The Institute for Agriculture and Trade Policy promotes resilient family farms, rural communities and ecosystems around the world through research and education, science and technology, and advocacy.
Founded in 1986, IATP is rooted in the family farm movement. With offices in Minneapolis and Geneva, IATP works on making domestic and global agricultural policy more sustainable for everyone.
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About Think Forward
Think Forward is a blog written by staff of the Institute for Agriculture and Trade Policy covering sustainability as it intersects with food, rural development, international trade, the environment and public health.
March 31, 2009
Farm Leader Merle Hansen Died March 27, 2009
A dear friend of IATP has passed away. Merle Hanson was a farmer whose gentle and loving way taught a whole generation of farm activists what democracy meant. If you read his obituary, you will see that his life describes the sweep of history that covers modern agriculture in its entirety. At each phase, from farm strikes to presidential campaigns, Merle was always present to represent farmers and to ensure that justice was at the root of all we did.
For those of us who came to the farm movement in the 1970s, Merle was the crucial bridge between the old New Deal farm movement of the 1930s, Farmers Union, the National Farmers Organization and the emerging sustainable agriculture movement. The Cold War and red scares of the 1950s and '60s had driven many progressives away from social movements. This was true across the entire spectrum of social movements in the United States. When a new generation of activists appeared in the 1960s and '70s, progressive leaders like Merle were few and far between. It took real courage to stand up to the fear-mongering and anti-Communism that dominated the nation. Merle introduced young farm activists to the old leaders who had created the successful farm programs of the New Deal. He and his family in Newman Grove, Neb., were our link back to the old prairie populists. It was Merle who taught us the importance of learning from those who came before and the need to keep moving forward, never losing sight of what was worth fighting for.
No matter what decade, no matter what struggle farmers were going through, Merle was always there. I’ve lost track of dates, but I remember a night in the mid-'70s, in the small town of Defiance, Iowa, where a couple hundred angry farm families were gathered at a Catholic church to kick off a tractor rally that would take them to Washington, D.C. The organizers of the tractorcade—the leaders of a new farm organization called the American Agriculture Movement (AAM)—asked to meet with Merle and Fred Stover, an Iowa farm leader, after the meeting. I was invited along to help with the nighttime driving.
The AAM guys had called on farmers from all over the country to drive their tractors across the country to Washington to tell the government that all was not well back on the farm, and they had thousands getting ready to drive. That night in Defiance, the local priest had the crowd so worked up that I started edging toward the door, fearing something violent would happen. We all knew this level of outrage and desperation was being felt in every farm community in the country. After the rally, we met the AAM leaders at a motel on the edge of town. They were a little nervous, about six or seven big guys all standing against the wall, nobody feeling comfortable enough to sit on the bed. After a few minutes of hemming and hawing one of them finally said, “Well, we hear you fellows are little pink, but we need your help. We’ve got a lot of people ready to go to Washington, but we don’t know what to ask for when we get there. We know it’s not working, but we need some help saying what it is we want the government to do.”
There was a short silence as we let the pink comment pass and then Fred and Merle went through some farm policy history, and how we got into the mess we were in. Fred said Merle was the best person to help them out in Washington, and without hesitation Merle agreed to go. He helped shape their campaign for parity—the concept that farmers should receive a fair price for the food and fiber they produce.
There will be so many stories told about Merle in the coming months, and I hope to hear as many of them as possible. For instance, I look forward to hearing again from Arie van den Brand, IATP’s board chair from the Netherlands, about the summer he spent driving across the Midwest in an RV with Merle, going farm to farm to talk with people—lots of stories there. Merle’s life was full of grace and wit and love. He gave those of us with so much less experience and knowledge the hope and belief that our actions do make a difference.
March 30, 2009
Devin Foote is a 24-year-old beginning farmer at Common Ground Farm in Beacon, New York. Throughout the growing season, Devin will be chronicling his experiences as a young farmer growing for a local food system.
March 24, 2009
The greenhouses have been a whirlwind lately. Between hustling the endless trays of newly seeded lettuce (round II), cabbage, kale, chard, kohlrabi, peppers and snapdragons, we've been attempting to squeeze tables together to see how many we can fit in the big greenhouse. Somewhere in the process we’ve been setting up a new heating system (see right).
Local farmers claim that this new Instant-On Hot Water system will reduce our propane bill down to 10 percent of the original cost (see water tubes, left). Trial-by-fire is our motto, since we are only the third farmers in the area to implement such a system.
