If developed countries are suggesting that by further crop intensification they can reduce land use, that certainly is not what has happened so far, not since GMOs were introduced and not since biofuels policies were set in 2008. This is a false pretense and I would hope that someone at the conference pointed that out. If the developing world wants to see the demand for food reduced, I’d interpret that to mean they’d like to have lower food prices, and less food for fuel. But, developing world food producers do benefit from higher food commodity prices, too, as explained in this Stanford presentation about how biofuels policies have changed the economics of global agriculture and the global ripple effect that they have.

Next, let’s look at some statistics that have resulted from business related to synthetic biology using the historical time period available to us so far.

● In the past six years, since U.S. ethanol mandate became law, 123 million new acres around the world have gone into production. Most of those acres were in China, India, Africa, and South America. This is one of the ripple effects of the new demand and consequent higher prices created by biofuels policies.

● Also in the past six years since U.S. ethanol mandate became law, we saw our U.S. Conservation Reserve Program (CRP) land diminish by almost ten million acres. The economic incentive to grow crops on marginal land now outweighs what the government is willing to pay landowners to idle their land.

● Genetically modified crops have been used for commercial production since the 1990s and today, 29 countries are growing GM crops on a total of 160 million hectares according to ISAAA. And, that number is growing very rapidly.

Biofuels and industrial methods of agriculture using biotech seeds go hand in hand. With the cost of agricultural inputs headed ever higher, at today’s production levels neither biofuels nor industrial methods of agriculture could survive economically without the other. For this reason, lobbyists are motivated to see that the economic benefits for agribusinesses provided by biofuels policies remain in place. So, in a sense, overproduction of biotech monoculture crops has led to a government policy prescription demanding their use.

Synthetic biology is also selling itself because of its potential for greater efficiency. Let’s look at what greater efficiency has done to society recently. In agriculture, production efficiency leads to less profit, begging for more production and continually squeezing out the smaller players. That’s why farms continue to trend larger and the number of people farming continues to decrease and get older. In industry, the efficiency created by robotics is contributing to the loss of much needed jobs. At what point do efficiency gains become self-defeating?

How can we extrapolate the biofuels story to predict how other uses of synthetic biology will play out? One thing is for sure, we are adding new layers of complexity to our agricultural production system by using synthetic biology. And complexity, because the public is unable to understand it (we need look no further than the banking world) creates opportunity for political opportunism motivated by economics.

Will the added complexity eventually make us more or less secure? I expect many wonderful and useful technologies to emerge from the scientific applications of synthetic biology which we will be grateful for once we have them. Some could even “save the world”. Or destroy it. But, these achievements may come at a steep price and greatly challenge our human value systems.

My Letter to Harper’s Concerning their “Broken Heartland” Story


Mammals are the dominant terrestrial vertebrates of the Cenozoic.
Photo: Wikipedia.

Because long-time reader, Steve, a wheat farmer in Washington State who grows wheat for Shepherd’s Grain, tipped Harper’s off to this site upon their publication of the July issue that contained two articles about agriculture, an editor there contacted me and asked if I’d contribute a follow-up letter. I did, and here is a slightly modified version. (Note that this was written a few weeks ago, before the drought of now.)

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What a delight to read two pertinent articles about agriculture in the July issue of Harper’s. Wil Hylton’s subject of the demise of the Great Plains is as interesting today as it was in 1987 when the Poppers coined the phrase “buffalo commons”. Dan Halpern described what is happening behind the Walmart grocery store scene as it has rapidly transitioned to buying ten percent of its food from local farm growers. Since Walmart now makes more than half of its revenue from grocery sales, this has significant repercussions.

The loss of 98 percent of the short and tall grass prairies from the middle of this country a little more than a century ago is now taken for granted by our citizens. They think it is normal to see huge corn fields irrigated with center pivots when they gaze down below from their airplane windows. It is unfortunate that the Homestead Act didn’t preserve large swaths of the rich grassland ecosystems. If it had, this would be a richer nation today, and hunting and tourism on preserved prairies might provide a surprising level of economic activity. Instead, we have exploited our natural resources of water, soil, and biodiversity in the Midwest to attain profits mostly for a short list of agribusiness companies. In Iowa, in 2007, soil erosion was 5.1 tons per acre, down from 7.4 tons in 1982. The loss of soil caused by growing annual monoculture crops is an ugly truth seldom talked about. Civilizations never realize what a precious resource their topsoil is until it is gone.

The two largest land owners in America today are Ted Turner and his friend John Malone. Together, they own over four million acres of land, seemingly for stewardship purposes and much of it is grassland and grazing land for large herbivores including bison. In addition, Sean Gerrity, president of the American Prairie Reserve, is successfully funding his dream-come-true project of restoring Lewis and Clark’s idyllic northeastern Montana grassland landscape which spans 5,000 square miles. Today, if there is any hope, it is that the private sector may be capable of projects lacking will by the public sector.

Water is the topic of this coming century. This nation’s Southwest is expected to lose much of its water supply due to climate change. In this new energy age of difficult and expensive to extract oil from unconventional sources, a lot of water will be required — and contaminated. Fights will ensue. People will migrate.

In agriculture, when we export meat, dairy, ethanol, DDGS product, corn, cotton, wheat, soybeans, rice, and other food crops, we export large amounts of our water.

As for the exodus of young brains from the Heartland, this is happening everywhere around the world. A mass exodus of young people are gravitating towards cities in China, India, Africa and elsewhere. Farming is hard work in isolation and requires sweating. It requires taking on financial risks akin to gambling each year, and in reality, few want to do the job. Farms and the huge capital required for today’s modern equipment continues to trend larger. Efficiency gains with slimmer profit margins continue to rule the sector. Our mid-sized farms of today, which still dominate farming in America, could be gone in a decade. What could reverse that trend? In debt-ridden Greece and Spain, the high number of unemployed younger people are returning to the countryside to eek out a living not possible in the urban areas. It could happen here.

Corn richly rewards agribusinesses due to the high inputs required to grow it. Our ethanol program is dominated by these same agribusiness companies. The policy of using forty percent of U.S. corn for ethanol, or fifteen percent of the world’s crop, was created to boost a corn market which was failing to cover its input costs. As a consequence, today’s higher corn prices have driven greater production around the world and other nations are competing with us quite well. There is no shortage of food in the world, rather we have overproduction. If we grew just the foods that people need to eat such as dried beans, tuber crops, nuts, fruits and vegetables, and some grains along with smaller meat animals, we could have a biodiverse world with healthier populations.

Grocery stores need to charge what quality food is worth and the consumer needs to quit buying food that “doesn’t rot” as Joel Salatin would say. An organic farmer in my area recently said that grocery store vegetables are their loss leader, and that he is attempting to make a profit from the category that loses money at the grocery store. Unless you have a population of people willing to vote with their dollars through CSA memberships, people like him simply can’t make a go of it. And as long as the food processors and packagers reap a greater percentage of the consumer’s food dollar than the farmer does, the small farmer will become extinct as predicted.


Western Interior Seaway during the mid-Cretaceous, about 100 million years ago.
Photo: Wikipedia.

Speaking of extinction, during my 30’s I had the opportunity to collect fossilized bones from animals that roamed what is now the permeable Ogallala Aquifer region of central Nebraska in the Sandhills. I found bones of camels, rhinoceros, and prehistoric horses and dogs which had thrived there during the Cenozoic period. Many years prior to that, most of Nebraska was covered by the Western Interior Seaway.

The land and weather are never constant, but constantly changing. We humans are fairly insignificant in the overall scheme of things.