Farm commodity subsidies are absurd, so they make great news stories and action alerts. They’re almost always misunderstood, however, and easily lead progressive activists astray.
In the big picture, there’s never been a need for any farm commodity subsidies. Farm commodity prices do not self correct, so prices are usually low in free markets. Subsidies are given to compensate farmers for market failures. That point is almost never mentioned in discussions of farm subsidies. (Food movement books are of little help, as they rarely provide any of the needed context, such as the failure of markets to self correct, with prices being usually too low, and the fact that subsidies are partial compensations, etc.)
Farm subsidies aren’t needed in the big picture, because we’ve long had the ability to use price floors and supply management to set prices up at “minimum wage” or “fair trade” levels. (Under these programs, instead of getting subsidies from the government, farmers paid into the program as they pay interest on price floor loans.) The US is price leader and has long had the ability to set world market prices for major commodities. We’ve chosen to lose money on exports, to dump grain onto world markets at prices that were low or even far below our costs. Pouring our wealth out to foreign buyers (and destroying markets for farmers world wide,) has never made any sense. OPEC, in contrast, has chosen to raise prices, using their market clout (market share) to make a profit. The major purpose for losing money has always been to subsidize (secretly, off the books,) the agribusiness output complex, the corporate grain buyers with cheap, below cost farm commodities. A secondary purpose has been to maximize production (overproduce) in order to maximize the land on which the agribusiness imput complex can sell inputs. A third purpose is to blame farmers, the victims, for the absurdities, while protecting the exploiting corporations from public scrutiny.
The case for farm subsidies is that they’re needed by farmers, including small and disadvantaged farmers, under the absurd farm bills where the US chooses to lose money on exports.
At present we have a huge food movement that is aware that: 1. cheap, below cost corn and other commodities causes or contributes to a large number of problems. We see this in the new food books and films, and in a huge number of blogs, online videos and related comments. 2. The “Commodity Title” of the farm bill, the part that includes farm subsidies, is the location of the policy program. That’s a second fact known in the food movement. The food movement is so big, that the timing is almost excellent for fixing these problems.
Previously, the family farm movement, the historical leaders on these issues, failed to have sufficient clout to win, and politicians, (specifically the Democratic Party) dropped the issue. This happened prior to the 2002 farm bill, when Iowa Senator Tom Harkin became chairman of the Senate agriculture committee. All of the leading Democratic Senators and Representatives (ie. Paul Wellstone, Tom Daschle, Dick Gephardt, Dennis Kucinich,) then switched their support to a (somewhat greened up version of the) Republican “Freedom-to-Farm” type farm bill. Freedom-to-Farm provided for “decoupled” subsidies. Decoupling refers to separation of farm subsidies from ideologically imagined farm planting decisions. It’s a bogus theory, but has had a huge influence on politicians, as it gives them an imaginary excuse for caving in to corporate influence (low farm prices for corporate buyers). The excuse has played very well in the media, which has never accurately covered this story.
Freedom-to-Farm failed drastically almost immediately. The Republican plan, (like progressive farm subsidy “reforms” today,) was to eliminate the new subsidies and leave farmers at the mercy of free markets that don’t self correct, that usually leave farmers with low prices, that usually lead to the US losing money on farm exports. The spin was directly opposite of the facts (ie. data on inelasticity, the lack of price responsiveness in markets on both supply and demand sides; the record of farm bill in history related to this; data from Canada, Mexico, and Australia where subsidies were eliminated; data from major econometric studies: see “Michael Pollan Rebuttal;) that this would lead to prosperity. As a result of this extreme Republican failure, four emergency farm bills were passed in four years to increase, rather than decrease, the subsidies. Meanwhile we had the lowest farm market prices in history 1998-2005 (adjusted for inflation , ie. 8 of the lowest 10 corn prices, going back to 1866, lower even than the Great Depression).
Direct Payments, the original Republican Freedom-to-Farm subsidies, are among the most absurd subsidies of all, so the case for why farmers need them is more difficult to make than with Loan Deficiency Payments (LDP) and Counter-Cyclical Payments (CCP). Direct Payments are given to farmers whether they need them or not, so they best represent the Republican ideal of decoupling. Direct Payments were widely supported, either directly or indirectly, during work on the 2008 farm bill. The popular language at that time was a call for “farm subsidies that do not distort trade.” That was code language for sticking with Direct Payments instead of LDP and CCP subsidies, and it was based upon the ideology of decoupling. Decoupling subsidies were said (by free traders) to not distort trade. This language was supported, for example, by the National Corn Growers Association, (not to be confused with the American Corn Growers Association!), Bread for the World, and the Religious Working Group on the Farm Bill.