Across the river Ron and Kate Khosla put in a similar system at Huguenot Street Farm, and they have been an excellent resource in our new endeavor. As a side note, Ron has worked at length with the United Nations, and has been hired by the UN-FAO as an International Organic Certification Consultant. He designed a Participatory Guarantee Scheme (PGS) for India's Organic Agriculture Council, which is now operating successfully with tens of thousands of farmers. He has worked closely with an alternative certification system—Certified Naturally Grown—enabling growers who meet USDA organic standards to avoid the bureaucracy and paperwork associated with becoming USDA Certified. On a personal level, he has been a great asset in discussing the national and worldwide implications of linking policy and farming.
The second grower in the area using the Instant-On system is Jack Algiere in Pocantico Hills at the Stone Barns Center (see right). Jack is another young grower who has become a great inspiration to me. He grows year-round for chef extraordinaire Dan Barber at Blue Hill Restaurant at Stone Barns. Just this past week we visited Stone Barns, where Jack showed us their $2 million Dutch greenhouse and walked us through square foot greenhouse numbers in relation to economic viability for year-round production.
This is a topic both Tim and I have focused on at length while a part of the year-round CSA at Michigan State (see left).
The main purpose of our visit to Stone Barns was to meet with long-time farmer and food systems thinker, Fred Kirschenmann, the President of Stone Barns. I’m still happily writing down notes from the discussion.
The farm here in Beacon is moving along. It’s amazing what the sun has done to our spring cover crops. The fields are beaming with mammoth red clover and I’ve noticed evidence of hairy vetch in last year's winter squash patch. Both are leguminous and will therefore fix nitrogen to our soils if able to grow long enough. Along with the sprouting of cover crops, we are unfortunately already seeing weed growth, the majority of which is chickweed. In response, we’ve taken to weeding the garlic and taking a trip to the local municipality to inquire about obtaining leaf mulch. Leaves are not only a great phosphorus additive for crops like garlic but help prevent weed growth, conserve moisture and are free! When garlic harvest rolls around you can turn them in, which adds an excellent source of organic matter to your soils.
March 26, 2009
Time to sign up for a CSA share!
Spring is coming…really. Now is the time to sign up for your community-supported agriculture (CSA) share—farm subscriptions are filling up fast! Community-supported agriculture is a concept where consumers pay upfront at the beginning of the season and then receive a weekly box of farm fresh, seasonal produce from approximately June into October.
There are many reasons why I love CSAs. I love to support local, sustainable agriculture. I love knowing where my food is coming from and what's happening on the farm. Finally, thanks to the CSA, my husband and I eat exponentially more vegetables than we would ever buy on our own.
If you're in Minnesota you can get started by checking out the Land Stewardship Project's CSA Farm Directory. Nationally, Local Harvest has an excellent directory of CSAs. Try not to get overwhelmed by the number of farms to choose from. In my opinion, the main factor to consider is the pick-up location. It must be convenient, and on a day of the week that makes sense for you. If you head out to the cabin every weekend, either a Thursday pick-up would be perfect—you'll have lots of delicious veggies to eat over the weekend—or not ideal, if the veggies sit and wilt in your 'fridge, waiting for your return. Also, think about splitting a share with a neighbor or friend.
Many farms offer farm access. These days, it seems few farms are requiring member work days. However, if you LIKE getting your hands dirty, most farms welcome the help. Many farms have festival days throughout the summer, which is a great outing for kids.
A CSA share is a great investment—and also a great value. The cost of my CSA breaks down to $12 per week each for my husband and me. It's a good deal. My other key CSA recommendation is to pick up a copy of Mark Bittman's How to Cook Everything Vegetarian. This is one of my favorite cookbooks (and I'm hardly a vegetarian); not so much a collection of recipes as tons of really accessible advice on how to fix every possible vegetable. I guarantee that it will help you get the most out of your CSA share.
March 24, 2009
Why Don't We Have Sustainable Agriculture Now?
Dr. Richard Levins, Professor Emeritus of Applied Economics at the University of Minnesota and former IATP Senior Fellow, gets to the heart of one of the biggest challenges we face in agriculture. In a March 1 speech at Iowa State University, Dr. Levins uses a matter-of-fact style to challenge some of the conventional ideas about why sustainable agriculture isn't more widely practiced in the U.S., such as not having enough field research, farmer education or proof of the profitability of sustainable agriculture.
