The
AGRIBUSINESS EXAMINER
Monitoring Corporate Agribusiness From a Public Interest Perspective
A.V. Krebs  Editor\Publisher
 
Issue #124                                                                         August 17, 2001
 

NFFC OFFERS CONGRESS:
BROAD-BASED CONSENSUS PROPOSAL
TO RESTORE AND MAINTAIN PROFITABILITY
ON AMERICAíS FAMILY FARMS AND RANCHES

On April 14, 2001, the National Family Farm Coalition (NFFC) presented to Congress a Broad-based Consensus Proposal to Restore and Maintain Profitability on Americaís Family Farms and Ranches. On May 15, 2001, NFFC submitted testimony to the House Agriculture Committee.

Preface

It is the obligation of Congress to establish food and farm policy that provides to its people, a production system of agriculture that ensures a sustainable and adequate supply of wholesome food at affordable prices. It is evident that people, the world over, look upon the family farm structure as being best suited to provide food quality and safety, social and economic opportunities, and preservation of land, water, and biodiversity. Passage of the "Food from Family Farms Act" will help accomplish these goals.

We have witnessed, and are experiencing the failure of recent farm programs that have driven farm families off the land that their parents and grandparents settled, causing rural poverty and decline of rural communities. Lack of net farm income is the fundamental reason for this on-going rural crisis.

Restoring farm income from the marketplace must be the primary focus of any new farm program. Fair prices to farmers donít exist because previous price discovery tools, including production and inventory adjustments, have been eliminated in current farm policy. Powerful lobbying activities of corporate agribusiness giants and their allies caused that to happen. Competition in the grain buying and processing sector has been lacking for some time and grows steadily worse through unrestrained consolidation.

The growth of corporate factory livestock operations is an example of industrialized food production with gross disregard for human, animal, or environmental resources. Under-priced feed grains, gives an unfair competitive advantage to hog factories, to the detriment of independent farmers. Contract growers no longer make management decisions, but are serfs on their own land. It is in the best interest of farmers, taxpayers, consumers and the environment that the trend toward corporate control of the food system be reversed.

Farming is a unique and honorable profession, worthy of justice and equity for all participants in the system. Congress must now ensure the economic, environmental and social sustainability of the food production system by enacting a farm program that includes price supports for those agricultural products that are basic to food security for ourselves and for humanitarian efforts when the need arises.

The provisions crafted in the "Food from Family Farms Act" are predicated on the belief that all countries, including the United States, retain the right to develop farm programs that respond to the needs of their farmers and consumers. Trade agreements should respect a countryís needs and traditions for food security, conservation of natural resources, and distribution of economic opportunity.

FOOD FROM FAMILY FARMS ACT (Revised April 14, 2001)

1.  Market Price Support.

Price support will be established through a Commodity Credit Corporation (CCC) non-recourse loan for wheat, feed-grains, soybeans, oilseeds, cotton and rice. Loan rate will be based on an "Agricultural Equity Formula" indexing system that reflects average gross income per acre received during the decade of the 1970s, adjusted for inflation and current higher per/acre productivity. (The 1970 --- 79 period is widely recognized as the last generally prosperous period in modern U.S. agriculture.) Loan rates will be adjusted annually by indexing to annual inflation and a rolling average of the past four year national average yield. Over a five-year phase-in period, loan rates will be adjusted upward until they equal the levels received in the 1970s.

2001 Loan rate levels:

Corn . . . .   $3.45 per bu.
Soybeans . .  8.63 per bu.
Wheat . . .     5.12 per bu.
Cotton . . . . $0.81 per lb.

2.  Program Sign-up Required.

Program sign-up will be required to be eligible for the CCC loan, farmer owned reserve, disaster relief or any other agriculture related government benefit.

Historical price ratios between crops (such as corn/soybean price ratio of one to 2.5) will be considered when establishing loan rates. Loan period will be nine months. At the end of nine months, producers will have the option of redeeming the loan, entry into the Farmer Owned Reserve (FOR) if open, or forfeiture to a CCC Food Security Reserve.

A maximum level of production will be eligible for the loan program. No price subsidy payments or loan deficiency payments (LDP) will be made.

3.  Farmer Owned Reserve.

A multi-year farmer-owned reserve will be established for all storable commodities to ensure food security and livestock feed supplies. These reserve stocks will be held off the market in times of adequate supply by establishing national average price levels below which reserve stocks cannot enter the market.

