There is an ancient Chinese proverb that warns: “Too little food, one problem. Too much food, many problems.” What an appropriate diagnosis for this year’s farm “crisis.” This summer the media have saturated the airwaves with Norman Rockwell-type portraits of beleaguered family farmers in their overalls, planted on their tractors in the searing sun valiantly battling “the worst drought since the depression.” The corn and soybean crop in Maryland this year is almost entirely lost. Tens of millions of dollars of livestock have dropped dead from the heat. A recent David Broder column in the Washington Post tells the tragic story of an Iowa farmer who committed suicide rather than face another year of declining revenues and impending bankruptcy.
Yes, this is one of the worst years ever to be a farmer. But despite the bad weather, the real source of angst for most farmers these days is not too little food but too much. In just the past year, cotton prices are down 46 percent, and wheat has tumbled by more than 60 percent. Corn now sells in some places for $ 1.50 a bushel, the lowest price since Elvis was alive. A bushel of soybeans sold for twice as much four years ago as it does now. So while half the nation’s farmers are complaining that their crops are ruined by drought, the other half, with bumper crops, protest that they can’t make any money selling them.
In most other industries, we would be celebrating this surge in output and affordability as a triumph for consumers and a further sign of the fruits of technological progress. Thanks to the amazing productivity of American farmers, the typical family in the United States now spends just 10 percent of its disposable income on food — the lowest percentage anytime, anywhere in the history of the human race. To argue that low food prices are a worrisome development because they hurt farmers makes about as much sense as complaining that increased life expectancy is a bad thing because it wrecks the undertaker’s profits.
Just 20 years ago, the doomsayers at the Club of Rome, the United Nations, and the Carter administration State Department were glumly predicting the opposite kind of food crisis: global scarcity by the year 2000 and ever escalating prices. In the early 1980s, Lester Brown, president of the World-watch Institute declared, “The period of global food security is over. As the demand for food continues to press against the supply, inevitably real food prices will rise.”
Clearly, rising and falling commodity prices can’t both be catastrophes or we really are doomed. The truth is that the doomsayers were amazingly errant in their predictions. What we are living through now is a triumph, not a crisis, of American agriculture. There are multiples more beneficiaries than victims when the prices of agricultural commodities fall. Only about 2.5 percent of Americans actually produce food. The other 97.5 percent of us just buy and eat it. For almost all of us, falling food prices have meant a real increase in our standard of living.
Unfortunately, Washington doesn’t see it that way. In a town whose very existence is predicated on providing concentrated benefits to narrow interest groups, and spreading the costs to the rest of us, Congress and the White House can only think of the victims of cheap and abundant food. That the farm population happens to live in political battleground states like Iowa just makes matters worse. The 2000 presidential hopefuls — from George W. Bush to Bill Bradley — have been making buffoons of themselves pandering to Iowa farmers over ethanol subsidies. The normally economically sensible Steve Forbes even preposterously told Iowa farmers that Federal Reserve chairman Alan Greenspan was the source of their woes.
What is worrisome is that a growing number of farm interests are tracing their woes to the market. Farm spokesman Leland Swenson says the source of farmers’ miseries is “a laissez-faire euphoria in Congress that declared the country’s farm and food policies unnecessary.” He is referring to the 1996 Freedom to Farm Act, which was intended to wean farmers from federal payments. Under this laudable legislation, federal restrictions on the acreage farmers are allowed to plant have been lifted entirely, and price supports are supposed to be phased out within four years.
So far the act has been a partial success. Liberated to plant whatever they wish whenever they wish, farmers are generally producing bumper crops. But they are also still demanding and receiving federal subsidies when prices fall too low — which is one of the reasons for the oversupply of food. In 1998 and 1999, farm payments have risen, not fallen as planned. On top of the $ 16 billion in federal dollars lavished on farmers already this year, and the $ 6 billion of “emergency” farm subsidies last year to Oklahoma, Texas, and Dakota farmers suffering from what was then said to be the worst drought since the 1930s, Congress now wants to dole out $ 7.5 billion more for 1999. The White House wants to appropriate twice that amount.
President Clinton, who signed the Freedom to Farm act, now talks of creating a permanent “farm safety net,” which seems to suggest that farmers should be treated as welfare moms once were: forever dependent on federal transfers to make ends meet. This would set a frightening precedent. For if we are to create a farm safety net that prevents farmers from going bankrupt, what next? A steel safety net? A semiconductor safety net? A General Motors safety net?
