Can farmers afford "business as usual" ag policy?

fedgazette Editorial

Juan Miguel Pedraza

Published July 1, 1994  | July 1994 issue

The opinion below is an excerpt from a Ninth District newspaper and is expressly the opinion of the writer, not of the Minneapolis Fed.

American farmers are toying with economic suicide, some veteran ag scene observers warn.

These critics—none a farmer—believe that the average farmer's "addiction" to federal subsidies has blinded them to challenges that threaten to overwhelm those who cannot compete without such help.

"We are fine-tuning ourselves to death" in farm policy, says Carol Brookins, president of World Perspectives, a Washington-based analysis and consulting firm.

The biggest challenge is freer world trade. "Freer" means trade over fewer and lower barriers, the kind that currently protect farmers from full and open competition against foreign producers, she notes.

But fine tuning is about what we can expect as Congress prepares the next farm bill, a top Clinton Administration official promises.

"Overall, the new farm bill is not expected to radically change the direction of U.S. agricultural policy," says Eugene Moos, undersecretary of agriculture for international affairs and commodity programs.

"I do foresee a continued push toward more market-oriented agriculture as scarce federal dollars cause programs to be scrutinized and their benefits carefully weighed against their costs," Moos recently told 300 farmers, lawmakers, academics and government leaders who gathered at the Great Plains Symposium on World Agricultural Trade.

Such scrutiny is mandated by growing demands to balance the federal budget.

However, it is encouraging cuts in areas that U.S. farmers can ill afford, noted Edward Schuh, a former World Bank official who is dean of the University of Minnesota's Hubert H. Humphrey Institute of Public Affairs.

"I agree that balancing the budget is important to the future of U.S. agriculture," says Schuh. "But we should be more concerned about offsetting some of the negative effects of free trade."

Though less strident in his criticism, Schuh also believes that the current federal farm subsidy scheme has distorted the agriculturalist's view of economic reality. He's strongly in favor of freer trade as a means of increasing prosperity worldwide.

If the government is to spend money, Schuh says, it should commit more, not fewer, resources to developing new technologies.

"New technology is fundamental to helping agriculture to retain its competitive edge," Schuh says.

Farmers such as Hazen, N.D., wheat grower Sharold Geist agree.

"We need our research effort," says Geist, who is chairman of the board of the North Dakota Wheat Commission. "It helps us to develop and maintain markets with products that the markets want."

But Geist argues that some form of subsidy or direct federal price supports are essential to the survival of the wheat industry. Unsupported, he says, farmers would soon be overwhelmed by competition from countries where subsidies were much higher—such as the European Union—or countries where production and other costs were much lower, such as Australia and Argentina.

Not business as usual

U.S. farmers could generate billions of dollars in new income from the world market within a handful of years, according to Dennis Avery, director of the Indiana-based Hudson Institute's Center for Global Food Issues.

But, he warned, all they'll harvest is lost opportunities if they don't abandon current farm policy.

"Business as usual" for American agriculture isn't usual anymore," says Avery who has served as chief ag policy analyst for the State Department.

He contends that foreign markets are essential to this country's agricultural prosperity because domestic demand will wane as the population ages and turns from eating meat to oatmeal.

The challenge for U.S. producers—aside from getting unshackled from unproductive domestic farm policy—is to open overseas markets.

"World farm trade has been stagnant since the end of the OPEC oil boom in 1982," he notes, largely because of protectionist policies. "There is a strong global trend toward national food self-sufficiency."

That trend, if left unchecked by global policy initiatives, means many countries will continue to limit opportunities for food imports, including farm products from the United States, he says.

Avery called on farmers to encourage Congress to re-engineer U.S. agricultural and food policy so that producers can more forcefully compete in the global market.

"There is no question that the U.S. has the world's biggest comparative advantage in agriculture," he said. "We have the climate and the cropland, cleared and ready. The land is served by the world's best infrastructure. We have the world's best-trained farm managers."

Avery believes that this competitive edge "is larger and more permanent than a comparative advantage in manufacturing."

Given the chance, he concluded, U.S. farmers could out-compete most others in the world, in the process generating a substantial portion of the country's new wealth.

However, Geist warns, "staying competitive means getting some help." That means keeping current policies in place that guarantee grain producers a minimum federal support price.

"We cannot compete on a cost basis" with many grain-exporting countries, he says. "We must produce with U.S. expenses," such as relatively high property taxes, fuel costs and other costs such as high health insurance premiums.

Radical surgery

Still, competition in the global market implies faster changes than those implied by policymakers, suggests Wayne Boutwell, president of the National Council of Farmer Cooperatives.

Where farmers like Geist ask for the protection of export and production subsidies, Boutwell sees a growing need to diminish such help.

"The most onerous thing that you can do in trade is export subsidies," Boutwell said in comments at the symposium. "They lower the average price (of grain) for everybody."

The symposium aimed to stimulate just such debate, notes lead organizer Vern Freeh, a trade consultant and retired vice president for international marketing at Land O'Lakes.

"We need to keep talking about these issues," says Freeh, a North Dakota State University alumnus who operates out of the Twin Cities.

The global perspectives brought to the table help area farmers understand what they're up against, he says.

And that's important because "we're still in a mentality up here that's more production, not trade, oriented," he says.