The reserve will be open to farmers any time ending stocks-to-use ratios exceed five percent. Storage will be paid annually in advance, at commercial rates. The minimum reserve levels shall be 10% of total use.

Release levels shall be at least 125% of the CCC loan rate.

Eligible grain will be allowed to be rotated to maintain grain quality. A low interest loan program for construction of on-farm storage facilities will be established.

4.  Planting Flexibility with Inventory Management.

The Secretary shall establish a short-term inventory management program for storable commodities to balance production with demand. Acreage bases will be defined as Tillable Crop Acres (TCA) giving farmers planting flexibility on TCA subject only to the production adjustments by the Secretary of Agriculture based on ending stocks. Land shall be considered TCA whose production is eligible for non-recourse loan only if, for the last three of the five preceding crops, the land was planted or considered planted.

The Secretary shall target specific crops for reduced planting only if carryover stocks of that crop exceed 15% of total use. The Secretary will then announce a Conservation Percentage (CP) for such crops, and a producer will be required to enter into a conservation incentive program approved by the local Soil Conservation Service for those acres. After meeting that requirement, the producer/operator will determine which crops and what crop mix to plant under this section.

5.  Disaster Relief.

In times of natural disaster, there must be an effective response in the form of disaster assistance.

Disaster payments will be made to qualified producers who lose 30% or more of their established yield. The disaster payment will be made at the rate of 50% of crop losses between 30% and 70%. Losses of crops between 70% and 100% will be compensated at the rate of 100%. A loss of 90% shall be considered a total loss and the producers shall have the right to salvage any remaining crop for whatever purpose they choose with no loss of disaster benefits.

Insurance coverage beyond established disaster payments would be at the producersí cost, but will not be required in order to qualify for disaster payments. Receiving crop insurance benefits will not disqualify a producer from receiving full disaster benefits under the disaster program.

6.  Targeting.

Amounts of commodities eligible for non-recourse loans will be established based on farm income levels with an incentive toward promoting maximum stewardship principles and actual optimum efficiency. In any crop year, the following amounts of crop production shall be eligible for non-recourse loan:

Wheat . . . . 65,000 bushels
Corn . . . . 125,000 bushels
Grain Sorghum ____________
Barley . . . . ____________
Soybeans . . 35,000 bushels
Oilseed . . . ____________
Upland Cotton . . . 1,000,000 pounds
Extra long staple cotton ______
Rice . . . . . 65,000 hundredweight
Sunflower Seed
Rapeseed
Canola
Safflower
Flaxseed
Mustard seed
Oilseeds
Sugar

DAIRY

New dairy policy must set the minimum price of milk at a level that allows dairy farmers to recover their cost of production plus a profit.

Imports must be limited to a level that does not distort the domestic market including derivatives not listed as dairy products. Ban all imports of dairy products from countries with confirmed BSE (mad cow disease) until adequate research can be done to ensure public safety. Eliminate block voting by dairy cooperatives. Referendum vote on mandatory check-off every five years.

LIVESTOCK

By establishing direct floor prices under the storable commodities with the non-recourse loan, the "Food from Family Farms Act" will indirectly establish a floor under livestock prices. If we continue with a program that allows market prices of feedstuffs like grains and oilseeds to be below their cost of production, then we can expect livestock and dairy prices to remain low and livestock production to concentrate in factory farms that rely on purchased feedstuffs.

This intensive livestock production becomes part of a vertically integrated livestock sector denying fair markets to diversified family farms that use environmentally sound crop rotations and responsible nutrient management. We intend for the majority of livestock production to again originate on diversified family farms. We also support the following measures:

Prohibition on ownership, feeding, or control of livestock by packers.

Country of origin labeling.

Technical corrections to the price reporting law. Require that USDA grade and approval methods are extended only to meat and dairy products produced in the U.S. and derived from livestock and dairy animals born, raised, fed and slaughtered in the U.S.

Require that all government procurement of agricultural commodities, processed and manufactured food is obtained through open, well-publicized bidding. The process should require that all reasonable efforts be made to ensure that a portion of purchased food comes from producers within the local region of the consuming entity.

Require an immediate and thereafter, periodic referendum on all mandatory check-off programs.

Bargaining protection legislation and strengthening enforcement of the Packers and Stockyards Act's poultry provisions. Prohibition against price discrimination.

