The Ripple Effect

If you’ve been a regular reader of this blog, you know that I am a staunch advocate for a legal restructuring of the United States agricultural subsidy framework. This post is an effort to synthesize that proposal and break down exactly what I am advocating for.

WHAT ARE AGRICULTURAL INSURANCE SUBSIDIES?

Agricultural insurance subsidies are basically a contract between an insurance provider (in this case, the government) and a farmer to cover the farmer’s costs in case of a loss of crops. The government pays the farmers to cover their potential losses. There is no cap on the amount of money a farmer can receive as a subsidy. Overall, this is a good provision and one that has the potential to help farmers stay afloat in case of erratic weather events. For instance, the damage wrought by droughts and prairie fires that have, in recent years, destroyed the crops of many farmers were significantly mitigated through the assistance provided by subsidy money. National Farmers Union President Roger Johnson noted that a subsidy system is also helpful as a safety net that can be used to offset a decline in commodity crop prices. This, however, also points to the dangers of our current reliance on select few commodity crops; when any one of multiple negative factors hits any one of these select few crops, the entire system suffers.

The current agricultural insurance subsidy system in the United States was initiated during the Great Depression. In the early 1930’s, farmers in the Dust Bowl were suffering massive losses and food production was plummeting. The agricultural subsidy system was created with the noble goal of helping to keep small family farms afloat during the Depression. Roosevelt’s New Deal and, years later, the 2008 Farm Bill made it practically mandatory for farmers to participate in crop insurance programs in order to get subsidies. According to the U.S. Government Accountability Office’s research, the subsidies given to farmers each year cost American taxpayers over $20 billion dollars. 2015 subsidy amounts increased 35% from 2014 amounts to a staggering $7 billion, a change that is primarily due to the recent declines in commodity prices. The majority of this amount went to growers of corn, soybeans, wheat, and rice, which are by far the largest commodity crops in the U.S. today.

WHY AM I NOT A FAN OF AGRICULTURAL SUBSIDIES?

The majority of these subsidies go the largest agricultural producers in the country, primarily those who are growing corn, soybeans, wheat, and a select few other commodity crops. One study noted that from 1995 to 2012, the top 10% of farmers were paid nearly 80% of the total subsidy amount. The top 1% of farmers nearly 30% of all payments that are given out each year, while small family farms receive a couple thousand dollars on average (depending on size, crops, etc.). This generally seems to makes sense; the largest farms produce the most, so they receive the most money. However, we are not talking about the broad category of “largest farms” – we are talking about only the top 1%, which makes agriculture arguably the most top-heavy industry in the country. The Environmental Working Group’s subsidy database (https://farm.ewg.org/) confirms this; their data shows that the vast majority of agricultural insurance subsidies are focused on the small group of agribusiness executives at the very top of the (literal) food chain. A paper from the American Enterprise Institute also noted that farm subsidies have very little impact on food security, food prices, or nutrition, and that the poorest farmers are actually negatively affected by the system (https://www.aei.org/publication/poverty-hunger-and-us-agricultural-policy-do-farm-programs-affect-the-nutrition-of-poor-americans/). This is one of the primary issues with the agricultural subsidy system – it promotes monopolistic and self-destructive economic structures.

A second problem with agricultural subsidies has to do with the long-term health effects on land and soil. Once farmers become reliant on an annual subsidy check, they feel better about planting on land that isn’t ready to be used. If the subsidy money will cover the cost of any adverse effects that such practices may have for the land, the farmer or agribusiness can comfortably use land that isn’t ready for production. This leads to a cycle of decreasing returns in terms of soil health and crop yields.             Directly associated with this issue are the problematic ways that agriculture is changing because of the financial framework it operates within. Mono-cropping has become the norm because of the huge demand for a select few commodity crops; synthetic applications (herbicides, pesticides, etc.) are used everywhere, to the detriment of the soil’s long-term health; agricultural methods have become almost completely mechanized and disengaged from human contact; and more. Such developments are concerning, particularly in regards to the question of whether or not our fields will be usable by our grandchildren.

Large-scale farmers are, in some cases, actually earning money on the agricultural subsidy money they receive from the government (via taxpayers). This is because the subsidy rate for American farmers is adjusted for drought-level inflation, and this rate is high enough that it can protect farmers from any kind of fluctuation in crop prices. In this system, large-scale agribusiness owners could potentially make more money without a drought than with one, and the burden falls on the American taxpayer to supply their bonus paycheck.

