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.
January 29, 2008
Leveling the Playing Field
Much of the recent Farm Bill debate has focused on subsidies for rich farmers, but what about government support for some of the largest multinational agribusiness companies in the world? Research released last month suggests that stripping away direct and indirect subsidies benefitting meat and poultry companies could bring dramatic changes to our farm economy.
Elanor Starmer and Tim Wise at Tufts University's Global Development and Environment Institute first looked at how underpriced animal feed allows big poultry, hog and beef companies to undercut smaller, more diversified farmers. They found that industrial livestock operations (hog, broiler, egg, dairy, and cattle) that contract with the big meat and poultry companies got a $35 billion boost from under-priced animal feed from 1997-2005 - amounting to a 5-15 percent reduction in operating costs.
How did animal feed become so under-priced? The 1996 Farm Bill stripped away the last remaining production controls for most major commodities. So, in the nine years following the 1996 Farm Bill, production rose (28 percent for corn and 42 percent for soybeans), and prices fell (32 percent for corn and 21 percent for soybeans), according to Starmer and Wise. In the nine years following the 1996 Farm Bill, corn prices averaged 23 percent below production costs and soybeans averaged 15 percent below production costs.
And the big boys in the increasingly consolidated meat and poultry sectors cashed in. According to Starmer and Wise, the nation's largest industrial broiler chicken company Tyson Foods saved $1.25 billion a year, or $11.25 billion over nine years, from under-priced animal feed. And the nation's largest industrial hog company, Smithfield Foods, saved an estimated $2.54 billion over nine years from under-priced feed. Starmer and Wise concluded: "taxpayers and farm families have, in effect, been subsidizing factory farms' feed purchases."
The next step was to consider the various environmental costs associated with CAFOs that have been subsidized by taxpayers. The New York Times' Andrew Martin reported this month about how the Farm Bill's Environmental Quality Incentives Program (EQIP) has devolved from its original intent to help farmers with small scale conservation projects to providing a direct subsidy to CAFOs to deal with the "mountains of excrement that their farmers generate." In 2006, taxpayers sent these mega farms about $179 million for animal waste management, Martin reported. Early this year, Congress will renew the EQIP program as part of the new Farm Bill and is actually considering expanding the program to provide more subsidies for CAFOs to clean up their mess. IATP's David Wallinga has written on a number of problems CAFO operations can create through air pollution, water pollution, and health risks to farmers and workers - all costs not accounted for in the price we pay at the supermarket.
In focusing on hog production, Starmer and Wise calculated the additional cost to these operations if they actually paid for environmental clean-ups and mitigation. They found that if CAFOs had to pay the cost of alternative manure-management to protect the water and reduce over-application, it would raise hog CAFO's operating costs by 2.4-10.7 percent. In a climate of full cost feed and environmental regulation, CAFOs would see their operating costs rise by between 17.4-25.7 percent. This increase would eliminate the apparent cost advantage CAFOs currently have over mid-sized diversified hog producers.
This new research is a blunt reminder that the U.S. agriculture market is massively distorted by misplaced priorities. Our current system is no accident or the result of market forces. Rather, it is the deliberate outcome of a U.S. farm policy geared toward fewer farmers and larger more industrial operations. U.S. government leaders going back to President Eisenhower's Secretary of Agriculture, Ezra Taft Benson, have been telling farmers: "to get big or get out." And our policies have reflected that bias.
One bump in the smooth ride for the big meat and poultry companies is the recent rise in corn and soybean prices. Corn prices have risen to over $5 a bushel, soybeans to over $9 a bushel. But what happens if prices crash? Al Kluis of Northland Commodities told the Star Tribune that "the history of commodity bull markets is that prices will drop twice as fast as they went up."
Unfortunately, neither the House or Senate versions of the Farm Bill address price volatility, despite a number of proven policy tools that could help ensure prices don't go too high for consumers or too low for farmers. A system of fair prices for farmers and consumers, combined with a full accounting of environmental and health costs, would help level the playing field for farmers of different sizes. In that alternative future, our farms and supermarkets might look a lot different.
January 23, 2008
That Ungrateful Middle Class
In his January 16 column in the New York Times, Professor Steven Landsburg criticized
Dr. Landsburg is a professor at the University of Rochester. I grew up outside of town there and it’s a region that I know well. Were there any suitable jobs in the region, I might never have left. To understand why candidates feel the need to pander about job losses, I suggest Dr. Landsburg take a short drive north and west of the University’s campus.