"Why has it been so difficult to bring about sustainable agriculture on a large scale in the United States?" Dr. Levins asks. "I think we would be closer to answering these questions if we face the fact that farmers no longer sit in the driver's seat of our contemporary food system. We are entirely too quick to say, for example, that we have problems with farm chemicals because farmers use them, not because farm chemical companies develop, manufacture and promote them. Clearly, farmers are not the decision makers in poultry production and much of hog production due to contracting. Beyond that, the economic environment in which farmers work is increasingly established by agribusiness and retailers, not by farmers."
As Dr. Levins points out, to make the system-wide transition toward sustainable agriculture, we must acknowledge who controls the food system. "Not only does money talk in our food system, more and more it shouts," Dr. Levins writes. Farmers and consumers need more decision-making power in the food system. But, Dr. Levins writes, "We cannot pretend that they do when they are mere ants among elephants in our food system. Rather, we must contemplate an economic structure in which they have real and substantial control." Read the full speech here.
March 20, 2009
How to Strengthen Global Food Safety
When it comes to public health issues, the global food system is a mess. Food safety standards vary greatly from country to country, as does the enforcement of those standards. How do we clean up this mess? A new issue brief has some answers.
Last year, the International Assessment of Agricultural Knowledge, Science and Technology for Development (IAASTD) issued a series of reports on various aspects of the global food system. IATP's Steve Suppan was the lead editor of "Food Safety, Plant and Animal Health: Human Health and Sustainability Dimensions."
According to the brief, "Foodborne disease is estimated to affect 30 percent of the population in industrialized countries at some time in a given year. In developing countries, foodborne disease accounts for an estimated 2.1 million deaths annually."
The brief outlines the difficult challenges of foodborne disease for human health as well as plant and animal health. It highlights the existing international regulatory frameworks and lays out a series of policy options, including: strengthening surveillance systems, establishing regional or national food safety trust funds, expanding WTO "aid for trade" commitments to include food safety infrastructure, providing increased international support for food safety measures and standards, and investing in public funds to promote participation of small-scale farmers.
Thus far, the IAASTD report hasn't received the attention it deserves. It includes the wisdom of several hundred experts from around the world, the support of international agencies like the United Nations and the World Bank, and was endorsed by 57 countries. Finding the political will to transfer the IAASTD's recommendations into action continues to be a struggle. On food safety, we can't afford to wait.
March 18, 2009
You may have read New York Times columnist Nicholas Kristof's frightening story about small-town doctor Tom Anderson and his subsequent column on the connection between confined, industrial hog farming and the presence of methicillin-resistant Staphylococcus aureaus (MRSA). A recent study found MRSA in 45 percent of hog farmers and 49 percent of hogs tested in Iowa.
The cause is believed to be the large amount of antibiotics used in animal feed for healthy animals. The Union of Concerned Scientists estimates that 70 percent of all antibiotics in the U.S. go to healthy food animals to promote slightly faster growth and to compensate for crowded, stressful conditions at industrial-scale livestock and poultry facilities. Many of these antibiotics are the same that are used to treat people. The more antibiotics are used, the faster bacteria develop a resistance to the antibiotic.
Nearly every major medical organization, including the American Medical Association and the American Academy of Pediatrics, has called for an end to the non-therapeutic use of antibiotics in animal feed. Now, it's time that Congress gets the message.
Representative Louise Slaughter (D-NY), the only microbiologist in Congress, re-introduced "The Preservation of Antibiotics for Medical Treatment Act (PAMPTA)" this week. The bill requires a regulatory review of antibiotics important to human medicine, such as penicillin and tetracycline, that are also being used as additives to animal feed.
"More and more Americans are dying of superbug infections because antibiotic treatment has failed," says IATP's David Wallinga, M.D., and a member of Keep Antibiotics Working. "Overusing antibiotics, whatever the setting, undercuts their effectiveness for when we really need them."
More than 350 groups support PAMPTA. It's time for Congress to join the antibiotic-protection chorus.
March 17, 2009
Better Hospital Food
Today, the Hennepin County Medical Center (HCMC) announced that it was committing to the Healthy Food in Health Care Pledge. HCMC is the first public teaching hospital in the country to take the pledge.
The pledge is a voluntary program that helps hospitals take incremental steps toward purchasing more local, sustainable foods. Among other steps, hospitals commit to working with local farmers to try increase the availability of local food, encouraging their vendors to supply food produced without synthetic pesticides, hormones or antibiotics, and minimizing or composting food waste.