By far the most concerning side effect of our agricultural insurance subsidy program is the way that it influences local economies in the developing world. To illustrate this point, I’ll reference an experience I had while living and working for a grain trading company in northern Uganda. My job and my research required me to ride out into the villages every day and interact with the farmers, and I saw first-hand the unbelievable fertility of the soil and the massive maize harvests that the Ugandan farmers created. I remember, one day in late November, riding into a village and seeing a long line of Ugandan farmers outside a U.S. AID tent. As it turns out, they were waiting for their bag of free corn, which had been shipped from the U.S. as excess from our annual corn harvest. I was horrified and embarrassed at the same time. Here I was, standing in the middle of a tropical climate in which corn and other crops practically sprang out of the ground, and the incredible economic growth potential of the place was being snuffed out in one fell swoop by the overproduction of America’s farmers. That overproduction is incentivized – even necessitated – by the existing agricultural subsidy system. In order to satisfy the large agribusiness corporations and keep the subsidies coming, the government – rather than face reality and cut subsidies to these corporations – sends the excess off to developing nations in the name of “disaster relief.” All it ended up doing in Uganda was stifle farmers’ chances to get their local agricultural economy off the ground. (I recognize that there are of course circumstances, events, and places in the world that warrant disaster relief. However, the amount of overproduction that is caused by the subsidy system is far more than is needed for such purposes).

These practices of sending excess food to nations that supposedly need them has been titled with the appropriately inglorious term “dumping.” This is simply the process of getting rid of goods for less than the cost of their production, and it distorts markets wherever it lands. The United States dumps at least five of its largest commodity crops on international markets, effectively wiping away the many hours and dollars of investment that organizations around the world are making in the agriculture sector of the developing world (http://www.iatp.org/blog/201610/a-return-to-low-commodity-prices-and-us-dumping). Broadcasting the charity of our American investments in developing countries begins to appear rather hypocritical when viewed alongside our current dumping practices.

CONCLUSION

It is ironic and unfortunate that a system that was developed for the purpose of helping small family farms survive is now crushing not only their prospects but also the prospects of millions of small-scale agricultural economies in developing world countries. A broad policy restructuring effort would be the best outcome in this situation, but in reality, all changes must be made incrementally. Therefore, my policy proposal is simply to put a cap on the amount of subsidy money any farmer or agribusiness corporation can receive in any given year. The U.S. Government Accountability Office and the Environmental Working Group have been leading the effort for this provision, which would basically reduce the subsidy amounts received by the highest income participants. Specifically, I propose that no individual farmer – defined as a commercial crop-grower – receive more than $100,000 in annual subsidies. This would be a number that is not adjusted for acreage or yields, but is consistent across all circumstances and is a constant cap that applies to the entire agriculture sector. Anything under this number would be permissible and would be subject to the usual standards of allotment based on acreage that the system already has in place.

We must also realize that feeding the increasing population of our world won’t come from the increased production of already-existing mega-farms. Even if they were able to increase their production, they wouldn’t even make a dent in the hunger problems of the future. The only way to feed the growing population is to unlock the food production potential of the developing world, particularly Africa. I’ve seen it with my own eyes. The potential is unbelievable, and so much of it is going to waste. Don’t let Monsanto and the other agriculture application giants fool you with their talk of having a “moral imperative” to develop new chemicals so that they can avoid the impending world food crisis. Corporations will be corporations, and that is nothing more than a marketing ploy disguised as compassion. Small-scale, local farmers in the developing world are the key to feeding the world’s growing population, both now and in the future. Unlocking their market potential (their production levels, in many areas, are already quite good) should be the primary focus of any international agricultural development efforts. As an example, the work of the Joseph Initiative – http://www.josephinitiativeltd.com/ – is exactly what is needed. They are opening up the existing but untapped markets in East Africa for maize and other crops and are bringing economic growth and increased production capacity to hundreds of farmers. This doesn’t mean dumping money, chemical herbicides, and a few USAID volunteers on them and setting them loose. This means learning from them about their agricultural systems and then utilizing the social and cultural capital that we have to leverage new opportunities. It’s basic economics. The director-general of the U.N.’s Food and Agriculture Organization, Jose Graziano da Silva, has echoed this sentiment by saying that helping small farmers in the developing world to increase their productivity will address the true root cause of hunger.

Here in the U.S., though, this is a legal problem. The law is what determines the current situation, and working through the legal system is the only way to truly create change. We must commit to a complete restructuring of the agricultural subsidy system, but we must also recognize that change will be only incremental. This process starts with learning and understanding the issues involved, so make sure you share this post with your friends!

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