CREDIT

Passing the family farm to a new generation.

A family farm system of production agriculture that encourages farm families to own the land they farm is the best assurance of good land stewardship and vibrant rural communities in the years to come. Today, many retired farmers and descendants of family farmers own farm land that they would like to pass on to the next generation without contributing to the concentration of land ownership.

They would rather not sell their land to those who would "add field to field" or outside investors. Our farm bill will, first of all, make sure that family farmers get a reasonable income from the marketplace. Secondly, we propose to make capital available through the Farm Services Administration by:

Significantly expanding the direct loan and guaranteed loan programs with special emphasis on minority, beginning, and limited resource farmers. Process should include simplified application with 30 day time limit for decisions. Terms should include lower interest rates, longer payback terms, one year of experience required, debt forgiveness for three consecutive disaster years.

Loans could be coupled with grants that would encourage sustainable farming methods and local efforts at land-based economic development and cooperative ownership of value-added enterprises.

Minority, beginning and limited resource farmers should be given priority to purchase land in USDA inventory. Reinstate lease buyback program. Modify current election system to be more reflective of the county's diverse population. Make minority advisors voting members of the committee.

MARKET CONCENTRATION

Moratorium on Large Agribusiness Mergers.

No dealer, processor, commission merchant, agricultural input supplier, broker, retailer, or operator of a warehouse of agricultural commodities with annual net sales or total assets of more than $100,000,000 shall merge with, or acquire, directly or indirectly, any voting securities or assets of, any other dealer, processor, commission merchant, agricultural input supplier, broker, retailer, or operator of a warehouse of agricultural commodities with annual net sales or total assets of more than $10,000,000; and (2) no dealer, processor, commission merchant, agricultural input supplier, broker, retailer, or operator of a warehouse of agricultural commodities with annual net sales or total assets of more than $100,000,000 shall merge if the acquiring person would hold 15% or more of the voting securities or assets of the acquired person.

GLOBAL FOOD SECURITY

International negotiations.

Global food security depends on the establishment of a new international economic framework that encourages the sensible use of land and water resources and shared responsibility of international food reserves. Currently, developing nations are pressed to destroy natural ecosystems, such as the Cerrado in Brazil, so that they can export more soybeans at lower and lower prices. United States farmers are told that if we decrease production, farmers in Brazil will undercut their prices by expanding production.

The preservation of grasslands and forests in developing nations and the restoring of damaged farmlands in developed countries can store vast amounts of carbon that otherwise will end up in our atmosphere adding to global warming. We call for a Global Agricultural Summit aimed at cooperation in establishing:

An international system of shared food reserves.

Equitable shares of the world export market at price levels that stabilize the agricultural economy.

International conservation programs to preserve and restore natural ecosystems that would otherwise be used unwisely in agricultural production, which includes an international system of production cuts when world grain stocks become excessive.
 

IOWA FAMILY FARM ADVOCATE EXPLAINS
COST OF NONRECOURSE LOAN PROGRAM

One of the key provisions of the National Farm Farm Coalition's "Food >From Family Farms Act"is a non-recourse loan program. Here NFFC board member George Naylor, who along with his wife Peggy farms 620 acres of corn and soybeans near Churdan, Iowa, explains the cost of such a program.

Before the first nonrecourse loan program in 1933, farmers could expect extremely low prices at harvest and then, in the year ahead, prices that showed no relationship to their production or living costs. The purpose of the nonrecourse loan program was to establish a market price floor related to true cost of production directly under the eligible storable commodities, and indirectly under livestock and other farm products.

Beginning in the mid 1950's, market price floors below cost of production became the norm, and in 1996 the Freedom to Farm Act replaced the nonrecourse loan program with a marketing loan program which completely eliminated a price floor.

If today's law of the land aimed at true cost of production by use of the nonrecourse loan, this is how it would work: The Secretary of Agriculture would announce that a nonrecourse loan is available for corn at $3.50 per bushel (the loan rate). A farmer can then store the grain and get $3.50 per bushel as a loan from the Commodity Credit Corporation to be paid back with interest.

If, during the nine month length of the loan, the farmer cannot market the grain at a price to cover the principle and interest, the farmer can forfeit the grain to the government and keep the loan without any further obligation. (If this were a "recourse loan" like available from a bank, the government could say that the grain is no longer worth the original loan and the farmer would have to liquidate other assets to payback the loan.)

