Why Do We have Farm Program Welfare?

Iowa State’s Ag economist, Bruce Babcock, wrote an article for Choices Magazine following the 2014 passage of a new farm bill.

The section titled “Resiliency of Farm Programs” was a delight to read for its well expressed honesty. And, as I emphasized below, the real loss in this year’s bill is the fact that the funds could have been used in far better and more ethical, ways. (all emphasis mine)

Record crop income in recent years and subsequent record-high land prices make it absurd to argue that crop subsidies are needed to maintain agricultural production capabilities in the United States. And the argument that the food security of the United States depends on subsidizing production of crops is easily countered by the fact that 30% to 40% of U.S. corn production is diverted to produce ethanol while about 50% of U.S. wheat production is sold in export markets. Yet these two arguments continue to be the primary justifications put forth for crop subsidies.

The disconnect between a lack of an actual economic rationale for farm subsidies and their continued existence demonstrates that farm programs exist not because of a need to enhance social welfare but rather to meet the political objective of members of Congress to care for a constituency that lends them political support. Thus, it is not surprising that record farm income in the last five years had no real impact on the question of whether farm subsidies would continue. Farm income levels have no impact on the benefit of subsidies to farmers and, hence, they have no impact on the political benefits to members of Congress to provide the subsidies.

The outcome of the recent farm bill, in terms of what programs were adopted, coincides nicely with Becker’s theory of political competition with its focus on deadweight losses. The newly adopted programs will not lead to a significant misallocation of resources because program payments are decoupled from planted acreage. This attribute helped defuse opposition to the programs because, in one sense, they do no economic harm.

Unlike in some previous farm bills, the most important welfare costs of farm subsidies in the Agricultural Act of 2014 are not traditional deadweight losses, but rather the lost opportunity to use the funds for programs that unequivocally have the potential to increase social welfare. Examples include agricultural research, agricultural pollution prevention, invasive species control, transportation infrastructure investments, increased food quality and food safety inspections, and nutrition programs. But transferring funds from farm subsidies to these types of public goods will not happen without a dramatic increase in the political power of groups advocating for the public good, which is a daunting challenge, given the defuse nature of public good benefits and the highly targeted nature of the current subsidy programs to a relatively small number of farm households.

In another Choices Magazine farm bill passage article authored by Barry Goodwin and Vincent Smith, these key suggestions would help politicians vote for a better farm bill:

The Congressional Budget Office (CBO) has scored the 10-year cost of the legislation at nearly $1 trillion. However, those cost estimates are based on long-run price projections. If prices fall, as they have recently done, and remain at low levels, the actual cost of the legislation could be far more than what has been projected by CBO. The political dynamics underlying this rare example of bipartisan legislation are showing signs of changing and rhetorical arguments regarding the necessity of subsidies to “save the family farm” are wearing thin. House Republicans attempted bigger farm program spending cuts and proposed separating nutritional assistance from farm subsidies—a change that would make passage of such an immense bundle of subsidies much more difficult.

Yes, indeed. The farm bill needs to be separated from the food security programs and the politicians need to end the false outdated rhetoric telling us that the taxpayer money goes to saving family farms and stimulating rural development… false rhetorics that Tom Vilsack is frequently guilty of, I might add. Citizen apathy concerning legislation in flyover country helps them get away with it and the Iowa caucus helps motive them. It is time for change.

Finally, I can’t conclude any better than the above-cited article concludes:

In summary, from a short-term and longer term economic welfare perspective, the 2014 Agricultural Act generally appears mainly to be focused on transferring income to relatively wealthy farm families as well as some non-farm entities such as the U.S. mercantile marine and private insurance and reinsurance companies. It does so at the expense of consumers and taxpayers, the long-run productivity of the agricultural sector, and efficiently and effectively meeting humanitarian needs through reasonable reforms to international food aid programs. … And the legislation is likely to have such adverse effects for consumers and taxpayers that, in the aggregate, it will almost certainly reduce the economic welfare of the average U.S. citizen.

Pretty sobering words, I would say. Agree? Is anybody paying attention? Does anybody care?


sources:

http://www.choicesmagazine.org/choices-magazine/theme-articles/3rd-quarter-2014/welfare-effects-of-plc-arc-and-sco

http://www.choicesmagazine.org/choices-magazine/theme-articles/3rd-quarter-2014/theme-overview-the-2014-farm-billan-economic-welfare-disaster-or-triumph

Dr. Walter P. Falcon of Stanford Writes About Summer 2014 on His Iowa Farm

This is the third year in a row that I’m honored to present the reflections of Dr. Walter P. Falcon after he’s spent another summer season on his Iowa farm. His unique insights as an agricultural economist at Stanford/real world farmer are valuable and many. This year he talks about weather, policy, how wind energy expansion is impacting his rural community, cattle prices, and more. Enjoy.—-Kay M.