Like many rust belt cities, Rochester has suffered shocking urban decay. Certainly, the social upheaval of the 1960s and 1970s was a large driver for the urban decline. But like a good band-aid, a strong economy has mended these social conflicts in other parts of the country.
As Dr. Landsburg drives outside the Rochester city limits, he would pass the enormous Kodak manufacturing facilities that once employed my father, my uncle, and for one summer, me. But Kodak and Xerox (also based in Rochester) have struggled in a new global marketplace, and shed local jobs in favor of production elsewhere.
My father’s generation joked that Kodak was growing so quickly that someone simply needed to walk and chew gum to get a job there. My generation jokes that we might as well have our class reunions in North Carolina because everyone seemed to be moving south for jobs.
Traveling west out of Rochester, Dr. Landsburg would soon come to several towns well known for apple production. But since China crushed the market with incredibly cheap apple juice concentrate, the apple industry has languished. Many orchards close to Rochester became housing developments, some have been replaced for lower-value corn production, and others just lie dormant.
And then, just north of the orchards is massive Lake Ontario, which creates the micro-climate that allows apples to thrive, as well as the water supply that attracted so much industry in the 19th and 20th centuries. But due to pollution and the decline in several fish species, commercial fishing no longer exists. Since Rochester isn’t using much of the water, corporations and other regions of the country have proposed taking the water somewhere else. Our proud Great Lakes economy has reached the point where selling off natural resources is an economically attractive option.
Dr. Landsburg implies that policymakers in regions like Rochester should simply let the market work, despite the questionable track record of that strategy. Of course, I get excited about great deals when I’m shopping, but I do take umbrage at a narrowly focused economist criticizing desperately needed local economic development strategies.
We’re not going to get very far by selling fast food to each other. Economies need production, whether it is agricultural products, manufactured goods, computer software, or tourism. Reducing our economy to exclusively cheap prices denigrates labor, devalues family and community, and ignores quality of life.
Unlike Dr. Landsburg, I applaud proposals that bring value back to our communities. Getting government out of the economy does not create a free market – it just leaves the market to the whims of the multinational corporations. Low prices are not enough.
January 16, 2008
Local Company Makes Good, But How About Local Farmers?
The Financial Times today published a profile of Chinese dairy
giant Yili. While it might be unfair to describe the piece as “fawning,” let’s
just say it’s surprising that such a long story cites only one source aside
from the company itself, and quotes no one other than the company’s CEO, Mr.
Pan Gang. The reader gets a touching tale of how a collective dairy factory in
Inner Mongolia worked its way to national prominence despite the tremendous
challenge of having to deal with huge numbers of small, backward farmers. We
hear how fiercely competitive the dairy market is, with Yili the only “purely”
Chinese firm vying for market share with a host of foreign and joint venture
rivals. And we feel Mr. Pan’s anger about tax breaks the Chinese government
gives to foreign dairy firms, who turn around and use that advantage to
undersell local companies.
The real picture is a bit less heroic and more complex. Despite its complaints about the unfair advantages of its international competitors, Yili has always had lots of government support. Its expansion to now buying milk from a million farmers (!!!) has depended on those top-down sweetheart deals with local officials that the farmers in Yunnan were complaining about last week. (I was expecting a more critical take on this from an article titled “Chinese Dairies Milk The Local Advantages.”) And even if they weren’t being rounded up for Yili by local government, farmers would have few alternatives for their milk. Yili and Mengniu, another Inner Mongolia-based giant, have over 55% of the Chinese market, and probably a much higher percentage in the Northeast. Economists tell us that the definition of “oligopoly” is when the top four firms in any industry control over 40% of the market. Recent food safety scandals are speeding up the process, Pan says, since nervous consumers are sticking with big brands and this is driving out smaller players.
Yili’s earning for the first three quarters of 2007 reached 14.8 billion RMB. (about $2 billion) A Reuters story tells us that as of the end of the Third Quarter, 40% of China’s dairy farmers were losing money and some were having to kill their cows. Welcome to Modern Farming!
January 10, 2008
The Monkey's Paw
Last night I had dinner at the Irish Embassy in Beijing. The occasion was the departure of Joseph Kahn, the New York Times bureau chief (and Irish citizen), who is moving to New York to work as Deputy Foreign Editor for the paper. I have known Joe since the early 1990s, and China’s loss is my gain, since his couch will now be added to my list of free places to stay in Manhattan.