More than 200 hospitals nationwide have signed the pledge, a program of Health Care Without Harm (IATP is a founding member). IATP's Marie Kulick has been leading the effort to get Midwest hospitals on board. A 2008 Health Care Without Harm (HCWH) report provides case studies on what individual hospitals are doing to source local and sustainable food.
"Hennepin's pledge supports local farmers, and by keeping dollars in the community, it strengthens our fast-growing local food system overall," says IATP President Jim Harkness in a HCWH press release.
Expect to hear about more hospitals signing the pledge soon.
March 16, 2009
Water at the Center
On Sunday, the New York Times Alexei Barrioneuvo wrote about the disastrous water wars in Chile. The article highlighted the dangers of privatizing something that should remain in the public commons, but also described the direct link between water policy and agriculture. In fact, three of the major global challenges we faced today - the water, climate and food crises - are deeply connected.
In a new paper released today, IATP's Shiney Varghese writes about how we must find mutually reinforcing solutions to all three crises. Specifically, she calls for a shift away from chemically-intensive, industrialized agriculture toward more low-input, sustainable practices. Industrial agriculture has increased greenhouse gas emissions, water use and degradation and global hunger. The paper outlines the effects industrial agriculture has had in driving irrigated agriculture, massive water infrastructure projects and water withdrawals.
"We can no longer afford to tackle these crises separately," Shiney says in our press release. "We must take a comprehensive approach that supports sustainable practices in agriculture that are good for people and the planet, protect our water resources and provide enough food for everyone."
Shiney is at the World Water Forum this week in Istanbul, Turkey. This odd global meeting, organized by the World Water Council, supported largely by the World Bank and private industry, has no official United Nations or international authority, and essentially acts as a quasi trade show for big water projects. But it is also an opportunity for civil society groups to raise awareness about the major water challenges the world faces and the need to ensure that water remain part of the public commons, not private gain.
In her paper, Shiney outlines a series of specific recommendations for governments ready to protect water for ecosystems and people. She'll discuss those recommendations as part of two important panels at the World Water Forum about the connection between water, agriculture and climate.
March 13, 2009
Devin Foote is a 24-year-old beginning farmer at Common Ground Farm in Beacon, New York. Throughout the growing season, Devin will be chronicling his experiences as a young farmer growing for a local food system.
Common Ground Farm began in fall 2001 out of the vision and hard work of community members who wanted to start a farm project in southern Dutchess County, New York. The farm leases nine acres (with six acres in production) from the Stony Kill Environmental Education Center. The farm’s focus is on its 120-member Community-Supported Agriculture program that works toward ecologically sound and economically viable agriculture, with an emphasis on connecting local consumers to where their food comes from. Common Ground participates in two weekly farmers markets, Beacon and Fishkill, and regularly holds workshops, farm tours and community events.
This year, my farming partner Tim Heuer and I will be managing the Common Ground Farm. Last year, we participated in the Mid-Hudson Collaborative Regional Alliance for Farmers in Training (CRAFT), a model for sharing supplemental farm training in cooperation with a number of participating farms. Visits to other farms offer a chance to see how different operations work and a chance to network with other farmers and farmers in training.
A nor’easter hit last week, dropping five inches of snow and stacking drifts across the fields. It felt like a reality check for the warm weather we have been receiving of late. I walked the fields, attempting to wrap my head around all that is going on here… or, shall I say, all the work that needs to happen.
Although I commute four miles to the farm, it has been on my mind almost every minute. I wake in the morning thinking of trellising peas, wondering if we have enough seed in the cooler to feed our community, which prompts me to place another order of last-minute seed varieties. You know you won't have enough time during the season to wait a week for more seed or a spare part, so you debate, going back and forth on whether to front the cash now or see if you can make it through the year without needing it.
Touching, feeling, seeing, smelling and the occasional swing of the hammer are how I measure my days. I look at seed packets and try to visualize their bounty in the field. I look at our two-bottom moldboard plow (check out the etymology!) and scratch my head because I am accustomed to using a chisel plow… “This will be interesting,” I tell Tim, who is more of a creative spirit than farm implement junkie.
Last week twenty-five chickens arrived at the Post Office in Beacon. Eight of them perished over the course of the week, prompting us to order another 25 courtesy of Murray McMurray Hatchery in Iowa. We got 13 roosters and 12 hens; five have since died.
The first week of March means seeds. Sorting, unpacking, repacking, and rubber banding. After all that, we try and get comfy in the greenhouse. This week we will seed up scallions, celeriac, lettuce, parsley, thyme, rosemary and foxglove.
