Subsidies vs Price Floors in Farm Bill History, Revised

[Originally this was] in response to Jill Richardson’s 2010 “New Years Eve Daryll Ray-a-thon,”  at La Vida Locavore [and was dated 1/2/10].  In discussion, in the comments, I tried to explain some of the politics and history of subsidies so people can more easily tell what side someone is really on when they talk about subsidies. One response got a bit long, so I posted it on my own La Vida Locavore blog instead.  [La Vida Locavore no longer exists, so I’m now posting it here, as there continues to be a need to understand Farm Bill history.]

[This is a revised version]

SOME BRIEF HISTORY OF SUBSIDY POLITICS

The original farm bill came out of the New Deal, under the leadership of Iowa’s Henry A. Wallace, President Franklin Roosevelt’s Secretary of Agriculture.  It then evolved through several successive farm bills and the Steagall Amendment 1941.  (The Steagall Amendment was passed through the banking committees as an economic stimulus.  Unlike the recent stimulus of government spending, it managed farm markets to further raise farm prices to parity or living wage levels, to generate wealth where the rate of wealth creation was high, in farming.)

Prior to Roosevelt, for decades farm prices were usually low with many “panics.” Coming from Hoover into Roosevelt in the Depression, my family saw 7¢ corn here in Iowa, and lost the farm. During the 1980s farm crisis my mother recalled this time (she was a young teen then):

“My Uncle Clyde wasn’t able to get my dad a job in the creamery or anywhere else. This was the summer of 1932, and the depression got even worse. We couldn’t pay the rent, so in the fall we had to move up to Aunt Alice’s and move into their upstairs! I felt terrible that we had to move in with relatives. Now I realize how my folks must have felt! The most humiliating thing of all was that my mother had to get Stewart to drive her over to Uncle Bill’s and ask to borrow some money! I imagine he said, ‘I told you so!'”

These policies, (Farm Bill with Steagall,) take it through Truman, with no commodity subsidies except a few on cotton in the early 30s, and a few “parity payments,” for a few years for 3 crops.  These were not needed and were quickly ended. We had 100% of parity in agriculture overall 1942-52. Program costs in one estimate were about $13 million in the black, meaning that the government made money on the program through interest on price floor loans, and by maintaining adequate price levels through 1952.

This is a major alternative to losing money on farm exports, (especially since 1981,) and driving down both U.S. and world farm prices, hurting wealth and jobs creation in farm areas including LDCs, which are 70% rural.  It was an antidote to hunger.  Today 80% of the “undernourished” are rural, (about 50% are farmers).   Not surprisingly global farmers have called for similar kinds of fair trade, with global price floors and effective supply management, and with international implementation. (Africa Group at WTO; European Community, La Via Campesina). So no subsidies were really needed.

Under Eisenhower price floors were lowered, however, lowering market prices.   Price floors were lowered further decade by decade, under both Republican and Democratic Presidents.  This added costs, as farmers turn more grain over to the government when prices fall, and then the government sells it later, at a lower price (since it was lowering market prices about every year for more than 40 years, after which prices were as low as possible,) thus losing money.

Rice & Subsid14

Progressive Democrats fought back, especially during the 1980s and 1990s, with calls to raise Price Floors back up nearly to parity levels.  Republicans in Congress continued to advocate for cheap prices for big business, though no reason (or need) for agribusiness to receive these huge Congressional benefits was ever given, (they continued to have returns on equity far higher than farmers, including repeated record highs, and record profits).

Farm prices don’t self-correct under free market conditions.  They “lack price responsiveness” “on both the supply and the demand sides for aggregate agriculture,” so they’re usually low.  this can be seen in the way that farm price drops closely followed Price Floors reductions. The evidence on this failure of free markets for agriculture is huge.

One exception was the price spike during the 70s, which was caused by the secret Russian grain deal, (“The Great American Grain Robbery,”) in which a huge amount of grain was suddenly purchased at very cheap prices.  This was then used as justification for ending farm programs, by people like Earl Butz, (Secretary of Agriculture under Richard Nixon,) though this was quickly and massively proven wrong, as prices continued to follow price floors downward, resulting in chronic low net farm income, even as yields increased greatly.  (Currently these market conditions are projected ahead through 2026.)