Joe won a Pulitzer Prize for his reporting on the growing gap between rich and poor in China, but I think some of his best work was a recent series of reports on the environmental cost of China’s Rise.
A longer piece on the same topic by Jacques Leslie (which quotes yours truly) is the cover story in the current edition of Mother Jones.
For China, the neoliberal growth model adopted over the past quarter-century has been like the Monkey’s Paw in W.W. Jacobs’ classic, spooky short story of the same name. The story tells of a poor but happy family that comes into possession of a magical charm, the monkey’s paw, which will grant them three wishes. The father wishes for 200 dollars and his wish is granted, but not in the way he expected. The next day, a man from the factory where their only son works comes to the door and informs them that their son has been caught in machinery and killed. He gives them 200 dollars as compensation for the death.
China’s “reform and opening” (their shorthand for the market reforms instituted since the early 1980s) has likewise been a mixed experience when viewed in any but the narrowest economic terms. Overall growth has been spectacular, and contrary to the charges of many external critics, the Chinese people have also gained much greater freedom than they ever had before in a variety of areas: employment, residence, privacy, even basic things like movement and marriage which had been heavily controlled under Mao. But the economic benefits have been distributed very unequally---the gap grows wider day by day---and the new freedoms have limited meaning for the country’s poor. Material gains are also mitigated by corruption, crime, resurgent prostitution and drug use, and widely felt social anomie and insecurity. The terrible environmental cost of China’s growth is certainly the most jarring example of a seeming social advance turning into a nightmare.
Recent pronouncements by the Chinese leadership about focusing on the quality rather than just the quantity of growth are encouraging. The State Environmental Protection Administration has been given new powers, and friends tell me that it will be upgraded to ministry status in the next few years. The old rhetoric about “letting some get rich first” has been replaced by a new concern for the disadvantaged. Elimination of the agricultural tax and more funding for schools and health care in rural areas are certainly steps in the right direction.
But none of this addresses the basic problem of a system that pushes growth without limits and makes society and nature bear the cost, while allowing the benefits to flow to the wealthiest. And that’s where the analogy with the Monkey’s Paw breaks down. The evil charm’s spell brought both fortune and sorrow to the same family, but neoliberal economics distributes profits and pain very unevenly. But the good news is China doesn’t have to choose between impoverished Maoist isolation and a toxic world that looks like the set of Blade Runner. The challenge for IATP and for the world is: What can we do to help them make a better choice?
January 07, 2008
What the Farmers Said....
(Below is the second in a series written from China by IATP President Jim Harkness. ed note)
As promised, today I report back on what local farmers said when we talked to them after our visit to Chennong Agriculture Company HQ in Yunnan Province. (To be on the safe side, even though I'm sure it wouldn't be an issue, I have omitted farmers' names.)
The area around Kunming, including Chenggong, has a lot of intensive vegetable cultivation. This probably both contributed to and was then bolstered further by the growth of Chennong Company, and the company is now a leading source of seedlings for local farmers whether they sell the produce to the company or not. This area has a mild winter, but temperatures do dip below freezing at night, and winter is also fairly dry. Hoop houses---simple, temporary greenhouses made by stretching clear plastic sheeting over a bamboo frame---permit cultivation year round, with up to six harvests over 12 months.
After our visit to the Chennong facilities was complete (and we had sampled the local cuisine) we decided to stick around and talk to some farmers. A young day laborer volunteered to be our guide. She was not from the area, but had lived there for some time doing construction, and had gotten to know many local farmers.
She was a good example of the mixed blessings of development in China. I noticed she had a shiny new mobile phone, which she modestly said had only cost a few hundred RMB. She bought it when she and her husband were getting regular work at a good rate, up to 20 RMB a day. But his foot was run over by a truck on the work site and the small cash payment the boss gave them couldn’t cover his hospital bill, which was over 10,000 RMB. So he took their baby and went back to their hometown in the poor, northeast corner of the province, to recuperate at his parents’ home. Shortly after he left, work at the site was suspended, so she was left with no income and nothing to do, and therefore happy to show us around. (We insisted on paying her for her trouble when we left, but she put up a big fight, saying we were friends and she didn’t want us to think she was doing it to get paid.)
We first met these men preparing to load a big basketload of spinach onto a tractor to take to market. They told us they grow a dozen or more varieties of vegetables for sale in local markets. They’re hoping to get 1 RMB per kilo for this spinach.