Farm planning requires patience and as a beginning farmer, I am starting to realize the widespread use of farm planning sheets, aka Excel. It’s amazing how few U.S. taxpayer dollars are diverted to small growers; USDA Extension offices seem to lack any knowledge of farm planning sheets for diversified vegetable farmers.
For instance, we had supper last week with the farm managers at Poughkeepsie Farm Project, comparing notes on farm planning sheets and their inefficiency. We laughed at all the miscellaneous spreadsheets floating around on our computers' hard drives and not in our own heads. In an attempt to resolve this issue, we’ve taken to mapping our spreadsheets out in our living room. Yes, it gets a bit messy but it seems to be the only way to visually picture growing for a 22-week distribution of vegetables.
March 10, 2009
Global Solutions to Limit Speculation
Last year, the United Nations organized a special Commission of Experts on Reforms of the International Monetary and Financial System, headed by Nobel Prize winner Dr. Joseph Stiglitz, to make recommendations to governments and international institutions on how to address the global financial crisis. Last fall, IATP's Jim Harkness blogged about his attendance at a preparatory session of the Commission's initial meetings, and the explicit connection between the global food and financial crises.
The commission has accepted public comments from civil society groups as it heads toward a public meeting in New York on June 1-2. IATP's Steve Suppan has outlined a series of recommendations for the Commission to limit speculation in commodity markets, including greater public reporting of globally traded derivatives; an end to self-regulation and reassertion of government authority over financial markets; a "Tobin Tax" to applied to commodities speculation; and increased regulation and the possible banning of commodity index funds.
Steve's comment also outlines a series of recommendations on addressing excessive commodity speculation for the International Monetary Fund, the World Trade Organization, the United Nations Conference on Trade and Development (UNCTAD), the UN Task Force on the Global Food Security Crisis, and the UN Framework on Climate Change.
March 09, 2009
Long delayed, but welcome leadership on BPA in baby bottles.
As reported in the Washington Post on Friday, six makers of clear, polycarbonate plastic baby bottles announced they no longer will use BPA. The announcement follows Canada’s ban on BPA use in children’s products last fall, following its determination that BPA was a hazard to children.
The problem is that more than 2 billion pounds of the stuff is used in U.S. products each year. It's not only in baby bottles, but in compact discs, and used as a coating on credit card receipts. We all are exposed, child or not.
The Center for Disease Control finds BPA in the urine of 93 percent of Americans; hospitalized "preemies" have BPA levels in their urine 10 times higher than adults. Oh yeah, and BPA is a synthetic estrogen. Since 1936, it’s been known as a reproductive toxin. Scientists see the effects of exposing cells to levels of BPA as low as 0.2 parts per trillion. That’s an impossibly minute amount. In fact, the hormone disrupting effects that scientists have seen in hundreds of studies occur at levels we already know occur in our bodies -- and at levels approximately the same as those at which BPA leaches into the liquids from polycarbonate plastic bottles.
Kudos to the baby bottle manufacturers. At least someone’s showing some leadership around this estrogen with which we continue to dose even our youngest, most vulnerable infants. But we have a long way to go. Now, how about the infant formula companies? Or the food canning companies? Safer materials exist. It’s time to start using them.
March 05, 2009
Public vs. Private on Food Safety
In the latest issue of the Global Food Safety Monitor, IATP's Steve Suppan explores food companies' role in setting food safety rules, at both the national and international levels. The recent massive recall of salmonella-contaminated peanut paste from the Peanut Corporation of America (PCA) plant in Georgia illustrates the challenge. PCA's own private laboratories had detected salmonella 12 times in 2007-2008. But PCA is not required under the law to report contamination to the Food and Drug Administration. In fact, this system of corporate self-regulation is not only the basis for the U.S. food safety rules, but is also being pushed at the global level by industry groups such as the Grocery Manufacturers Association.
Most of the current debate in the U.S. is about how to best re-organize federal agencies in charge of food safety, including a new bill introduced by Senator Richard Durbin that has the support of much of the food industry. But as Steve writes, "Whether a new food safety agency is located within the FDA or USDA, or is an independent agency, will be less important than whether the government is willing to ensure that it, and not the regulated industry, controls food safety management."
Read the full issue.