US NFI baseline

The lowering of Price Floors ran increasing numbers of farmers out of business, especially black farmers, who lost their farms at rates exceeding 50% per decade for four decades, 1950s, 1960s 1970s, and 1980s, (i.e. 100% of 1950 numbers, to <50% to <25% to <12.5% to much less than 6.25% in the end.

Starting in the cornbelt, the National Farmers Organization rose up rose up to oppose these cheap prices, (cheap corn, cheap food, cheap sugar).  NFO’s efforts, which were huge from the 1950s through the 1970s, were joined by many other farm groups, including the US Farmers Association, (starting in the 1950s,) National Farmers Union, and American Agriculture Movement.  Numerous alliances were formed as well.  All fought for fair prices instead of subsidies.  Today the history of this fight is largely unknown, (what I call farm justice illiteracy) as is this history of the farm bill itself.

INTRODUCING SUBSIDIES

Starting in 1961, Congress chose to respond to farmers’ outrage by paying them subsidies, while continuing to lower farm prices by even greater amounts, (even as they raised their own salaries). Subsidies compensated farmers for a fraction of the Congressional reductions (and losses) below fair prices.  Wheat and feedgrains (including corn) were the first crops to be compensated, in 1961.   Others were added later, in 1964 for cotton, 1977 for rice, and 1998 for soybeans, for example.  Over all, compared to prices in the parity years, subsidies have paid farmers only about 1/8 of the amount of the reductions, as the enormous hidden costs of “cheap food,” “cheap corn” have skyrocketed.

Subsidy compensations were revised a little under President Richard Nixon and Secretary of agriculture Earl Butz.  These changes reduced the ratio used to determine how much farmers would get compensated for value reductions.

With the 1970s price spike, the costs of farm production immediately raced upward. Under President Jimmy Carter, farmers won a small raise in price floor levels, (also called price supports,”) to address the skyrocketing costs, but not back up to the levels of the 1942-52 period, and these Price Floors were also soon lowered back down below where they had been previously.  (Note that in general, as costs inflated since 1953, Price Floors rarely had any cost of living adjustment, but were instead continuously lowered.)

The small, temporary Price Floor raise did not at all keep up with costs, and did not prevent the 80s farm crisis.  This is illustrated on the aqua chart above, where, figured as a percent of parity, (which figures in the escalating costs farmers had to pay,) the small price floor boost of the 1970s looks merely level for a few years for rice, before Congress lowered it further. though by today’s standards, the early farm crisis years look like “boom years.”  In fact, we can see in hindsight that the rise of the devastating crisis, occurred under the best farm bill that we’ve seen ever since (i.e. the 1980 farm bill).   The 1980 bill was much better than the 1985, 1990, 1996, 2002, 2008, or 2014 farm bills, which have each usually been worse than the one before, (perhaps excepting 2002, which was much much worse than the 1980 farm bill).   (Again, see on the aqua chart how rice Price Floors and prices were higher during the early 1980s than later.)  Of course, the opposite is true in reverse.  Looking backward to the 1942-52 period, every previous farm bill (counting back from 1980,) gets better, as the charts show.

President Reagan greatly increased subsidies, but lowered price floors even more than the increase, as shown below. Farmers got more from the government for a net lowering of farm income. Bush senior continued this, in the 1990 Farm Bill (the lowest Price Floors ever).

CornSafetyNet85

Clinton slightly raised the price floor, and vetoed Freedom to Farm, (the 1996 Farm Bill or FAIR Act,) once before signing it, in the Gingrich era.  That ended Price Floor programs, returning us to a deregulated ‘free’ market, to Hooverism, but with subsidies, for another net reduction in farm incomes.

Farmers called the bill “Freedom to Fail.”  It called for  new “de-coupled” subsidies for a few years, declining and ending for a return to classic Hooverism, (think 7¢ corn), with no subsidies.  De-coupled subsidies are given whether farmers need them or not.  The theory is that subsidies distort markets, though the evidence clearly shows that subsidies have only tiny, practically insignificant impacts on market prices.  Since Congress had created a “need” for subsidies, starting in 1953, de-coupling, [giving subsidies even if you don’t need them,] seemed to be a small issue, at first.

Very quickly, “Freedom to Fail” failed, and failed big!  This was quickly seen as a program that would destroy farming, with a massive new crisis, as farm justice advocates had predicted.  Bankers quickly joined farmers in Washington to point out that it was a disaster in the making.