The case for farm subsidies, including Direct Payments, for the 2012 farm bill, is that, while they’ve never been needed except as compensations for bad farm bills, and while the huge food movement is now opposed to bad farm bills, there is almost no factually correct discussion of these issues in the food movement today. As a result, there is little political support for effectively fixing the farm bill. There is little chance that the food movement will oppose cheap corn (etc.) in work on the next farm bill. There is little chance of factually correct opposition to cheap corn, that is. There will, of course, be massive false advocacy, in support of cheap corn (mere subsidy reforms with no price floors and supply management), but assumed to be opposed to it (ie. opposed to subsidies, as though, contrary to the evidence identified above, subsidy removal will raise the prices of farm commodities).
Without the political possibility of raising price floors, (ie. given the failure of the food movement to correctly advocate on the basis of it’s own values,) progressives must support farm commodity subsidies. The lack of price floors (the absurd situation where subsidies are needed,) hurts family farmers, (including organic farmers and disadvantaged or minority farmers). In the short run, since there is little hope of correct reforms, farmers need subsidies to buy time and keep in business. The hope is that by the next farm bill after 2012, the food movement will stop supporting the very agribusinesses that they sometimes aggressively oppose (ie. start supporting price floors and supply management). At that time, on the basis of whatever family farmers still remain in business, the US farming system can begin to be correctly reformed and healed.
A key category of information left out of the current barrage of criticism against Direct Payments is that there were no cost of production increases in subsidy triggers in the 2008 farm bill. Meanwhile, production costs have risen dramatically. What that means is that LDP and CCP subsidies are now not given until farm market prices fall much farther below the cost of production than was the case in 2002. What this means is that the stage has been set for a massive farm depression. Subsidy increases, including Direct Payments, are needed to prevent massive damage to the US farm system, should farm prices fall.
Here are the specifics. In the 2002 farm bill, the trigger for CCP trigger for corn was set down at $2.60 (2002-03), and later $2.63 (2004-07). In the 2008 farm bill the CCP trigger for corn was kept down at $2.63, with no cost of production increase. (The formula for the subsidies is 85% of historical “program” acres x [lower] historical yield x amount below trigger, [ie. 10¢/bu if prices fall below $2.60 to $2.50] up to a maximum of about 40¢/formula bushel [40¢ below the trigger at $2.23]). Next, in the 2002 farm bill, the trigger for LDP trigger for corn was set down at $1.98 (2002-03), and later lowered to $1.95 (2004-07). In the 2008 farm bill the LDP trigger for corn was kept down at $1.95, with no cost of production increase. (See other crop comparisons for CCP and LDP in “2008 Farm Bill Side-By-Side.”) Meanwhile 2002 costs of production for corn were in the $2.55-$3.04 range, while 2011 costs were in the $3.87-4.50 range, an increase of about 50%. Meanwhile Direct Payments were lowered (in formulas, from 85% of program acres to 83.3%). In short, in 2011 corn prices now would have to fall an additional $1.40 below the cost of production (compared to 2002) before any compensatory subsidies are given. Short of that, CCP and LDP subsidies were effectively eliminated in the 2008 farm bill.
The progressive movement, the progressive media, the food movement in particular, and the mass media failed recently to understand the dairy crisis and address the needs of dairy farmers, in direct contrast to their professed principles. In the 1990s, (when the food movement was much smaller,) they failed to understand and advocate effectively during the hog farming crisis (8¢/lb hogs). Each of those crises was devastating to farmers. As with these crucial failures of progressive advocacy, if these and similar groups also fail to prevent a general farm crisis after the current period of somewhat higher prices, the massive damage to the family farm alternative will also be very difficult to fix. That’s why increased support for farm commodity subsidies is so crucial today. Direct Payments, in particular, are one subsidy farmers can get, even if farm prices fall only $1.30 below the cost of production, under the absurd farm policies of today.