March 04, 2009
Rite of Passage: U.S. Senate Hearing on a Speculation Regulator
Last week, the U.S. Senate Agricultural Committee held a hearing to review Gary Gensler’s record, the first step in confirming him as the head at the U.S. Commodities Futures Trading Commission (CFTC). Gensler is a former partner in the investment bank Goldman Sachs and a former assistant secretary of the Treasury during the Clinton administration. You can view the Webcast. Before we comment, here's a little background to the hearing.
A January 7 New York Times editorial called the Gensler nomination “more troubling” even than the nominations of other former Clinton administration officials and their protégés to join Obama’s economic team. The editorial noted that in 2000, Gensler supervised legislation to exempt credit default swaps from CFTC regulation. The swaps exemption allowed financial speculators, such as Goldman Sachs and Lehman Brothers, to trade commodities futures contracts without the speculative position limits (total value of futures and options contracts held by an entity) that apply to commodities traders and processors. Futures and options contracts are supposed to act as an insurance-like means to guard against wild price swings for commodities buyers and sellers. But according to a January 11 segment of CBS’ “60 Minutes,” removing speculative position limits induced price volatility to the point in 2008 that the price of oil spiked $25 a barrel in a day with no change in supply/demand fundamentals.
As commodity prices driven by speculation rose, Goldman Sachs and other speculators made a killing while consumers, particularly in developing countries, got killed. Agricultural commodity price spikes contributed to retail food price increases that led the United Nations Food and Agricultural Organization to estimate very conservatively that more than 100 million people have been added since 2006 to the 850 million who don’t know where their next meal is coming from.
On February 13, the U.S. House of Representatives Committee on Agriculture approved the “Derivatives Trading Transparency and Accountability Act of 2009,” spearheaded by Chairman Collin Peterson. Among other provisions, the Act would 1) close the swaps loophole and set commodity specific speculative position limits for all market players in U.S. commodity exchanges; 2) require that all contracts be traded on public exchanges and be reported to the CFTC, so the regulators would know the size and trends of the markets they are authorized to regulate; and 3) disaggregate agricultural and non-agricultural futures contract data reported to the CFTC, so that regulators could act to prevent food price spikes triggered by speculation in precious metals or oil futures. IATP submitted invited testimony about the House bill. The Senate has yet to pass a bill to regulate commodities speculation.
At the confirmation hearing, Gensler promised to “tell the truth, the whole truth and nothing but the truth” in responding to the senators’ questions. It was an easy oath to fulfill, since with one exception, if tough questions were asked of the candidate, they were not asked in the Senate hearing room. Before Gensler spoke, Senators Mikulski, Cardin and former Senator Sarbanes, all from Maryland, testified to his community involvement in Baltimore and professional qualifications to head the CFTC. They and a couple other senators announced their support for his nomination.
In Gensler’s statement to the committee, he assured the senators of what they wanted to hear. He will work with Congress to reform the CFTC to prevent excessive speculation, to close loopholes and to regulate the Over-the-Counter trades, including swaps, whose deregulation helped to bankrupt financial markets, freeze credit flows, undermine the production of goods and services, and boost unemployment around the world. Following eight years of Bush administration “signing statements” that often ignored or reversed the will of Congress, Gensler’s assurances of cooperation between the legislative and executive branches were sweet music to senatorial ears.
Gensler responded to questions about his role in the 262-page last-minute addition to the Commodities Modernization Act of 2000, drafted largely by financial services industry lobbyists. Future investment banker Senator Phil Gramm introduced the “drop-in” on the day after the U.S. Supreme Court’s Bush v. Gore decision that decided the presidential election. In hindsight, Gensler said that he should have fought harder for stronger regulation of financial markets. In 2000, Credit Default Swaps had a minuscule market share of financial derivatives. Who could have known that CDS sales would go sky high following deregulation? “We failed to protect the American people” he said, vowing to do better this time. And the senators all but said “Amen.”
But there was one tough question, posed by committee chair Senator Tom Harkin. Senator Harkin recalled the fierce opposition in 1998 of Federal Reserve Bank Chair Alan Greenspan, Treasury Secretary Robert Rubin and Obama administration advisor Larry Summers to proposals by then CFTC chair Brooksley Born. She warned them repeatedly that exempting CDSs and similar “innovations” from CFTC regulation posed enormous risks for the entire financial system. They suppressed her campaign to regulate. Then Senator Harkin asked Gensler whether he was party to those discussions. Gensler replied that he had recused himself from that debate since his former (and future) employer, Goldman Sach, had (and has) a direct material interest in CDSs. Senator Harkin accepted that response because to not have done so would have led to more questions to which Gensler would likewise have had to respond with recusal.
