Newsletter April-May 2000

 

OCM Food Policy Retreat

            OCM convened a diverse and high-powered group of thinkers in April to devise comprehensive solutions to the problems in the farm and food system.  While OCM focuses on competition in the marketplace, we realize that breakthroughs must come from a combination of perspectives.  The current stagnation in farm policy thinking belies this fact.

            Entitled the OCM Food Policy Retreat, the proceedings included thinkers from several academic disciplines and topics including ag economics, rural sociology, ag history, local food systems, and law.  The general practice has been for persons within these disciplines to only talk to each other.  The Food Policy Retreat created a situation whereby participants drew from the strengths of their education, training and experience while being confronted by differing views of the world held by other participants.

            The result, to be released soon, will be a comprehensive document outlining guidelines for a better farm and food system.  Subtopics include antitrust policy, supply and demand management, intellectual honesty and whole food systems.  Further, participants will present cutting edge issue papers on matters of current concern.  This vision will be compelling and quite different from that of the radical agricultural industrialists.  Look for this series of white papers in the next few weeks.

 

Control and value added ag

            The most accurate way to think about the benefits of value added agriculture, as well as the food economy in general, is to ask "Who has control?"  Rural sociologists and cultural anthropologists ask this question regularly in their fields.  Most agricultural economists are loathe to consider the issue of control except to say that the market has control.  Let's apply the question of "who has control?" to value added agriculture.

            Value added agriculture is somewhat justifiably the current rage.  Value added agriculture can mean production of specialty products which are differentiated from the generic farm gate version.  It can also mean taking the generic commodity and adding further value before consumer sale.  For example, plain corn sells for less than $2.00 per bushel.  But corn meal is much more valuable.  Cooking the meal into corn bread makes that bushel still more valuable.

            But the question of who benefits most depends upon who has control.  At one extreme, if the farmer produces special food-grade corn and sells it as corn bread, he/she gains the gross revenue and must deduct the costs.  At the other extreme, if an “alliance” with a dominant corporate processor is touted as value added, very little benefit accrues to the farm side.  Further, any beef or pork coops which merely procure product for existing big meat packers are merely another form of captive supply.

 

"Corn is Free"

            Monsanto has been promoting its plant biotechnology to fellow biotech corporations by telling them that corn is essentially a free input.  Jeff Craig, vice president for business development for Monsanto subsidiary Integrated Protein Technologies (IPT), told the crowd at the Bio 2000 Conference in Boston that "Really, essentially, corn is free."  The issue was how the pharmaceutical industry could best produce medical biotech products such as therapeutic proteins and monoclonal antibodies.

            The current method of producing these proteins is through harvesting them in the milk from genetically engineered goats and cows.  Craig argued that the companies could get them much cheaper from fields of genetically modified corn.  "[The revenue model] assumes some variable costs, i.e. farming, but that is really not a significant factor in the world of biotech, " Craig said.

            Producing pharmaceuticals from corn represents the ultimate, so far, in "value added" agriculture.  Yet it illustrates that oft-promoted "alliances" with dominant corporations results in little, if any, benefits to those who grow the corn.  The farmer-as-contractor is merely a cost which must be controlled and reduced in the interest of shareholders.  (Monsanto was recently acquired by Pharmacia, a multinational drug company).

Farmers had a good year?

            Barry Flinchbaugh, Kansas State Univ. ag economist, said that "individual farmers are in trouble… But U.S. agriculture, in the aggregate, had a good year in 1999 thanks primarily to the federal Congress."  Flinchbaugh, who receives a fixed government income from KSU, made the statements in March as chair of the federal Commission on 21^st Century Agriculture.  The 11 member panel will advise the president and Congress on the direction of farm policy when the now-discredited Freedom to Farm Act expires Dec. 31, 2002.

            Of the $48.4 billion in net farm income in the United States in 1999, almost half, or $22.5 billion, came from either federal subsidies or disaster aid - the largest federal aid package since 1986.  Suicides are now the leading cause of death for farmers.  Last year, Illinois lost 25% of its hog farmers.  But Flinchbaugh remains unconvinced of any problems.

            Flinchbaugh also said that small, independent, diversified, sustainable family farms no longer exist.  "We are not talking three sows, three cows, a flock of chickens and a billy goat," he said. "That is dead."  There may not be a lot of billy goats around, but over 90% of farms are small farms.  Flinchbaugh is a sad example of the larger issue of land grant universities prostituting themselves to corporations rather than promoting the public interest.

 

Farm Bureaucrats

            Mike Wallace presented a harshly critical exposè of Farm Bureau on the venerable TVmagazine "60 Minutes" on April 9.  The show highlighted the fact that Farm Bureau is a multi-billion dollar insurance, investment and banking conglomerate which has multiple conflicts of interests with the minority portion of its membership that engages in farming.  Farm Bureau invests millions in agribusinesses that are running farmers out of agriculture, such as Premium Standard Farms. 