An essential part of free market wealth creation is allowing firms — whether steel mills, GM plants, or Wall Street investment firms — to pass through a natural life cycle of birth, hopefully rapid growth, and, yes, eventual demise. It is clear, however, that most congressmen and many other Americans mistakenly believe there is something unique about the agriculture business. To let Adam Smith’s version of the free market play its course could mean the loss of an American icon: the family farmer. In Minnesota, we are told, more than 1,000 small farms have ceased operation each month this year.
But to blame this on the Freedom to Farm Act is ludicrous, because the family farmer has been disappearing gradually for 100 years. In 1900 more than one in three American workers were in agriculture. By 1950 it was still about one in ten. Today the number is around one in forty. Most of us had a grandfather who worked on a farm and virtually all of us had a great-grandfather who was a farmer. It hardly stands to reason that we or our children should therefore be tilling the soil. And we certainly wouldn’t be better off it we were.
Even if we decided that national policy should be to preserve the family farmer, what is clear is that the quarter trillion dollars of crop subsidies over the past 20 years — enough money to have bought all of the family farms west of the Mississippi — have done nothing to achieve that goal. Economists have noted that the major financial impact of our generous matrix of farm payments is not to raise farm income, but to artificially inflate the value of farm land. Those payments often enrich absentee land owners, not the people actually tilling the soil. Fewer than 10 percent of land owners own more than 75 percent of the farmland. So farm supports tend to replenish the already deep pockets.
Most of us remember the news stories a few years back of tens of thousands of dollars of agriculture subsidies paid to famous American farmers like ABC’s part-time rancher Sam Donaldson. That was no aberration. The Wall Street Journal recently reported that “the government forked over $ 2.4 billion between 1985 and 1994 to about 16,000 farmers, most of whom did not live on their land, did not drive their own tractors and were mostly indistinguishable from their affluent suburban neighbors.”
Most farm subsidies today flow to the same profitable agribusinesses that the public, the politicians, and small farmers complain are cornering the market. About half of the $ 1 to $ 2 billion in annual sugar subsidies, for example, enrich fewer than a few dozen large multi-million dollar sugar plantation owners. About 1 percent of the largest farm corporations command about 50 percent of the market — and receive the lion’s share of the government’s largess. Farm subsidies are corporate welfare for agri-giants and do little to help the small family farmer compete. According to the Department of Agriculture, most of the small “family farmers” that our sense of nostalgia says are worth preserving, are not full-time farmers at all, and receive only about 17 percent of their income from farming.
Opponents of Freedom to Farm retort that the peculiarities of agriculture make free markets unworkable. But out of some 400 major agriculture commodities produced and sold commercially in the United States, only a few dozen receive a helping hand from government. Milk, sugar, corn, wheat, cotton, peanut, and soybean producers receive welfare payments. Most fruit, vegetable, timber, flower, and livestock producers survive and even flourish under the whims of generally free market conditions. It defies all logic why some of these farmers are endowed with a blanket of government protection, and others brave the market. But clearly there is no law of economics or nature that necessitates government intervention for farmers to survive.
The main impact of subsidies is to destabilize the agricultural marketplace and perpetuate what have become nearly annual farm “emergencies.” It is an economic truism that when you subsidize something, you get more of it. At the very time that food prices are falling rapidly and the invisible hand of the market is trying to squeeze out the marginal producers who are least efficient, the government perversely pays these farmers to keep at it. Worse, Congress continues to provide farmers with an implicit income guarantee and a floor on the prices they will receive for their crops. These de facto income supports and price controls inhibit the development of a market for insurance policies against droughts, floods, and wild price fluctuations. In the absence of federal intervention, such insurance would be both more affordable and more sophisticated, allowing farmers to buy protection against precisely the kinds of miserable summer conditions that have prevailed these past two years.
To be sure, free market farming will inevitably lead to greater farm consolidation and more bankruptcies, with the attendant social costs attached to these unwelcome events. These are tragedies, yes, but of small proportions. We ought to keep some historical perspective on our modern-day farm problems. A farm crisis once meant that crops died in the field and people went hungry or even starved to death. The same week this summer that the Senate approved $ 7.5 billion in relief to American farmers because prices are so low, the United Nations reported that in the past three years 250,000 people have starved to death under socialist farm policies in North Korea. North Korea has one huge farm problem. America has many small ones.
The lesson of the first few years of the Freedom to Farm Act is that when farmers are permitted to produce for the market, not for government, then our food supply is secure and prices are low. Our super-abundance of food is one of the great modern-day success stories and one of mankind’s greatest technological triumphs. It is a success story that emanates from the incredible productivity of the American farmer. If the Freedom to Farm Act is rolled back or repealed, it will be a victim not of its failure, but of its success. And American consumers will pay the price.
Stephen Moore is director of fiscal policy studies at the Cato Institute.