One question in need of an answer is what role, if any, did Gensler play in the successful petition in 2004 of then Goldman chief executive officer Henry Paulson to the Securities and Exchange Commission to exempt Goldman and a handful of other investment banks from having the capital reserves required of other banks to cover losses from their trading. (The New York Times’ Stephen LaBaton reported the exemption petition story on October 3, 2008, the day before Congress voted to bail out preferred banks under the Troubled Asset Relief Program (TARP).) The exemption gave Goldman and the other favored banks a huge competitive advantage over banks that had to maintain prudential reserves. Goldman and the other exempted banks could take the billions liberated from reserves and make bets on commodity index funds, collateralized debt obligation, CDSs and other “innovations.”
Once housing prices started to collapse in 2006 and commodity prices began to collapse in July 2008, Goldman was among the firms that did not have sufficient reserves to cover their losses from financial instruments based on the value of housing and commodity assets. They still made money, if not quite as much, by betting on prices to fall and helping to induce that fall. Nevertheless, Goldman received $25 billion of the $700 billion TARP bailout of imprudent and presumably otherwise insolvent financial institutions. If it were discovered that Gensler had supported the SEC exemption on reserve requirements for favored investment banks, what credibility would he have in now asserting to the senators that he supports requiring all financial institutions to have adequate reserves to cover trading losses?
Gensler easily eluded responding to another question that will bear directly on the future of the CFTC, namely, its continued existence as an independent agency. He wouldn’t support “merging just for the sake of a merger.” As we noted in a February 9 blog, former Secretary of Treasury Paulson and SEC chair Mary Shapiro are among those who support legislation to merge the 500-person CFTC into the much larger SEC. If such a merger takes place, the House bill to amend the Commodities Exchange Act will vanish into history, along with the CEA itself and the CFTC. Gensler’s role in the CFTC could end far before the 2012 limit of his appointment.
Given the SEC’s notoriously lax regulation of Wall Street, it would not be surprising if a merger of the CFTC into the much larger SEC extended the reign of deregulated commodity exchanges. In a future weakly regulated market, the Masters of the Universe will be able not only to bet on derivatives affecting food and energy security, but also on the next big “asset class”—climate derivatives and the greenhouse gas (GHG) emissions credit trading market. If the GHG credit trading market is to reduce the GHG emissions that cause climate change—and some doubt it can -- then the market must be rigorously regulated to prevent speculators from driving GHG traders out of the market by inducing extreme GHG price volatility. The planet and its people can ill afford another decade of the CFTC "No Action" letters, this time in response to commodity exchange rule violations on GHG credit trading.
March 02, 2009
Step Right Up! China Passes Food Safety Law
Of course, announcing that a law has been passed in China doesn’t tell you what’s going to actually happen. First, the general language of the law needs to be turned into detailed implementation procedures. (In the words of Tom Waits from his song Step Right Up, “The large print giveth and the small print taketh away!”) And even when the right words are in place, there is still implementation. Despite the image of China as a totalitarian state, enforcement of central directives in the provinces has gotten more and more difficult following the devolution of many governance responsibilities to localities in the 1990s.
That being said, the country was in desperate need of a revision to its food safety law, which has not been updated since 1996. I excerpt its main provisions below, with commentary:
“…the State Council, or Cabinet, would set up a state-level food safety commission to oversee the entire food monitoring system, whose lack of efficiency has long been blamed for repeated scandals. Departments of health, agriculture, quality supervision, industry and commerce administration will shoulder different responsibilities.”
The requirement that a food safety commission be set up under the State Council is a response to the problem of overlapping, unclear or conflicting responsibilities for food safety among the relevant government agencies. It also shows how seriously the National People's Congress (NPC) regards the situation. The State Council oversees the provincial governments and all of the ministries, and commissions are set up under the Council only for major, cross-cutting issues for which overarching powers are needed. This one will have the authority to divide up resources and clarify responsibilities among the ten different ministries and agencies charged with ensuring food safety.
“The law stipulated a ban on all chemicals and materials other than authorized additives in food production, saying that ‘only those items proved to be safe and necessary in food production are allowed to be listed as food additives.'. . .Health authorities are responsible for assessing and approving food additives and regulating their usage.”
This sounds like progress, but the devil is in the details. Critics of the U.S. law on food additives, for instance, point out that many questionable chemicals were grandfathered in because they were already in use when the law passed, and that the burden of proof is always on those seeking to stop approval of new additives rather than on the food companies.