            Farm Bureau leaders sit on many corporate boards of affiliated banks and insurance companies.  Ed Wiederstein, Iowa Farm Bureau president, gained $200,000 in stock options last year.  Farm Bureau repeatedly opposes legislation to help family farmers and often lobbies hand in hand with big agribusinesses and their industry associations.  When Monsanto sues farmers for saving and replanting GMO soybeans, Farm Bureau gets the money for a scholarship fund.

            Unfortunately, Farm Bureau responded with accusations that the TV report contained "gross distortions of facts."  A broad mea culpa would have been a better start towards reform.  The "60 Minutes" expose should be used as a catalyst for changing the organization to work for farmers.  A full, written expose, entitled Amber Waves of Grain,  is available to the public at www.defenders.org.

 

WTO strikes U.S. Anti-Dumping Law

            The World Trade Organization tribunal, a secretive and unelected panel of trade experts, has struck down the 1916 U.S. Anti-Dumping Act.  This Act allows federal courts to impose triple damages plus criminal penalties on persons who import goods bought at illegally low "dumping" prices.  The WTO found that the law was a "powerful and dangerous tool to hinder competition from imports."

            The decision illustrates the transfer of sovereignty that U.S. citizens have given up.  If Congress enacts unpopular or even stupid laws, at least the theoretical possibility exists to throw the elected officials out of office and/or get the laws changed.  In any event, domestic legislators are bound to consider many issues besides and including trade.  The WTO only considers trade as the top priority.  Issues of health and safety, supporting cottage industries, promoting food security, etc. all fall in the face of the overarching philosophy of unencumbered trade.

            International trade will increase with or without the WTO.  Whether elected domestic governments retain the ability to make non-trade policy judgments to further the interests of their constituents is a question.

 

Robotics, biotech and nanotech

            In the 1800's, John Ludd and a band of working class citizens roamed the countryside of Industrial England destroying the equipment in factories because they took jobs from people.  Since that time, those expressing even the slightest concern about new technology have been branded "Luddites."  The newest Luddite appears to be Bill Joy, intellectually gifted co-founder of Sun Microsystems, a major computer company.

            In the April issue of Wired magazine, a cutting edge techno-publication, Joy worries about the 21^st Century technologies of mini-robotics, biotechnology and nanotechnology.  His argument is that these tiny, self-replicating technologies give rise to whole new classes of accidents and abuse.  He further states that since systems are infinitely complex, involving interaction among and feedback between many parts, changes in that system will cascade in ways that are difficult to predict.

These words rise above the din of GMO cheerleaders who insist that it is unscientific for consumers not to clamor for Roundup Ready tofu.  Most supportive biochemists are receiving funding from Big Biotech or hold patent rights in a new genetic discovery.  Given that Bill Joy has been, and still is, key to the development of some of these scientific advancements, his warnings are especially significant.

 

Biotech update

·                    A March 31 USDA survey shows that farmers intend to raise 24% fewer acres of Bt corn and about 10% fewer acres of Roundup Ready soybeans.

·                    Coleman Natural Beef of Denver, Colorado has announced that all cattle it buys must be fed non-GMO corn by April, 2001.

·                    Japan, the largest market for U.S. corn, has proposed a zero tolerance for unapproved GMO corn in imports.

·                    Genuardi's Family Markets, a regional supermarket chain based in Pennsylvania, became the first conventional U.S. grocer to take a stand against GMO food.

·                    Fast food restaurants are requiring growers to send them only GMO-free potatoes for french fries.

 

Coop mergers

            After the failed merger attempt last year between the big coops, Farmland Industries and Cenex/Harvest States, their management vowed to try again.  Prior to the merger, OCM member Dr. Robert Taylor, ag economist at Auburn University, conducted a National Farmers Union funded study which revealed that the CEO's and other top management stood to gain millions of dollars personally should the merger go through.  Taylor also found that Farmland faced some financial difficulties which should give Cenex members pause.

Now Farmland and Cenex have announced indefinite postponement of merger plans.  The stated reason was that the ag economy needs to improve before such plans may be pursued.  However, the justifiably heated criticism of the cooperatives, especially Farmland, has only increased in the countryside.

Farmland engages in captive supply practices which drive down market prices in both hogs and cattle.  This captive supply competes with and displaces the livestock produced by member-owners who are independent.  Further, smaller Nebraska pork producers report that Farmland has been refusing to buy their hogs because they are not big enough.  Coincidentally or not, Farmland's top hog buyer has recently stepped down and been replaced.

The traditional, open cooperatives seemed like a good idea in the past.  However, the management interests came to dominate the member interests to the extent that they now behave merely like another big agribusiness.   The only difference is that one can sell agribusiness stock at will, but you are locked into cooperative equity 'til death and beyond.

