Statement of Dennis T. Avery,
Director of Global Food Issues, Hudson Institute
I will not be the most popular presenter at this conference, but since I am in no danger of holding public office, I will talk frankly about the current realities and long-term trends in agriculture -- insofar as a 30-year government-sponsored overview of world agriculture reveals them to me.
First and foremost, we must understand that the biggest factor in the decline of American family farmer numbers is the high and rising value of off-farm-jobs. City jobs typically pay more. Ninety percent of what Americans buy today is not food but the other things that affluent people want in their lifestyles, including TVs, computers, cars, medical care, ski trips, stereos, vacation cruises, and much more. My two sons who have gotten jobs in the big city make far more than the son who is involved with agriculture. (City jobs are also nearer the bright lights, a powerful attraction to many young people.)
The same bidding war for farm labor has been going on vigorously at least since 1910, when Henry Ford offered the farmers of Michigan the stupendous sum of $5 a day to build Model Ts. That off-farm bidding war is going on today all over the world, in such places as Europe, China, Indonesia and Brazil. Only in Africa are farmers not being offered higher wages 20 leave the farm. Sadly, that means the African farmers will remain poor because they lack affluent customers.
The second major point we must understand is that farm and agribusiness structure has little to do with today's low farm prices and profits. The world today has low farm prices for two reasons: export dumping and farm import barriers, and the two reinforce each other. The European Union is still dumping farm surpluses under subsidy, and driving down the world market price for commodities. Countries like China and India, which should be importing more farm products, can't politically afford to let in subsidized food because they have more than a billion farmers between them. World farm trade is still small and stagnant as a result.
I believe that free trade in farm products would double U.S. farm exports in a decade, adding another $50-60 billion per year in earnings from the land, labor and processing facilities that America already owns. The impact on net farm income would be far greater than anything a Social-Security-indebted Congress can offer in handouts. (Remember, too, that American voters don't much like successful commercial farms; they like small farms, organic farms and failing farms.) The potential earnings from exports are worth far more income than is at stake in any structural debate we may have here today.
The answer is to negotiate free farm trade in the World Trade Organization. That can be done today, because the EU has agreed to take in 13 new countries, 19 million new farmers, and 100 million hectares of new farm land. The EU cannot afford to extend its expensive farm subsidies even to Poland, let alone to Romania and Turkey.
Let us keep always in the forefront of our farm policy discussions that the biggest factor hurting American farmers' incomes today is the American farmer's lack of access to the rapidly-growing food markets in densely-populated Asia, and that trade access is now within the reach of American trade negotiators.
China's agreements to enter the WTO and to remove some of its non-tariff barriers to American farm exports are hugely important for America's farming future, and this administration is to be congratulated for pursuing them. India's willingness to finally allow imports of yellow corn for its growing poultry industry is an important indicator for the future.
I think this conference should be devoted to asking how we can maximize our negotiating posture in the current World Trade organization negotiations with Western Europe. Or how to get permanent trade status for China, soon to be the biggest farm product market in the history of the world, and desperately short of both farmland and water. I see no other issue which deserves to compete for the time and talent used on this conference. Too many American farmers are currently distracted from that huge export opportunity by trivialities that seem more real because they seem closer to home.
I am told today that corporate farms and monopolistic agribusiness are a threat to American farmers. I doubt it. Thirty years ago, a national farm organization offered me a job writing a book about the threat of corporate farming, and especially the threat of corporate poultry integration. I didn't believe in the corporate threat at that time, and I didn't write the book.
Today, I live in Virginia's Shenandoah Valley surrounded by neighbors who can live in that lovely place because of integrated poultry production. Forty acres, a poultry house, and one off-farm job mean rural success. Much of that poultry is exported, because American poultry producers offer consistent high quality at competitive prices. It's all possible because of technology and rising productivity. If America still had its old-style chicken farms, there would be no exports.
Today I'm told that corporate hog farms are a threat. I've visited a number of hog farms recently, some corporate, some not. The major differences seem to be that the corporate hog farms get more pigs per litter, raise leaner pigs, and offer their staff people salaries that don't drop with the hog markets. Some of the hog integrators also tried to buffer their contract producers from the recent radical drop in hog prices; some went bankrupt in the process.
I know that in the past 20 years, North Carolina's Duplin and Sampson Counties were transformed from rural poverty into thriving modern communities by corporate hog farming and a big nonfarm investor's construction of a slaughter plant. In the same time period, Iowa was reducing its hog production faster than Carolina was expanding, because the productivity and quality from the old A-frame hog farms wouldn't pay a family farmer to stay in the business. Iowa was hostile to corporate hog farming, and Iowa didn't get a new slaughter plant.
Iowa may be headed for a bleak rural landscape that features one farming family for each two sections of cropland -- and little else. Its rural communities risk losing their libraries, restaurants and quality of life.