Inside their hoop house, the women of the family picked spinach and carried it out to the road on their backs in wicker baskets.
They buy their seedlings from Chennong, and speak highly of the 100 percent survival rates and high productivity. When they grew their vegetables from seeds, farmers could never have harvested five or six crops a year as they can with Chennong’s seedlings. They sometimes sell to the company as well, but they aren’t enthusiastic about agribusiness. They-----in fact all the farmers we spoke to----laughed at the idea of a floor price or a contract. “Even if you have a contract that specifies a price, it doesn’t say how much they have to buy, or that they have to buy anything at all.” When prices are low, Chennong’s buyers pick only the very highest quality produce---often a tiny proportion of the crop. So even if they offer a floor price for what they buy, the farmers are still stuck with the bulk of their crop.
There were other complaints. Chennong, they told us, uses its influence with local government to get preferential access to valuable land. (As another farmer put it, “They see a piece of land they like, and then they go and find the officials, who get it for them.”) And their processing facilities have polluted local waterways. “We used to be able to catch shrimp and fish in the ditches, but there’s nothing left alive now.”
Down another row of hoop houses a husband-wife team, friends of our guide, were picking a different green vegetable (I think it’s sometimes called Shanghai bok choy in English). They said prices vary tremendously during the year, from as low as 5 fen (100 fen = 1 RMB) to as high as one RMB per kg. They raised six hoop houses worth of vegetables in 2007 that they didn’t even bother to pick because the price was so low.
Like so many farmers the world over, their biggest problem is low prices combined with growing costs. In a good year, they can sell 10,000 RMB worth of veggies, but inputs such as fertilizer, pesticides and plastic sheeting for their hoop houses add up to 6-7000 RMB. The farmers complained that inputs now cost ten times what they did 20 years ago, a rise not matched by increases in food prices. They also have to pay a variety of taxes and fees. The national Agricultural Tax was officially scrapped with great fanfare several years ago in order to help reduce the economic burden of farmers, but a variety of fees are either still being levied or have been added at the local level.
An added concern in Chenggong is organized crime. Local gangsters started charging the truck drivers who delivered vegetables from field to market 50 to 100 RMB per load, so most have stopped coming. When farmers load up their little tractors and take their own produce to market, they are often waylaid on the way and forced to sell their load to gangsters at below the market price.
January 06, 2008
Chinese agribusiness: a visit to Chennong Corporation
One of the big dilemmas of Chinese agriculture is the issue of scale. Traditional farming was mostly carried out by individual households on very small plots of land. After the Communists took power in 1949, there was land reform and a popular mutual aid and cooperative movement, but the Mao gradually moved rural China toward a system that organized all agricultural production into large communes and state farms. Politically, communes were a radically egalitarian form of social organization, but they also followed a logic of economies of scale, permitting more mechanization, larger-scale irrigation, etc.
I asked Ms. Liu about the whole Company Plus Household system, and whether this is how Chennong gets its vegetables. She explained that they don’t have their own farms, nor for the most part do they contract with individual farmers. Their original approach was to work with farmers directly. The company provided free seeds and inputs for the first crop, to guarantee a profit for the farmers and overcome any doubts they might have about converting from grain or tobacco to vegetable farming. In return, the farmers signed contracts committing them to sell their crops to Chennong. The contract sets a floor price: if the market price at harvest time is higher then the company pays 80 percent of the higher price, and if the market price is lower then the company still pays the agreed-upon floor price. Ms. Liu explained that whereas the government used to promote this type of “company plus rural household” contract farming, Chennong found that farmers would often break their contract with the company when the market price of their crops rose above the guaranteed price. They also found that it was hard to guarantee supply and quality, especially for meeting the demands of export markets.
I couldn't help but wonder, though, if these three people could do all the necessary testing for a company producing 100,000 tons of vegetables a year!
Chennong produces all of its own seedlings, selling many to local farmers in Chenggong and shipping the rest to its bases around the province.
The company got Green Food certification for some if its products, but found it too expensive (about 12,000 RMB to get certified) to be cost effective. This greenhouse worker was ladling chemical fertilizers into the floating beds in which they grow their seedlings.
After our tour was finished, we took Ms. Liu to lunch, which was excellent. She confessed that although she likes their products, she doesn’t eat them: too expensive. And she said that even though their bases are far away, many local farmers buy their seeds or sell their vegetables to Chennong.
Tomorrow: What did the farmers have to say?