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“BLOWIN’ IN THE WIND” IOWA FARMER’S ALMANAC, PART III by WALTER P. FALCON*

It is August again, and my wife and I are back on our farm. We have a medium-sized operation in east-central Iowa that produces soybeans, alfalfa, and corn, and that also supports an Angus cow-calf herd. These summers are supposed to be quiet, relaxing times away from the bustle of Stanford University. However, the days here seem anything but tranquil. Two years ago my almanac report dealt with one of the worst droughts in Iowa’s history; last year the focus was on flooding and the wettest planting season on record. I suppose it is only fair that wind should be the main topic this year. For our rural neighborhood, only problems, not answers, seemed to have been blowin’ in it.

Two evenings after our arrival from California, we were sent scurrying to our doubly reinforced “safe” room in the basement. Warning sirens blared, all television stations went on emergency broadcasting, and the spontaneous neighborhood phone line magically got activated. Everything was for real, and all hell broke loose. Eighty-five m.p.h. flat-line winds, grape-sized hail, and buckets of rain. The power went out, and our safe-room conversation centered on whether or not to start our small generator—not for lights, but to assure that the sump pump continued working!

For a swath three miles wide and 15 miles long the tornado danced—jumping here and skipping there. Some farms were spared; others were pretty much demolished. We were moderately lucky. We lost an infinite number of branches and our largest oak tree—a four-foot diameter, 70-foot tall specimen. Entire trees were twisted off like toothpicks. Shingles from roofs went missing, as did white fencing. But we were among the lucky ones—no major buildings were lost and no people or animals were injured.

Two farms over, the five-bin corn storage unit took a direct hit. Two 120-foot tall elevators that lift grain to the top (called legs, although the anatomy analogy makes no sense) lay in a crumpled mess. These bins hold some 240,000 bushels of corn and there are massive amounts of steel involved. The broken legs looked, at 120X scale, like an angry third-grader had deliberately slammed his Lego creations onto the ground. The difference is that the repairs, labor costs, and replacement parts for the bins and legs total $750,000. Farmers soon began re-reading their insurance policies about acts of God, depreciation allowances, and the rules for full versus partial replacement.

The morning following the storm, an eerie calm was soon replaced by a different form of energy. Other work seemed to stop in a region larger than the storm-hit area. No one arranged it, but neighbors suddenly appeared at each other’s farmsteads with tractors, loaders, pickups, and chainsaws. Small mountains of brush, trees, and building parts began to emerge, to be burned at a later date—no doubt with generous burn permits being granted by the county.

At the time of the storm, corn was about waist high. Like the trees, it took a serious beating throughout the storm’s path. The corn stalks were tightly packed in narrow rows as a consequence of the changed density of planting—from 20,000 kernels per acre 20 years ago to 35,000 currently. (Bags of seed corn containing 80,000 kernels now typically sell in excess of $300, putting seed costs per acre about on a par with the cost of nitrogen fertilizer.) This tightly woven carpet of corn was now leaning at 45 degrees—or worse.

The question was whether the stalks would straighten up. And the answer turns out to be “sort of.” Many of them are “goose-necked,” a much used word now in farmer conversations. The concern is, IF large ears develop, will the stalks be sturdy enough to support them? Or, will a large amount of “ear droppage” seriously reduce yields and profits? We continue to be optimistic, and are still hoping for corn yields of 190 bushels per acre, not far from our best year of 220 bushels.


credit: Wikimedia.

Morning coffee conversations at the old limestone café have been fairly somber affairs this summer. (The general store has changed hands, but unfortunately, the watery coffee and the stale cookies have not improved.) Farmer faces were grim even before the storm, mainly because of what has happened to corn prices. In August 2012, local farmers were being offered $7.65/bushel [56 pounds] of corn; in August 2013, the price was $6.20/bushel, and on August 20, 2014, the price was $3.60/bushel. Suddenly the rush to buy new pick-ups and large harvesting equipment slowed drastically. John Deere, the major farm-equipment manufacturer, has already laid off hundreds of workers at various Iowa sites.