On the other hand I was recently in a Colorado town that has added a modest golf course and country club, and where several of the boarded-up stores have been reopened because the community added corporate hog farming to the traditional irrigated crop production. The hogs added jobs, dollars, and new hope.
Shriveling crop-only communities will also be poorly-situated to attract the new wave of dot.com emigrants from the cities -- affluent city folks who can take their electronic jobs, their earning power and their kids to whatever place in the world they want to be. Rural America has the green spaces, the old houses awaiting restoration, the quality schools and many of the other factors attractive to such potential dot.com residents. But we're losing that potential rapidly because of our failure to get free farm trade and the resulting agricultural slump.
It's fashionable in this moment of the Microsoft anti-trust case to say there isn't enough competition in the industries serving the farmer. That may be true, though it's very hard to tell in this strange new globalized world where we compete with new technologies and new business systems as well as in the traditional ways. Insofar as biotechnology is concerned, I'm amazed at how many billions of dollars private industry invested in trying to provide the modern farmer with improved inputs.
I do know I've lost my faith in anti-trust suits. I remember a few years ago when IBM was found guilty of monopolizing the mainframe computer business -- and barely was the courtroom action finished when the mainframe computer was virtually put out of business by the personal computer that IBM didn't see coming.
Microsoft has been found guilty of monopoly, but the judge found no public harm - and Microsoft's key asset is an operating system which could be replaced by a better one at any moment.
ADM was found of price-fixing in the lysine industry, and they may have been guilty. I'm not a lawyer. As an economist, I know they built the world's largest lysine plant, and cut in half the real cost of lysine to livestock and poultry producers.
The fight over biotech crops and livestock isn't really the farmer's fight in one sense, since the city folks will ultimately decide what kinds of farming they're willing to tolerate and patronize. I would just add one word of caution: anti-farm activists have told the city folks they shouldn't like pesticides, antibiotics, confinement feeding, diesel engines or virtually anything else about modern farming. As a result, the city folks are singing the praises of organic farming, and the regulators are trying to drive farming back in that direction. If you haven't noticed, well-fed American city folks are big on nostalgia; you can see it in the Budweiser commercials at Christmas. Unless farmers start telling city folks about the real shortcomings of organic farming, the modern farmer may have to go back to earning his living with a short-handled hoe. How will we keep kids on the farm when there are no herbicides to do the weeding? How will we get back -- and pay -- the 1.0 million people who used to weed cotton fields with hoes?
I'm told that farmers need to get a bigger share of the consumer's food dollar by getting into value-added farm products. But I know that around the world, the smaller the farmer's share of the consumer food dollar, the higher his standard of living. The Indian goat-milker gets 100 percent of the consumer's goat-milk dollar. He takes his goat to the front door, and milks her into the consumer's bucket. But he goes home at night to sleep in a shack, because his productivity is low.
Why is it that farmers are supposed to be able to get rich by getting into meat packing, food processing, or food retailing? Those are all industries that demand big investments and offer low returns. The average retail food chain makes less than 1 percent per year on its investment. For that handsome reward, they get to worry about teamsters' strikes, epidemic diseases in a lettuce field 3,000 miles away, and the lawsuit filed by a customer who slipped on a grape in the produce aisle. Come to think of it, farmers have been pursuing value-added dollars through cooperatives for 50 years. I think it's done some good, but it hasn't solved the "farm problem."
I don't know if packers should be allowed to own feeder cattle or not. I don't know if farm people will make more money as salaried hog farmers or entrepreneurs in the decades ahead. I don't know lots of things about the organization of farming and agriculture for the 21st century. But no one else knows how it should and will work either.
I know that the big prize in the agricultural world today is export markets. That means the competition is worldwide. If Iowa or America set unrealistic constraints on farm and agribusiness structure, then the farming will be done somewhere else. The world will be fed, and it will be fed by the people who use their land, labor, capital and technology most effectively -- however that may turn out to be. All the targets are moving, and all the systems are in dynamic change.
I am sure that tomorrow's farm income will be earned in a global marketplace, in the face of intense competition. I know that the distant, affluent consumers in that global marketplace will demand we meet a wide array of precise and changing quality requirements. The global buyers will demand a steady flow of just-in-time product deliveries. We'll need the ability to deal with hostile customs officials in 40 countries. That global system will use computers, telecommunications and e-commerce to broaden competition for inputs and sales.
America has the best and most good farmland. We also have the best technology and infrastructure today, but that may he because we've given people the most freedom to seek efficiency. But can we expect American family farming to sit comfortably unchanged?
The winning organizations could be big agribusiness firms, farmer cooperatives or farmer partnerships.
I think American agriculture has a glorious future if it can get free trade in farm products. If it cannot, then its structure will shrivel and shrink in a North American market that already has too much food and more production technology than it needs to supply the domestic market.
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