“Producers of edible farm products are required to abide by food safety standards when using pesticide, fertilizer, growth regulators, veterinary drugs, feedstuff and feed additives. They must also keep farming or breeding records.”
Stated in such general terms, this one is nearly impossible to interpret. Since “producers of edible farm products” includes almost all of China’s 300 million farmers, this could simply be—like many of China’s laws—a regulation that sounds sweeping and strict but is unenforceable in practice. Worse, if record-keeping or sanitary requirements are onerous, enforcement of food safety regulations will be a huge additional burden for China’s beleaguered farmers, yet another mechanism for corrupt local governments to extract rents or control production.
“Offenders could face maximum fines which would be 10 times the value of sold products. If businesses are found producing or selling a substandard foodstuff, consumers can ask for financial compensation which is 10 times the price of the product. That's in addition to compensation for the harm the product causes to the consumer.”
This market-based approach to enforcement has precedent in China. In the 1990s, China passed a consumer protection law mandating that anyone who sold counterfeit goods should be compensated by the manufacturer at double the sale price. Uncovering fraud in order to claim compensation became a cottage industry, with some high-profile success stories such as Wang Hai, who was known (or dubbed himself!) as “China’s Ralph Nader.” But while Nader’s goal was to promote more effective government action on behalf of consumers, the Chinese government is essentially asking consumers to take over the job of law enforcement entirely. The law made no measurable dent in the spread of counterfeit goods, because there is little legal or administrative power to back up consumer grievances.
Perhaps the added incentive of a ten-fold compensation measure is in recognition of the earlier law’s weakness, and perhaps there will be stronger enforcement support for this measure, but unfortunately, China’s consumer rights movement still has a long way to go!
“To better protect consumer rights, the law bans food safety supervision and inspection agencies, food industry associations and consumers' associations from advertising food products.”
This is a response to the corrupt practices and conflicts of interest that plague the agencies and associations mentioned. (Imagine Consumer Reports or the FDA being paid by KFC to declare Extra Crispy a “heart-healthy” food!)
“Individuals or organizations are prohibited from advertising substandard food products. Those advertising such products would face joint liability for damages incurred.”
Permit me a short digression. Ultimate power in China has always been in the hands of the Communist Party, but there is also a legislature, the National People’s Congress (NPC). Despite acting as a rubber-stamp for Party decisions for most of its history, the NPC has in the past two decades grown if not independent then at least a bit more feisty. (Only a few laws have been defeated, but others have been withdrawn due to strong opposition from delegates.) It has also emerged as a forum for genuine debate over questions on which there is no consensus, and a place where new issues get raised.
This article prohibiting “individuals or organizations” from “advertising substandard food products” is an example of how public opinion gets expressed through the NPC in ways that would not otherwise be taken up by the government. It is clearly a direct response to the public outrage at celebrities such as actress Deng Jie who endorsed Sanlu Milk products that turned out to be contaminated with melamine.
The Bottom Line: Details, Teeth, Money
A lot will depend on how the law gets fleshed out, presumably by the new State Council Food Safety Commission. What does it mean to say that an additive must be “safe and necessary” to be approved for use? How will food safety standards be set throughout the supply chain, and by whom? Will the Commission or an agency under it have independent enforcement powers, or will these still fall to other agencies?
That one is BIG: enforcement. Laws are made centrally in China but enforced locally, and whether it’s because they’re in cahoots with local lawbreakers, lack capacity or disagree on principle, local leaders often simply don’t carry out Beijing’s orders. To counter the unwillingness of local governments to carry out environmental laws, the Chinese Ministry of Environment set up five regional enforcement offices in 2006. Is this the direction that food safety enforcement is moving?
If so, it will be very costly. In 2007, an industry consulting firm estimated that China will need to invest more than $100 billion by 2017 to build a modern food safety infrastructure. This was extrapolating demand growth that has subsequently slowed considerably, and is based on assumptions about what a “modern food system” should look like that I don’t agree with—centralized, highly processed, energy-intensive—but it gives a flavor for the magnitude of the investment that is needed.
Finally, let’s pull back from the new Food Safety Law itself for a second. Ultimately, China’s food safety problems are unintended consequences of a set of decisions the country’s leaders made about food production, technology, economic growth and China’s insertion into the global system. Those decisions have set the country on a path that is fundamentally unsustainable, and as the U.S. financial crisis has gone global, the wheels are starting to come off. It’s time for a more basic re-think of how and what to feed China.