Thus, farmers need not sell grain for less than the loan rate, and likewise, the giant grain and livestock firms must pay at least the loan rate for the grain or go without.

Any grain forfeited to the government will become part of the nation's food security reserve.

Also, the government could announce that grain in storage under loan for nine months can go into a "farmer-owned reserve" where the farmer continues to own the grain and is paid storage payments by the government ideally at commercial rates. (The cost of the reserve program will be examined in a moment.)

These food security reserves must be isolated from the market by rules that keep the grain off the market until a short crop or unusual demand drive prices above a stipulated trigger price, say 120% of loan, or $4.20 per bushel. If land set-asides are managed properly, very little grain need go under loan and very little grain need be absorbed in reserves, except in years where we are blessed with usually large crops. This kind of program makes bountiful crops a blessing rather than a price-depressing curse.

The beauty of the nonrecourse loan is that farm income comes from the purchaser of the commodities, not the federal treasury, since nine-month loans are paid back with interest, and the market price floor means higher prices for grain become part of the consumer s food dollar.

Likewise, cheap grain prices at below the cost of production do not get factored into the expansion plans of giant hog and broiler factories which tend to depress all livestock prices. As long as livestock factories can get on the phone and order unlimited amounts of feed at less than the cost of production, with no responsibility for the farmer's cost of raising the feed or costs of conserving soil, water, and biodiversity, diversified family farms and ranches will become a thing of the past.

Incidentally, since the storable commodities are so widely adaptable, their direct market floor tends to place an indirect floor under nonstorable commodities like fruits and vegetables. The whole farm economy benefits.

The Freedom to Farm Act has depended on a "marketing loan" to facilitate grain marketing rather than nonrecourse loans. Since there are no conservation set-asides or food security reserves, every fencerow-to-fencerow bushel produced must find a home through lower market prices. While, it is rather difficult to explain all the features of the marketing loan, it works something like this:

The national average marketing loan rate (MLR) for corn is $1.89 per bushel. Each day, the Farm Service Administration (FSA) office announces a "Posted County Price" (PCP) which is supposed to be within a few pennies of local cash prices for corn. Let's say on any given day the PCP is $1.50 per bushel. The farmer can get a Loan Deficiency Payment (LDP) from the government (MLR minus PCP) and then market the grain to net approximately the MLR.

The farmer can hold the grain after receiving the LDP, but if market prices drop further, the farmer may have to sell at a price less that $1.50 and net less than the MLR. Another option would be to store the grain and get a marketing loan at the MLR. Then later in the year, if prices rise to levels above the MLR, the farmer can sell the grain and payback the loan with interest at the MLR, much like a nonrecourse loan. If, however, prices stay below the MLR, the farmer is allowed to payback the loan at the PCP and keep the difference.

The upshot of all this is that, with a marketing loan program, big crops must clear the market even if prices are below the cost of production and below the MLR. The federal treasury makes up the difference, estimated to cost $6.2 billion this year. An economist at Iowa State University has told me that, given the large amount of grain that has been LDP'd and not sold, along with the farmers ability to payback loans at less than the MLR, instead of a market price floor under prices, we now have a market price CEILING somewhat below the MLR.

The Freedom to Farm Act is a dream come true for the giant grain, livestock, and packing corporations --- no conservation set-asides, no food security reserves, and no floor under commodity or livestock prices --- with the American taxpayer asked to keep the agriculture system solvent.

USDA projects $22.5 billion to be spent this year in direct payments to farmers. In comparison, we spend a little over $4 billion on the Head Start Program. USDA officials plea for more money for conservation programs but don't seem to recognize that $22.5 billion would be available if farmers were receiving a fair price in the first place.

A cheap commodity policy like Freedom to Farm is the most expensive policy for the U.S. taxpayer. Given the concentrated control of processing and retailing, does this ever really translate into "cheap food?"

I believe another side effect of Freedom to Farm is changing our rural communities by changing the relationship between renters and landlords. The complexity of figuring out a grain marketing strategy and the myriad of FSA forms has been one more reason that landlords have changed their crop share lease to cash rent. Cash rent tends to place the landlord-tenant relationship on strictly monetary grounds so that land often gets rented to the highest bidder instead of the neighbor who may be a better steward of the land. The rural social fabric has suffered from this.

