Farm update: trying to find something that works

By MARGARET S. KNOEPFLE

Farm update: trying to find something that works

Harvest, 1986, Illinois. "It was the biggest pile of corn I've ever seen. My grandpa said it was the best corn crop he had ever seen in all his years of farming," says Joseph Connor. He and his uncle rent his grandfather's 100-year-old farm outside of Beardstown. There's too much corn to fit in the bin on their land. They have to store some in a wagon in the barn.

The harvest projections for Illinois as of November 14 were 1.421 billion bushels of corn, the fourth largest ever with record yields per acre, and 376 million bushels of soybeans, the second largest soybean crop and yield.

"The grainhandler gets 36 cents per bushel from the government to store and the farmer gets 26 1/2 cents to store," says Harold Dodd, president of the Illinois Farmers' Union. "That's part of the $35 billion cost of the 1985 farm bill. Multiply that by the rest of the state, and you can see the problem caused by the surpluses."

Another problem may be spoilage.

In October corn dropped below a dollar a bushel. At that price, says Jim Stout of Glenarm who farms 2,800 acres of corn and beans near Springfield, "You can talk all you want about new uses for corn — plastics, fabrics. But right now you could do as was done in the Depression and burn it in the utility plants. What a waste when people are starving." Stout adds, "We've got a surplus of five and a half billion bushels of corn. That's enough to go a year without planting anything."

New hills of grain popped up all over the Midwest following the 1986 record harvest. There was no place to store it with grain elevators still glutted from the 1985 harvest. Photo by Roger McCredie

What are we growing all this corn for? The answer is that world markets went sour just as worldwide production of corn and beans peaked. Farmers all over the world are caught in the old cost/price squeeze. In fact farmers in the U.S. have been in a depression since early 1980s, kept in business by income support from the government and income from off-farm jobs After much debate, Congress passed the 1985 farm bill. Its strategy is to protect farm income while at the same time bringing down grain prices in order to make U.S. crops competitive on the world market. Debate on the bill included agribusiness and financial interests as well as the usual big commodity interests, ranging from dairies to sugar producers.

In 1987 the farm policy debate may become even wider. Populist farmer groups, environmentalists, labor unions and ever church groups are challenging the premises of the 1985 farm bill.

There is no consensus among farmers or nonfarmers for what to do, but the debate is beginning to broaden enough to encompass the problem. Ultimately, the big question both here and abroad is: Who gets the food and who owns the land?

At the center of all this debate is the U.S. farmer in trouble — generally the owner of a mid-sized commerical farm with annual sales of $40,000 and above. Although these farms only account for about 20 to 30 percent of the nation's farms, they are in the key middle sector of the agricultural economy. They are family-owned, family-run sophisticated business operations, but the family rather than hired workers supplies most of the labor. Without them, the U.S. farm economy would be polarized: the few very large farms already producing most of the farm goods in the nation vs. a large number of very small farms dependent on other income for suvival. By the year 2000, approximately 50,000 of the largest farms (defined as producing annual gross sales of $200,000 and above) will account for 75 percent of the U.S. agricultural production, according to the Congressional Office of Technology Assessment.

The debate over the farm policy is going to focus on cost of subsidies and surpluses. It's going to focus on bailing out the farm credit system and restructuring the debts of individual farmers. It's going to focus on how much government should be involved in decisions to raise and sell crops. It will probably introduce new concepts: the need for diversity in farm research, marketing and ownership. That may mean restoring balance where smaller farms and young farmers don't have access to the research and financing they need. Finally the debate may move beyond slogans like "free trade v. isolationism" and "family farms v. international conspiracies."

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The cost of the 1985 farm program is under attack. Even those who believe that $35 billion is a pretty fair price to support the farm economy will be hard pressed to defend the costs of subsidies against deficit-cutters and those who want to replace subsidies with production control or target them to small farms. The premise of the 1985 farm bill is that if the government supports farm income at the same time it allows grain prices to fall to market levels, U.S. farmers will finally regain their share of the export market. To oversimplify, the U.S. is fighting export subsidies with export subsidies. The hope is that if U.S. grain prices drop enough, the subsidization practices of other nations like the European Common Market will begin to pinch their economies.

As to export subsidies, the first escalation in the grain war came from Canada. Scott Schearer, former aide to U.S. Sen. Alan J. Dixon (D-Belleville) and now executive director of the National Corngrowers Association, explains that Revenue Canada (the Canadian Department of Commerce) put a countervailing duty on all corn being imported from the U.S. "It said our government loan program, deficit program and target price are unfair subsidies," according to Schearer.

The 1985 farm bill "came out pretty well," according to Abner Womack, co-director of the Food and Agriculture Policy Research Institute at the University of Missouri at Columbia. He says that the export market has turned around, farm income is up slightly and the farmers have price supports frozen over the next three years. "Better be sure before you make changes," cautions Womack.

