Monday, December 11, 2017

U.S. Agricultural Commodity Overproduction Helps Agribusinesses but Hurts World's Developing World Farmers and the Environment. Is it Even Legal?


Around the world, chronically low crop prices are keeping farmers from making a living despite record harvests

by Timothy Wise

(Note that I've added some comments to this at the end.)

Crops are in across the U.S. farm belt, with record harvests filling farmers’ silos with grain and their hearts with pride. Yet persistent and punishingly low prices for those crops leave them no better off for their efforts. Net farm income this year is about half what it was in 2013.

U.S. farmers are not alone. The world is experiencing what Reuters called a “global grain glut,” with many staple food crops filling silos from Brazil to the Ukraine. Crop prices have fallen dramatically, with serious repercussions for farmers, particularly poor farmers in developing countries.

Unfortunately, two institutions with the power to address the the problem seem poised to make things worse rather than better. The U.S. Congress has begun discussions of a new Farm Bill, and there is little indication it will include the kinds of provisions that might curb unchecked production.

Meanwhile, the World Trade Organization gathers December 10 in Buenos Aires, Argentina, ostensibly to address the kinds of trade policies that can allow governments to protect their farmers from cheap exports flowing from U.S. and other dominant exporters. All indications are that WTO ministers, mis-led by the United States, are unlikely to even consider measures to address the global grain glut or its impacts.

U.S. Farm Bill feeds global crop glut

The adage in farm country is that the cure for high prices is high prices, and that seems to be the case with the current global surpluses. They follow a series of price spikes, starting in 2008 and dubbed the new “global food crisis,” which drew investment into agriculture. U.S. farmers pulled land out of conservation areas and planted every available inch in corn, soybeans, and other commodity crops. Brazil, Argentina, the Ukraine, and other exporters followed suit.

Crop prices came down quickly, falling back to pre-food-crisis levels in 2014. They have remained low since, and economists project little upward movement in coming years. There is nothing unusual about this. In fact, global agricultural markets tend toward overproduction and have for decades.

U.S. policy-makers used to know this, and they used to address the problem with farm policies that managed production to keep prices from crashing. They paid a support price, rather than crop subsidies, and actively encouraged farmers to take some land out of production.

No more. Since the 1980s, U.S. policies have encouraged maximum production. The 2014 Farm Bill was little different, despite some tweaks to the subsidy programs, which are far more a symptom of the overproduction problem rather than its cause. And the 2018 Farm Bill, now taking shape in Congress, promises to do more of the same.

Subsidized crop insurance will encourage farmers to extend planting onto marginal lands, knowing they can get a payout if the crop fails. Other subsidy payments will compensate them if prices or revenues fall below minimum thresholds, taking even more of the risk out of expanding acreage. Few measures will take land out of production, for conservation or just to ease the grain glut and price squeeze.

Some alternative proposals advocate for shifts in subsidy programs, to encourage healthier foods or more sustainable farming practices. Few address the overproduction problem.

WTO prevents developing countries from defending themselves

The surpluses of corn, soybeans, wheat, and cotton don’t stay in the United States. Neither does the harm. The U.S. is still the world’s largest agricultural exporter, and it is once again exporting those surplus crops at prices below what it cost to produce them – one definition of “dumping” at the WTO.

According to new research from the Institute for Agriculture and Trade Policy (IATP), in 2015 the United States exported corn at 12% below what it cost to produce it. “Dumping margins” were significant for other crops as well: 10% for soybeans, 2% for rice, 32% for wheat, and 23% for cotton.

U.S. exports often set international prices, meaning that farmers in other countries get less for their crops. I estimated that such U.S. dumping from 1997-2005 cost Mexican farmers some $13 billion in lost revenues as below-cost imports pushed down domestic prices.

The World Trade Organization is supposed to prevent unfair trade practices such as dumping. But on the eve of the Buenos Aires ministerial conference the WTO sits poised to take no action on long-standing developing country proposals that would allow them to defend themselves against dumping.

Since 2013, the United States has objected to India’s program of paying support prices to grain farmers and using the food stocks to feed the poor. It is far and away the most ambitious anti-hunger effort in the world, promising to reduce hunger for more than 600 million people in India while improving the lives of small-scale farmers by paying them a decent and stable price. With no sense of irony or shame, the U.S. accused India of unfairly subsidizing its farmers, using arcane WTO rules that dramatically exaggerate the estimate of the subsidy portion of the support price.

The conflict has dragged on, but a resolution was mandated for the 2017 WTO agenda. Don’t count on it.

Also off the table are developing country proposals for a “Special Safeguard Mechanism” to allow developing countries to do what rich countries are already allowed to do – take protective measures to insulate domestic producers from sudden import surges that disrupt local markets.

Most egregious is continued inaction on the dumping of U.S. cotton, which was found illegal under existing WTO rules. The WTO in 2005 promised “expedited action” to remedy the problem, and still, 12 years later, little has been done. U.S. officials have ruled out further discussions or action on cotton in Buenos Aires despite continued dumping.

U.S. and global farmers need action, or low prices and dumped crops will drive even more into hunger and poverty. As a stark reminder, the same week Reuters reported on the global grain glut the U.N. Food and Agriculture Organization announced that despite the grain surpluses there had been a 5% increase in the number of the world's chronically hungry in 2016, to more than 800 million.

Many of those millions are poor farmers. They need fair prices.

Timothy A. Wise is a Senior Researcher on the Land and Food Rights Program at Small Planet Institute and a researcher at the Global Development and Environment Institute at Tufts University.

The writing above is licensed under a Creative Commons Attribution-Share Alike 3.0 License

A few comments from BPA....

  • This is leading to farmer suicides and tons of stress on farms everywhere, here in the U.S. and abroad. It is also leading to the gutting of rural America and farm communities.
  • This all-out production benefits and subsidizes agribusinesses (and banking), which in turn tell farmers that they are feeding the world. The appeal to use these ever-bigger industrialized methods include less labor required, as well as the hope that producing more earns more "next year". There's always next year and the hope of a cycle that returns to profitability. But, we are living in a new age when other global Ag production powerhouses are also competing with American farmers, so it comes down to which nations have the infrastructure (built by taxpayers) and the farm program subsidies (funded by taxpayers) and the biofuels mandates (funded by taxpayers).
  • Ethanol policy mandates, too, are a symptom of overproduction. Wise mentions "dumping" but fails to mention the "burning" that is going on - of corn from the richest soils in the world, at the expense of... those soils, wildlife from poisoning and habitat loss, and water contamination. This burned commodity end product is now being promoted for export, and the appetite for the export is limitless - when subsidized by U.S. taxpayers. For whatever reason, the left media voices don't seem interested in addressing this much but would rather go after meat. (Perhaps because of the final point, up next.)
  • One of the only ways in which I can see policymakers ever come around to ending all out production and subsidization of agribusinesses, is to break up the two-party farm bill process stamp-of-approval by separating food stamp programs from the farm bill. Another important step would be to get a nonpolitical person appointed to become Secretary of Agriculture, someone with an ecological agricultural economics or agronomy degree.