COST OF FOOD SECURITY RESERVE

The ancient wisdom of the story of Joseph s plan for Pharoah to store grain in seven fat years for use in the seven lean years, along with today's increasing climate variability as we enter a new millennium, argues that a wise society would protect its people with food security reserves.

While we have seen that the nonrecourse loan program costs the U.S. Treasury nothing to maintain a price floor at true cost of production, maintaining a reasonable food security reserve will have some cost.

The costs of maintaining a food security reserve are fairly straight forward. Like any investment, once grain enters government's hands or is placed in the farmer-owned reserve, interest charges begin as a cost to the government as do storage and handling payments.

Grain in the government CCC stocks can be sold at higher prices (trigger levels) later in times of shortage at a profit to offset some cost. Thus, interest, storage, and a small administration charge comprise the costs of the reserve. This will be a small amount compared to the $22.5 billion in direct payments that accompany a cheap grain, food-insecure program like Freedom to Farm.
 

CORPORATE AGRIBUSINESS COALITION
DOGGEDLY BACKS FREEDOM TO FARM CONTINUATION

A coalition of 127 associations and corporations, reading like a who's who of corporate agribusiness, have endorsed and encouraged Congress to continue what many believe to be the disastrous Freedom of Farm Act of 1995, due to expire in the coming year.

The Coalition for a Competitive Food and Agricultural System (CCFAS) has called for a continuation of the direct payments to "growers" now authorized under the Freedom to farm Act, but with additional direct payments for oilseed "growers."

"Our core belief is that market forces do a better job than government in rewarding efficiency, encouraging productivity, managing risks, allocating resources, and maximizing net farm income," John C. Miller, president of Miller Milling Co., Minneapolis, Minnesota, speaking for the CCFAS, told the U.S. Senate Agriculture Committee in July 12 testimony.

Among those members of the coalition, in addition to most major commodity groups, the U.S. Chamber of Commerce and the Chicago Board of Trade, were corporate agribusiness giants such as Bunge Corp., Cargill Inc., ConAgra, CPC International, General Mills Inc., J.G. Boswell Co., Kraft Foods, Louis Dreyfus Corp., Philip Morris Co., Procter & Gamble, Ralston Purina Co., Quaker Oats Co., Seaboard Corp.,  and Tyson Foods.

Noticeably absent among the 78 "corporate" members of the CCFAS was Archer Daniels Midland (ADM). However, among the 49 "associations" that comprise the coalition is listed curiously enough "Archer Daniels Midland."

Miller also recommended keeping these features of Freedom to Farm Act with some modifications:

* Continue flexibility provisions that allow producers to increase income by planting crops that receive more returns from the market and encourage soil preservation practices.

* Continue the marketing loan program but allow loan rates to adjust to changes in average market prices by eliminating the discretion of the Secretary to freeze loan rates.

* Utilizing the current formula of 85% of the five-year average market price, excluding the high and low years, but limiting the yearly adjustment (up or down) to no more than ten percent.

Miller in addition argued against creating inventory management of supply control programs, and against any additional counter-cyclical income support programs.

CCFAS believes that emphasizing direct payments to producers allows the U.S. not only to comply with international trade obligations, but also to show leadership on international agricultural trade policy.

Miller told the Senate Committee that commodity policy alone cannot address all the challenges facing the U.S. agricultural sector. Since only 36% of farmers receive government payments, he continued, and only ten percent of rural residents are farmers, the government must "find ways to help revitalize rural areas, such as aggressive trade policy, increased investment in research and infrastructure, renewable fuels, conservation programs, and enhanced risk management."

In 1995, under the auspices of the CCFAS, 15 economists, many from previous administrations, in a letter to then President Clinton, urged that his  administration back the key provisions of the Freedom to Farm Act. Although Clinton said that the Freedom to Farm Act "slashes the farm safety net" he nevertheless eventually signed the bill into law.

Among those signing the letter were:

Donald Paarlberg, chief agricultural economist in the Eisenhower, Nixon, For Administrations; Willard Cochran, director of agricultural economics in the Kennedy Administration; John Schnittker, assistant secretary of agriculture in the Johnson Administration; Dale Hathaway and Lynn Daft, top agricultural economists in the Carter Administration; Robert Thompson and William Lesher, chief agricultural economists in the Reagan Administration; Daniel Sumner and Bruce Gardner in the Bush Administration, and  Robert Innes, then agricultural economist for Clinton's Council of Economic Advisors.
 
 
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