Bill Rowe of the American Agriculture Movement faults the premise. He says, low prices only help the middlemen. " You should recognize that the 1985 farm bill was not for farmers. It was for exporters and processors: A.E. Staley, Archer Daniel Midland, Nabisco. Check the records. Those big corporations call themselves 'farm coalitions.' Yet ADM's profits were up 33 percent last quarter." He says that the people really cleaning up are the corporations handling PIC [Payment in Kind] certificates. They wrote the farm bill, and they're pulling in the dollars."

Golden 70s and Depression 80s

U.S. farmers entered the global markets in the 1970s with the famous Soviet crop failure which dangerously lowered grain reserves. Between 1971 and 1973 U.S. agricultural exports more than doubled, and they continued to hit record highs every year through 1981 when they accounted for $43.8 billion or 19 percent of world exports. Farmers were carrying the U.S. economy in the world market. Good as that sounds, the golden 1970s had ended in 1976 for many farmers. Demand did not prove to be as stable as promised. For example, in 1976 U.S. farmers produced bumper crops, but so did everybody else, including the Soviet Union. Furthermore, costs increased. Because of OPEC, farmers paid higher prices for fuel and fertilizer. The price of land also went up, partly because farmland attracted both domestic and foreign investors seeking profits, stability and tax shelters.

In short, to earn more a farmer had to produce more. To produce more he had to buy more land and more equipment at inflated prices. Often he had to go into debt at high interest rates to make these purchases; this was particularly true of people who began farming in the 1970s. The advice they got from their agricultural schools, from their agribusinesses suppliers and from their banks was: "Go for it."

It was an era in western Nebraska where investors purchased marginal land, bulldozed groves of trees planted in the 1930s, and planted 160-acre tracts of corn — the size and circular shape determined by the reach of irrigation systems emanating from central wells. After the harvest, the wind blew away the topsoil. In North Carolina investors developed big coastal soybean farms dependent on fertilizers, raising questions of pollution in the coastal waterways. All farming of marginal land is in trouble now. Nebraska is becoming a state of ghost towns; those North Carolina investors can't pay for the fertilizer and still make a profit.

By the mid-1970s, farmers were feeling uneasy. In 1977 Bill Rowe of Bethany, who farms 2,550 acres, went to a meeting in Taylorville of the American Agriculture Movement, for which he is now legislative liaison. "A guy from Georgia was there telling me what was happening," he recalls. "The farmer/producer's fate is important to all of rural America."

Between 1979 and 1980, oil prices and interest rates skyrocketed. For wheat farmers, according to Farm Policy: the Politics of Soil, Surpluses, and Subsidies, the per-acre cost grew by 20 percent while the average market price grew 6 percent. That was the year the tractorcades went to Washington.

Exports peaked in 1981 at $43.8 billion or 19 percent of the world market. One in five jobs in the U.S. was tied to agriculture which was tied to the global market. In 1982 U.S. exports dropped to $39.1 billion and 18 percent of world exports. Exports dropped again in 1983; they rose in 1984 but market share did not rise. In 1985 U.S. exports were down to $31.2 billion and 15 percent of the world market share. In 1986 U.S. exports are estimated to be 26.5 billion, another big drop. Indeed, during June, July and August 1986 U.S. agricultural imports exceeded exports. Since August agricultural exports have risen and took a sharp jump in October.

When grain prices began to fall and markets began to shrink in the early 1980s, the value of U.S. farmland also plummeted. Between 1982 and 1985 the U.S. Department of Agriculture estimates that farmland values fell by $146 billion. That is "equal to the combined assets of IBM, General Electric, Eastman Kodak, Proctor and Gamble. Dow Chemical, McDonalds, RCA, Upjohn, Weyerhaeuser, and CBS," according to Governing the Heartland, prepared by the U.S. Senate Committee on Governmental Affairs. In Illinois the price drop has been steeper than in states with less attractive farmland: Prime farmland bought in the late 1970s for $4,200 an acre is now worth $1,500 an acre. The result? Equity wiped out and with it a farmer's ability to borrow to keep in business. Cheryl Dambacher, family farmer from Divernon, sums it up: Those in trouble are "farmers who bought land in the 1970s, young farmers or farmers in debt because of bad investments."

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Jim Gill, commodities director for the Illinois Farm Bureau, disagrees: "The difference between the farm price and the consumer price is largely in wages supplying jobs to more people." He cites the food processing industry as one example. "There's very little profit in the food processing business," he says.

