Monitoring Corporate Agribusiness From a Public Interest Perspective
A.V. Krebs  Editor\Publisher
Issue #148                                                                     March 14, 2002


JERRY PERKINS, DES MOINES REGISTER: The sale of a few cows or hogs can turn a hobby into a farm, according to the U.S. Department of Agriculture. The USDA defines a farm as an operation that sells more than $1,000 in farm products annually, said Norman Bennett of the USDA's National Agricultural Statistical Service.

The average Iowa farm is much larger, however. For example, an average farm in northwest Iowa has annual sales of $300,000 a year from crops raised on about 700 acres, said George Moriarty of Spencer, who keeps financial records for 200 farms for the Iowa Farm Business Association.

The USDA's $1,000-a-year threshold is an antiquated notion of what a farm really is and distorts how many farmers are in trouble, said Michael Duffy, an Iowa State University Extension economist.

 . . . . the USDA said that from 1999 to 2001, the number of farms in Iowa dropped 2.6 percent, from 96,000 to 93,500, much faster than the national rate of 0.7 percent. If those acreages weren't counted as farms, Duffy said, the percentage of Iowa farmers leaving the business would have increased even more than 2.6% in two years.

"If we raised the definition of a farm to a minimum of $10,000 a year in sales of farm goods, that would do a world of good and remove the acreages and the ranchettes, where people are farming as a hobby or as a lifestyle choice," Duffy said.

The number of hobby farms or acreages is increasing rapidly as more people move to the country where they can raise a few crops or a few head of livestock, he said. Adding to the pool of farms skews how many farms have gone out of business. Duffy said it is the average Iowa farm ---with annual sales of $50,000 to $500,000 --- that is disappearing.

"We pay lip service to saving the family farm, and the loss of those farms is being masked" by counting the growing number of small farms, Duffy said.

Moriarty said farmers must sell more than $100,000 annually "to even be a full-time farm. Below that, you're talking about a part-time farmer with off-farm income. Selling $1,000 a year isn't even a hobby farm," he said.

Bennett of the USDA's statistical service said the department has been criticized for years for its definition of a farm as an entity with more than $1,000 in annual sales. The definition has been in place since 1974, he said. "I'm not sure who could change it," Bennett said.


The U.S. Department of Agriculture (USDA) is blaming a decline in the number of farms operating in the United States on adverse weather, lower commodity prices, and land competition.

The number of farms and ranches in the United States was down 0.7% in 2001 compared to 2000, with 2.16 million farms operating in 2001, according to a recently released USDA report. This is the second largest decline in farms and ranches since the 1.4% drop in 1991. The North Central region's loss of farms was the largest, with a decline of 9,500 operations, 1.2% less than was estimated in 2000.

The West region lost 2,600 farms and ranches, 0.9% fewer than the previous year. The number of farms and ranches declined 1,600 or 0.2% in the South region and 800 or 0.6% in the Northeast region. The number of farms and ranches during 2001 declined in 23 states, remained unchanged in 22 states, and increased in five states. States losing 2,000 farms during the year were Illinois, Kentucky, and Ohio.

Iowa farms declined by 1,500, while Indiana, Kansas, Mississippi, Missouri, Montana, Nebraska, North Carolina, and Washington lost 1,000 farms and ranches. Of the five states showing increases in the number of farms and ranches, Oklahoma, Tennessee, and Texas gained 1,000 operations during the year. Texas, which leads the nation in acres in farms and ranches with 130 million acres, remained unchanged from 2000.

Colorado's agricultural acreage dropped by 300,000 acres, and Montana's land in farms and ranches declined 200,000 acres during the year. States losing 100,000 acres were: Alabama, Arizona, California, Florida, Georgia, Indiana, Iowa, Kansas, Minnesota, Mississippi, Missouri, North Carolina, New York, and Ohio. Only Tennessee increased in farm and ranch acreage, gaining 100,000 acres. Overall, farm and ranch acreage declined in 20 states, remained unchanged in 29 states, and increased in one state.


GREG EDWARDS, RICHMOND (VA.) TIMES-DISPATCH: The Council of State Governments' recommendations to Congress for national farm policy arrived in the mail . . . .