 

Multifunctionality

            In the U.S. agriculture debate, the citizenry speaks about the environmental, social and cultural benefits of diverse family-style production agriculture.  However, the prevailing school of thought within the politically dominant sector of the economics profession disregards these factors as "externalities".  Other countries have incorporated the externalities within a doctrine called "multi-functionality."

            For example, the Japanese government presented the following view in preparation for last year's World Trade Organization meeting in Seattle: "Agriculture not only produces/supplies agricultural products, but also contributes to food security, by reducing the risks caused by unexpected events or a possible food shortage in the future, to the preservation of land and environment, to the creation of a good landscape and to the maintenance of the local community, through production activities in harmony with the natural environment.  All of these roles are known as the ‘multifunctionality’ of agriculture.”

            The Japanese further state, “The multifunctionality of agriculture has the following characteristics: (a) Most aspects of multifunctionality are regarded as economic externalities and it is difficult to reflect their values properly in market prices.  Though it is closely related to production, it cannot be subject to trade; (b) Market mechanisms alone cannot lead to the realization of an agricultural production method that will embody the multifunctionality of agriculture."

            Look for the idea of multi-functionality to become increasingly important in future farm and food policy debates.

 

The small farm boom

            According to the Los Angeles Times, 15,700 small farms sprang up last year.  The boom was so dramatic that it more than offset the numerical loss in medium and small farms.  But these are not farms which will sustain a family living.  They sell less than $10,000 in goods annually.

            Interestingly, it is testament to the fact that many people want to farm, even if they have no farm background.  This New Agriculture tends towards production of food which consumers buy more directly from the farm.  "You have the potential to get more profit out of 20 or 30 acres dealing directly with the consumer than you did with several hundred acres" on the traditional commodities market, says Charles Ellis, an ag outreach advisor for the University of Missouri.  Some conventional farmers are transitioning to direct marketing and making more money on their fledgling enterprise than the commodity enterprise.

            This is not an excuse to abandon the pursuit of solutions for commodity agriculture.  But, there would be poetic justice involved if droves of both new and established farmers shifted from producing cheap inputs for Cargill and bypassed the retail food giants to sell direct to consumers.  That's how the farmers broke down the consolidated food infrastructure in China.  (See, "How Farmers Changed China," by Kate Xiao Zhou, Westview Press, 1996).

 

Drabenstott's latest research

            Mark Drabenstott thinks that rural communities can gain "significant opportunities" if they attract a big meat packer to their area.  Drabenstott is the Vice President of the Kansas City Federal Reserve Bank and Director of the Fed's new Center for the Study of Rural America.  This newsletter has criticized the Center as a "research mill" in Drabenstott's image.  We now have a clearer view of the truth of that statement.

            In an article published in the March 6 issue of Feedstuffs magazine, Drabenstott declares that the meat packing and processing industry is an economic powerhouse which can benefit rural communities.  While he acknowledges that falling meat packer wages are a "puzzle", Drabenstott concludes that if environmental impacts are "understood and embraced", rural communities will have "clear opportunities for meat industry expansion."

            More objective research has already documented these “opportunities” should IBP or Premium Standard Farms build a plant near you.  Communities have the “opportunity” to hire more police officers to fight rising crime rates.  They have the “opportunity” to pay more in taxes for overburdened social services and schools due to a major influx of workers being paid poverty wages.  They also have the “opportunity” to give corporate welfare to these corporate giants from already depleted public coffers. 

            It is comforting to know that Drabenstott is shedding more light on rural development issues with his new taxpayer supported Center.  On April 27 and 28, Drabenstott held a conference at the Center called "Beyond Agriculture, New Policies for Rural America."  Cost of admission was at the egalitarian price of $350 per person.

 

Smithfield Foods

            In the 1980's, Smithfield Foods was an obscure pork packer in the Southeastern U.S.  But it helped fuel the boom in factory hog production in North Carolina and the decline in family hog farms there.  Successful Farming reported that, in 1992, corporate farms there received an average of $51 per hundred while family farmers received $39.

            Smithfield moved to the Midwest through a purchase of the John Morrell hog plants in Sioux City, Iowa and Sioux Falls, South Dakota becoming the biggest pork packer in the world.  It has expanded into France, Poland and Mexico.  It also produced large volumes of pork.  Effective January, 2000, Smithfield bought Murphy Farms to become the biggest pork producer in the world.

            In March, Smithfield announced it had an option to buy the Farmland hog packing plant in Dubuque, Iowa.  Many worried that Smithfield would close the plant.  In April, it confirmed that worry in announcing that it would close the slaughter operations at Dubuque and only process meat slaughtered in other facilities.  The area pork producers will lose a major market outlet.

            Smithfield also announced that it has bought 800,000 shares of IBP because it was "a darn good investment."  Its investor relations director, Michael Miller, said that the block of stock was insignificant compared to the huge amount of IBP stock owned by ADM.

CEO Joseph Luter, III runs the company from his New York City apartment on Park Avenue as he draws approximately $15 million as a compensation package.

 

[Edited by Michael C. Stumo]