Dissatisfied completely with the 1985 farm bill are the backers of the proposed Harkin/Gephardt Save the Family Farm Act. Its basic premise is to guarantee farm income by greatly increasing government loan rates and to control surpluses through farmer-approved supply management. Farmers would get a marketing certificate allowing them to sell an allotted amount of their crops. Restrictions are firm on what a farmer could do with crops beyond his allotment. No farm would have to cut production more than 35 percent, but big farms would have to cut a greater percentage than the small ones. The bill would end the big surpluses owned by the government, though it would provide for a disaster reserve. Proponents say it would cut the federal budget by $20 billion by eliminating subsidies that mostly help big farms and big grain elevators.

The buzzword for the Harkin bill is supply management. "That would be the worst thing to ever happen," according to Dale Robinson of Monticello who farms 800 acres, about half rented. "It wouldn't happen in my lifetime, but your kids some day would be hungry. If you don't free enough land doing the thing it does best — that is, produce — then you have problems." Robinson has no problem with programs designed to preserve marginal land from being wasted by row crops, but he has no faith in programs like the Harkin bill that attempt to raise farm income by cutting back on supply. He says, "The cure for low prices is low prices. Let's see how things work out with these low prices [under the 1985 farm program]. If they want to fool with anything as far as the farm economy is concerned, [the government] should look for alternatives for products we produce. We need more value-added production." He adds, "It disturbs me to sell raw products to foreign countries. They do the value-added work and send it back to us."

Lloyd Reeser of Weldon, who grows cash grain and has farmed for 41 years, agrees with Robinson on one point. "Self-sufficiency is what we're talking about," he says. "Instead of transporting this stuff all over the place for other nations to process, why should we export our commodities? Why shouldn't we process and use them at home?" he asks. "Lincoln faced this problem back in the 1860s. England wanted to sell him rails. Lincoln said, 'If we buy from you, all we have is the rails. If we make them ourselves we will have the mining, the smelting, the manufacturing.' "

But Robinson and Reeser disagree about most other aspects of farm policy. Reeser, who was state coordinator for the Farmer-Rancher Congress held in St. Louis in September, says: "In 1985 people said you just need a lower price. That will increase the export sales, but it will also ruin the farm economies of other countries. . . . Promoters of this lower price of corn said, 'Just get it down 10 cents a bushel lower.' It is now down to $1.50 a bushel and still can't move. . . . If there were a proper and fair price for agricultural products, third world countries could develop their own agriculture and industries."

Under the Harkin bill, consumers would pay higher food prices — 4 percent by one estimate. The bill does make provision for the poor by increasing Food Stamp benefits and other programs, but it would be a reversal of U.S. policy which has kept the percentage of income that Americans spend for food lower than anywhere else in the world.

The bill's new export provision appears to maintain a protectionist policy. It requires the use of an export payment in kind program to assure that the U.S. gets a share of the export market until excess carryover stocks are eliminated. It calls on existing law to prevent imports from interfering with the price support program.

Left unaddressed in the 1985 farm bill was the farm credit crisis. The Harkin bill has a section called the family farm debt restructuring program. It provides for interest-free block loans to states that implement debt restructuring programs. States must also establish mediation programs that bring in a neutral third party to advise a farmer and his banker on restructuring the farmer's debt.

One of the major tasks for the 100th Congress will be to decide what to do about the farm credit system and debt-plagued farmers. This coming year is crucial for many farmers with high debt ratios who have been scraping along for the last three to four years. At a recent meeting in Washington the word from the commercial banks was "risk management" — meaning that farmers who are considered risky will not get any more credit. The Farmers Home Administration, an executive agency that makes loans to farmers who can't get credit elsewhere, said it would continue to provide farmers with credit this coming year but only those "likely to make it." Those kinds of comments indicate that farmers and bankers are still far apart.

While Congress talked, many states acted. Illinois instituted a debt restructuring program and a farm legal assistance program. As of November Illinois had provided $87 million to restructure debts for 430 loans held by farmers in 79 counties. At the end of September the legal program had 706 participating lawyers in 89 counties reporting 897 referrals from 1,686 calls on its telephone hotline. Its purpose is to advise farmers on their financial options and to encourage the farmer and his banker to talk to each other. Specific grants go to two legal assistance foundations to provide services to low-income farmers who need help with the Farmers Home Administration or other creditors. Meanwhile, this summer there were well-attended hearings on a proposal for state legislation requiring mediation on farm foreclosures.

Debt restructuring. Markets. Prices. Crops. Hunger. Technology. The farm debate reaches from Joe Connor's barn to the European Common Market nations, our "intimate enemies." It includes the U.S.S.R., where we have alternately sold and boycotted. Iran, where U.S. experts helped dictate ag policy during the Shah's reign. India, home of the green revolution. China, where they're trying free enterprise on the farm. Brazil, where a land war is raging between ranchers and peasants, and Nicaragua, known as the pesticide capital of Central America during the Somoza regime. Girard, where Ann Lehmann's family farms 1,000 acres and has diversified into raising sheep. As she says: "It all starts with the land."

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