Congress remained in denial about the failure of free markets.  Instead they covered up their failed ideology, and we passed four emergency farm bills in four years, 1998, 1999, 2000, and 2001.  This emergency legislation added a second kind of (counter cyclical) subsidy.  Farmers also got LDP subsidies, (Loan Deficiency Payments, which, I think, were an administrative option that Clinton implemented to address the crisis). So farmers ended with another big increase in subsidies, [resulting in another net] reduction in farm income for the subsidized crops, since market prices with no price floors, fell even more, [to year after year of the lowest prices in history]. This was massive dumping on global farmers, such as in Least Developed Countries.  It was caused by the ABSENCE of Price Floors, not by the PRESENCE of subsidies. The buyers of these crops and processors got the hidden ECONOMIC benefits of the free market since POLITICALLY, there was no market management].  These were the real “farm subsidies,” because the much bigger pot of money moved from farmers to the buyers of the agribusiness output complex.

HARKIN-GEPHARDT:  ALIAS THE FOOD FROM FAMILY FARMS ACT, ETC.

Another trend here is that many farm state Democrats continued to advocate for New Deal style programs over the decades of decline, [from the 1950s onward]. During the 1980s when farmers were again activated in a large number of groups such a farm bill was formulated and introduced into Congress, and won quite a few votes. It was known variously as the Farm Policy Reform Act, The Save the Family Farm Act, and the Harkin-Gephardt Farm Bill (Harkin in Senate, Gephardt in House, both Democrats). Today it continues as the National Family Farm Coalition’s “Food from Family Farms Act.” The main groups supporting Price Floor programs today are the National Family Farm Coalition and its members, the National Farmers Union, the Institute for Agriculture and Trade Policy, Food and Water Watch, the American Corn Growers Association (not the National Corn Growers Association), the American Agriculture Movement, and the National Farmers Organization.

Econometric Research by FAPRI (University of Missouri & Iowa State University,) on the Harkin-Gephardt Farm Bill found that it would greatly reduce government costs, since it eliminated subsidies.

Gov Costs 88 95

At the same time, they found that it would greatly increase income from farm exports, (where the major farm program crops had been losing money every year during the 1980s and 1990s [except 1996] and beyond).

Export Valu 88 95

THE HARKIN COMPROMISE

In 2002 when Tom Harkin became chairman of the Senate Ag Committee he switched sides. He stopped advocating for price floors and supported a greened up version of the 1996 Farm bill, (the worst Republican Farm Bill since Herbert Hoover). That goes for 2002, 2008, [and 2014]. In 1985, 1990 and 1996, however, Harkin and the other Democrats in Congress and running for President (ie. Gephardt, Daschle, Wellstone, Simon, Hart, McGovern, Dukakis,) totally rejected this kind of a farm bill. With Harking in the chairman roll, however, all of the progressive Democrats in Congress followed Harkin in what I call “The Harkin Compromise,” his “green” version of Freedom to Fail.

During the 1980s mainline churches also supported this kind of farm bill.   Today they support some version of a greened up Freedom to Fail, as do most other progressive groups including the Food Movement, Environmental Movement and Sustainable Agriculture Movement.  This occurs, surely, either because they believe free markets work, (National Sustainable Agriculture Coalition?) or because they don’t really know “what” a farm bill is, (other 21st century progressives).  Efforts are underway to get them all on board for farm justice, to stop then from supporting mere subsidy reforms, (erasing the yellow line on the aqua chart above), for the benefit of animal factories, junk food makers, and export dumpers.

Sustainable and Organic farmers are a special case. During the 1990s in trying to stop Freedom to Farm, the Family Farm [Justice] Movement worked hard to bring in sustainable and organic farm coalitions, (SAWGs, NCSA, SAC,) but failed, and [these other groups] have consistently supported some version of Green Freedom to Fail, [mere subsidy reforms, such as green subsidies or caps], combined with no price floors or supply management [to make CAFOs, junk food makers and export dumpers pay fair prices to farmers]. Their policies provide or would continue multibillion dollar below cost gains for CAFOs and even bigger gains for Cargill and ADM. Sustainable/organic folks have won greener subsidies like organic EQIP and CSP, but at the cost of massive subsidization for unsustainable animal factories to compete against them and drive down their premium prices.