January 04, 2008
Can the media help end global poverty?
When United Nations member countries agreed in 2000 to the Millennium Development Goals (MDGs), including to cut global poverty in half by 2015, the emphasis was on national and international policies to address the problems of the poor. Unfortunately, at the half way point it looks like many of the MDGs won't be met, particularly in sub-Saharan Africa.
How can we make governments more responsive to global poverty? According to Panos London, one answer is to improve media coverage of global poverty erradication efforts. In a new report titled, "Making Poverty the Story," Panos London argues that policy change stems from shifts in public and political opinion, and the mass media has an important role to play in raising public awareness about global poverty.
The authors, which surveyed both media and civil society organizations, offer an honest appraisal of the media's limitations in covering issues related to poverty: "One major constraint noted is the pressures of commercial survival and growth in the wake of recent media liberalisation." The other is the structural problems of having fewer reporters covering international beats, and thus not developing the expertise to go deeper into stories. "Journalists may lack the knowledge and practical skills to gather and decipher the growing range of information and analysis on poverty reduction issues."
A great example of what a dedicated and informed reporter can do to illucidate poverty issues is Celia Dugger at the New York Times. Her December 2 story covered Malawi's decision to ignore the World Bank's recommendations and start subsidizing fertilizer, and the resulting dramatic increases in corn production and hunger reduction in the country. The story helped to both explain poverty in many countries and point toward solutions at the same time. And her series of articles on the U.S. food aid system has undoubtedly raised awareness on the program's many shortcomings.
The Panos report also cites the opportunity for civil society organizations working to address poverty to interact better with the media. Unfortunately in the U.S., only a handful of newspapers have foreign correspondants, and even fewer in poor countries.
In Minneapolis, where IATP is based, the Star Tribune recently announced it would focus mostly on local reporting - relying primarily on wire services for national and international news. The good news is that a number of non-profit news services have emerged, including MinnPost, in an effort to fill the void of declining news coverage. Perhaps other new media organizations will emerge to help us learn about solutions to global poverty.
January 02, 2008
"The market will get brutal next year"
News late last year of the merger of the third (VeraSun) and fourth (US Bioenergy) largest U.S. ethanol producers is not surprising, but it should serve as a warning to farmer and community-owned facilities.
Matt McKinney, of the Star Tribune, quotes an analyst from Wells Fargo Securities as stating, "The market will get brutal next year. The ones I worry about are the one- and two-facility guys. They're just, in my humble view, going to get crushed."
An article by DTN's Todd Neeley reports that the big ethanol players, like Archer Daniels Midland, are expected to take advantage of the downturn in the ethanol market to buy up smaller players. Neeley quotes Purdue agriculture economist Christopher Hurt as saying, "ADM has already made it known that they are in the market for more ethanol capacity at a reasonable price. . .Traditionally ADM has been a buyer of distressed assets and I would guess that would be the case for ethanol plants as well."
Neeley also quotes ethanol analyst James Eiler as stating that ADM and Poet "have publicly stated that they will consider expanding their asset base through acquisition, versus their practice to date of building their own proprietary plants."
The rapid consolidation in the ethanol sector is familiar to those who have followed agriculture markets over the years. University of Missouri economists Mary Hendrickson and William Heffernan have documented consolidation in other agriculture sectors over the last several decades. In their analysis earlier this year, ethanol was the only sector where consolidation had actually declined over the last 20 years. Now that is changing as corn prices rise and the margins for ethanol production narrow.
Why does it matter who owns the ethanol industry? As IATP's Jim Kleinschmit has written, "ownership of the refineries by local farmers and community members is seen as the key aspect to sustainable rural development. Local ownership assures that the facility is based to some extent on local resources and needs, and that much of the money generated remains in the local economy."
A study last year by the National Corn Growers Association found a much greater economic benefit for rural communities and rural households when ethanol plants are locally-owned.
Both the Farm Bill and Energy Bill have the opportunity to set policies that encourage farmer and community ownership of biofuel plants in the U.S., following the lead set in Minnesota which offered incentives and loans for farmer-owned plants.
Other sectors of the agricultural economy have become so consolidated that farmers are simply over-matched in the marketplace. They are price-takers, forced to accept whatever is offered from a few companies for what they produce, often at below their cost of production. Over the last several decades, a handful of big companies have extracted both the natural resources and profits out of many rural communities. As the biofuel sector shakes out, we should take care not to repeat the same mistakes and prioritize local ownership.