Orders have not stopped entirely, however, largely because of crop insurance. Virtually all farmers have either 75% or 85% revenue protection. If a combination of yield and/or price declines cause revenue to be less than 75% (85%) of normal, farmers are reimbursed by private insurance companies. The premiums for this revenue-protection insurance are heavily subsidized by the federal farm program. Taxpayers underwrite more than 60% of the total insurance premiums, which last year resulted in subsidies to farmers of about $9 billion. Historic yields are used in the insurance contract, and this year the early insurance lock-in price was $4.62/bushel. That price looked low in the spring, but now looks extremely favorable.

Unfortunately, many of my neighbors chose the “wrong” insurance option. They were able to purchase 75% revenue protection for about $4.50/acre, whereas the 85% protection cost about $19/acre. For a farmer with 1500 acres of corn, the difference in insurance premiums was more than $20,000. But given declining corn prices, the cheaper insurance option for 2014 will surely turn out to be the most costly choice at the end of the season. Farm decision making these days is mostly about risk management, and that is why crop insurance was such a big element in the new farm program.


USDA photo – Northeast Iowa

Perhaps the hottest topic of conversation at morning coffee centered again on wind, but not of the tornado variety. It turns out that “the wind comes sweeping down the plain” in Iowa as well as in Oklahoma. Iowa is the third-largest producer of wind energy, and wind power supplies a hefty 27 percent of Iowa’s total energy use. So why are my neighbors upset? It is something called the Rock Island Clean Line (RICL), and a bit of history is in order.

The old Rock Island Line was a rail company—made more famous than it really deserved to be by Johnny Cash. The line ran five miles south of our farm, and yes, it was a “mighty fine line” that did carry cows, sheep, pigs, and mules. But it went bankrupt in 1975. The Rock Island Clean Line originally planned to use some of the old right-of- way for quite a different purpose—transporting wind-generated power from northwest Iowa on huge towers, with cables carrying direct-current electricity into the Illinois market to the east. It turned out, however, that too much of the old right of way went through urban areas and was unsuitable, so RICL will purchase some 500 linear miles of farmland right-of-way for the towers.

Farmers are rationally and irrationally furious. (The line was originally scheduled to go across the full length of our farm, so we have been directly involved in the discussions.) It has been extremely difficult to get straight answers about the line, with the company and the Iowa Utilities Board doing a dance in which neither wants to lead. There is no doubt that these140-foot towers create an ugly line of sight; they complicate farming with large machinery; and they seriously impact adjoining fields during the construction phase. The company believes that it is offering generous one-time compensation—the equivalent of $10,000 to $15,000 per acre in most cases—but it then retains easement rights to this land forever, including the authority to sell the rights.

Farmers are livid—they basically do not want the line from which they will receive no benefits—but they are being faced with potential eminent domain proceedings if they do not agree to sell. All sorts of NIMBY arguments are being brought forward, from the “government can’t tell us what to do,” to “the lines will emit electrical forces that will cause health effects,” to “they are not paying enough,” to “why should we use good Iowa soil to transport electricity rather than to produce food for the hungry?” The last of these comments is the one I have heard most often. When I inquired as to whether the coffee group was also against ethanol—since 40% of Iowa corn is going into gas tanks rather than hungry mouths—I was NOT regarded as a helpful contributor to the conversation!

In the end, I suspect that the Rock Island Clean Line will prevail, and that farmers and their families will learn to accommodate the power towers. Many farmers will grumble publically, but smile privately en route to their banks with rather large checks. However, both the process and outcome have stirred up deep passions about who controls the land.

Not all farmers are sad this summer, and the winds of good fortune have blown in the direction of cattle feeders. The structure of cattle feeding in Iowa has changed enormously in recent times. I am the son of a mid-sized feeder, and spent a good deal of my youth working with cattle and driving cattle trucks. Most east Iowa farms these days are strictly grain farms, in large part to free farmers from the 24/7 burden of animal care. My neighbor talks about his corn-Texas crop rotation—growing corn in the summer and going to Texas for the winter.

There are only two large cattle feeding operations left in Linn County where I live, and both are within four miles of our farm. I was invited by one of the owners to attend a cattle auction with him, and to see for myself just how much things had changed. He owns his own 18-wheeler, and almost every week takes a load (36 head) of prime beef to the auction. Cattle are taken to the auction pens the night before the sale and are taken off of feed and water. These steers weigh between 1400 and 1500 pounds, and buyers want assurance that the animals have not gorged on feed and water just before crossing the scales. The cattle are weighed early the morning of the sale, and weights are then flashed on a scoreboard as the animals enter the sale ring.