Likewise, when Michael Pollan, in Food Inc. and Fresh, speaks of cheap junk foods, he’s referring to “green” versions of Freedom to Fail policies, [for the cheapest of corn, milk, cotton, rice, soybeans, etc.]. So when Pollan speaks of “subsidized corn” it’s misleading. The low/no price floors caused the low prices and the cheaper high fructose corn syrup and corn/soy transfats, as can be seen historically. The subsidies prevent the destruction of farmers. The bigger the farm, the bigger the losses to be compensated by bigger subsidies. Again, this is rarely mentioned when bashing farm subsidies. (Of course there are some economies of scale with larger farms, which changes their need somewhat, even as they have the biggest reductions in value.)  So ending, greening, and/or capping subsidies are not policies that address the biggest CAFO benefits, processor benefits, ethanol benefits, or exporter benefits against LDC farmers.

By the way, “family farm” advocates and their friends (ie. La Via Campesina with 200 million members) lost over and over on the price floor issue (without much food/consumer/environmentalist/organic help, and still today without help). So some farmers invested in ethanol to try to raise prices (and end processor below cost gains, dumping on LDC farmers). The idea is that when farmers lose money on corn, they’ll make some money it on ethanol, and if they make money on corn, they’ll lose money on ethanol.  It’s a kind of risk management.  No where have I seen this understood in the progressive community outside of NFFC related groups.

(Least Developed Countries are 70% rural. The US has long had huge export market shares of some commodities, bigger than the middle East in Oil, but our leaders tried to get low world prices, not high world prices with it’s clout, (clout of well above 50% export market share for corn and soybeans, for example, or up to +80%, but less each decade).

SUBSIDIES vs PRICE FLOORS FOR THE 2008 FARM BILL

Today these issues appear to be almost totally unknown outside of NFFC and its friends. EWG listed 477 mainstream media articles supporting their position in support of a Green version of the Republican Freedom to Farm Act. The Kind Flake Amendment and probably all others amount to the same.

Sometimes Republicans support Hooverism instead of what we have had since 1996, which is Hooverism (free markets and free trade) with subsidy protection for farmers in rich countries. Low subsidy caps are a way to force large farms out of business or to force them to break up. It would probably be a kind of land reform, like forcibly running them out of business or making them illegal. Note that in the 90s we had a $50,000 cap and called for $25,000, while well meaning progressives have recently called $200,000 cap a good step. But these measures have nothing to do with price floors, and do not solve any of the big problems.

Cargill and ADM (and to a lesser degree, Tyson and Smithfield) are the huge beneficiaries of all the diversionary talk about subsidies, with no mention of price floors. What they’ve bought in Congress is policy that blames farmers and leads to no mention that the policies are designed primarily to benefit them, even at the expense of America losing money on farm exports of the major commodities virtually every year for a quarter century. If you look at the EWG 477 editorials, you’ll probably find hundreds of criticisms of farmers (who are merely partially compensated for losses caused by the lack of price floors) for every criticism of these real beneficiaries. Not also that Cargill, DAM, (processors and exporters) Tyson and Smithfield (poultry hog CAFOs) and the others (ie. Kelloggs).

You can find footnotes for much of this in my Zspace blog articles, as well as many links to online sources. I am also one place that explores this movement crisis online. I’ve seen NO other place online that writes much on these issues, especially in reference to mainline churches, hunger groups (Bread for the World and Oxfam are among the worst on the Commodity Title issues I raise), sustainable agriculture, and the food movement. (I link a few things from IATP on myths and APAC’s Daryll Ray on some media/etc. misunderstandings, however.)

FURTHER READING AND LINKS

From my blog [http://zcomm.org/author/bradwilson/] see especially my “foodie” and food movement pieces, such as my comparison of the National Corn Growers Association with so called progressives that supposedly hold radically different views: https://zcomm.org/zblogs/foodie-farmie-coalition-by-brad-wilson/ .

My “Farm Bill FACTs: Commodity Title: A Family Farm View” briefly goes right down a list of the main things I hear in the food movement and among the other groups I see as similarly missing the real issue, and then proves them wrong with online links:  https://zcomm.org/zblogs/farm-bill-facts-commodity-title-a-family-farmers-view-by-brad-wilson/.

If you look around at (https://zcomm.org/author/bradwilson/) you’ll see where I have footnoted pieces.

 

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2 thoughts on “Subsidies vs Price Floors in Farm Bill History, Revised

  1. Pingback: Subsidies vs Price Floors in Farm Bill History, Revised | familyfarmjustice

  2. Pingback: The ‘Feed the World’ Debate: 2 Reviews | familyfarmjustice

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