There is still an amazing amount of ritual at a cattle auction—I had forgotten just how much! Prime steers are typically sold in lots of 12 animals. They enter the ring from one side, and are moved about by a “ring man” so that buyers can get a good view of them. Part of the ritual is where various people sit. A small group of farmers/sellers sits in one section, typically bantering about whom has the best cattle and whose will “top the sale.” The buyers sit near the top of the bleachers, in the same spot each week, but separated from each other. (They would not want a casual conversation between them to be construed as collusion!)

There is also the auctioneer with his chatter, mile-a-minute delivery, and selling antics. The sale itself happens very rapidly. There are typically two to four bidders for a particular lot of animals, and the bids go back and forth among them at lightning speed. The bidding cues are highly personalized—one buyer uses the flip of his tally sheet, another raises his index finger, and one simply arches his eyebrow. In less than 45 seconds, the winning buyer has spent $27,000! And then the next lot appears. Cattle from this sale went to packing plants in Wisconsin, Iowa, Nebraska, and Illinois.

On the 25-mile ride home, my neighbor talked about how pleased he was with what had happened. His steers had gained well and had topped the market in terms of price at $1.57 per pound. He said that corn was very cheap, as was distiller’s grain—the high protein by-product from making corn-based ethanol—which is now an important part of cattle feeding rations. There would be a healthy profit from this load of steers that had grossed about $80,000.

But then he turned somber. What should he do about next year? The price of 600-pound calves that he would put into the feedlot for feeding and sale next year are selling at the astronomical price of $2.50 per pound and even higher. Perhaps next year, he said, was the year to stay out of the ring and go to Texas or Arizona for the winter. Risk had reared its ugly head once again. But my neighbor is first and foremost a cattle feeder, with a cattle feeder’s mindset toward risk. My conjecture is that he will somehow find a rationale for purchasing replacement calves, and that he will do everything all over again next year.

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“The answer my friend, is blowin’ in the wind,
The answer is blowin’ in the wind.”
(Bob Dylan, 1962)

*Walter Falcon writes about Iowa from an unusual perspective. He is Farnsworth Professor of International Agricultural Policy (Emeritus), and Senior Fellow, Center on Food Security and the Environment, Stanford University. A 78 he continues to be active, both in the classroom and in the Iowa farming community where he grew up.

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You may read

Dr. Falcon’s writing from 2013 summer here: “Stuck in the Mud: Stanford’s Scholarly Farmer on the Soggy Fortunes of Midwest Growers” by Walter Falcon

Dr. Falcon’s writing from 2012 summer here: Field Notes From An Iowa Farm by Walter Falcon

Carbon Cycle Diagram

This diagram of the fast carbon cycle shows the movement of carbon between land, atmosphere, and oceans. Yellow numbers are natural fluxes, and red are human contributions in gigatons of carbon per year. White numbers indicate stored carbon.

What is left to discover about Gaia’s complex carbon cycle? It seems we are constantly hearing about some big new factor that hadn’t previously been known. For example, just recently, we’ve been told that ants play a huge role in mineral decay and might be capable of providing a promising method to geoengineer for carbon sequestration.

Diagram adapted from U.S. DOE, Biological and Environmental Research Information System. (NASA)

A Barrier Net Instead of Pesticides or Greenhouses Proves Successful in Africa for Growing Vegetables

In Kenya and Tanzania, farm producers are turning to a physical barrier to keep bugs out instead of using chemicals. Called Eco-Friendly Nets or Agronets, they can save growers 90 percent in pesticide costs and allow the farm to be classified as organic.

The nets are used for growing tomatoes, cabbages, kales, spinach, capsicum, and other vegetables.

They cost much less than constructing a greenhouse, and just may produce healthier crops than a greenhouse. Farmers using them have drastically increased their output of tomatoes since they help create a micro-climate which increases the heat and lessens the time required for maturity, in addition to restricting pests.

The nets are affordable for many of the small scale farmers.

AgroNet is a family of clear netting products developed by A to Z Textile Mills based in Arusha for use in horticulture—vegetables, fruit and ornamentals.


Sources:

http://www.freshplaza.com/article/124804/Kenya-Forget-greenhouses,-Agronet-technology-is-the-in-thing

http://www.freshplaza.com/article/124716/Tanzanian-vegetable-growers-use-netting-technology-to-control-pests