The council recognizes what would appear to be a self-evident fact: "Self-sufficiency in food production is the cornerstone of a nation's security." It's an acknowledgment that is reflective of our tumultuous times. Farmers can also contribute to the nation's security by providing renewable sources of energy, the council says. The council is a national organization of states and U.S. territories, whose chairman at the time this report was developed last November was Virginia state Sen. John Chichester, Rep-Stafford.

Many of the states' goals already have been adopted by Congress as it works on developing a new farm bill. The council says Congress should:

* provide funding to protect the nation's food supply and defend against bioterrorism, * invest in research needed to ensure a safe, affordable and abundant food supply and to keep U.S. farmers competitive,
* strengthen the income safety net for farmers, including development of renewable energy as an alternative agricultural market,
* support trade and marketing of farm products, and "provide a variety of conservation programs."

The states have joined Congress in deciding it may not be the best public policy to simply throw U.S. farmers into the global marketplace to let them sink or swim. The council is recommending a farm safety net that includes counter-cyclical payments that can help farmers stay in business during cyclical downturns that characterize the farm economy.

The safety net should, it says, include promotion of renewable energy resources such as ethanol, biomass, wind and animal-waste energy generation through tax credits, research and development and other means.

Specialty crops --- those other than traditional commodity crops such as corn, wheat, rice and tobacco --- have not gotten much attention in past farm bills, but the states say that should change. The council advocates making sure risk management programs such as crop insurance be expanded to cover specialty crops and that Congress fund other needs of specialty-crop farmers.

Among the states' recommendations for support of agricultural trade and marketing is a call for a change in the law to allow interstate shipment of state-inspected meat and poultry products and the adoption of country-of-origin labeling for food products.

Conservation programs, the council says, should be aimed at keeping farmland in food production that would be otherwise developed and at recognizing the increasing role of farmers in protecting the environment.

Southern states at a legislative conference in Georgia last July made some additional recommendations that were not included in the national report. Among them was a proposal for development of farm savings accounts that would allow farmers to shelter tax-deferred money in good years for use in bad years (but not as an alternative to counter-cyclical payments).

To ensure that farmers continue to enjoy an open market for their goods at a time when trends toward consolidation, concentration, contract production and integration are limiting their options, the Southerners recommended that Congress give the U.S. Department of Agriculture additional funding for merger and anti-trust investigations.


ANNE FITZGERALD, DES MOINES REGISTER: Free trade agreements, touted as the ticket to increased U.S. exports and higher farm commodity prices, so far have failed to deliver on that promise, agricultural economists say.

While agreements have reduced trade barriers, farm exports and prices have been hurt by competing countries' increased production, experts say. Economic problems in other countries also have hurt demand for U.S. commodities. Farm trade is central to a coming round of world trade talks and to congressional debate on federal farm legislation. . . .

"We have so far been disappointed," said Daryll Ray, an agricultural economist who heads the Agricultural Policy Analysis Center at the University of Tennessee. For example, China's entrance into the World Trade Organization (WTO) last year has yet to yield its potential, in part because of the country's concerns about genetically modified crops.

Experts have said opening trade with China and other countries would raise U.S. commodity prices. But market prices for corn and soybeans, Iowa's largest crops, have been in a slump for about five years. The USDA has projected U.S. average cash corn prices this year of $2 per bushel and soybean prices of $4.30, in both cases well below the costs of production.

Free-trade proponents need to be realistic about factors other than increased global demand, Ray said. "We have to be sure we don't lead farmers down a primrose path," he said. Even so, the agricultural community remains hopeful trade will improve prices.

In recent years, some U.S. farm sectors have increased exports to particular markets. U.S. corn exports to Mexico, for instance, more than tripled between 1993 and 1999 because of trade barrier reductions mandated by the North American Free Trade Agreement, or NAFTA, said Erick Erickson, an economist and vice president of the U.S. Grains Council in Washington, D.C.

"The promise is still there," he said, "but realizing that promise is not such a simple thing. It takes a lot of work. . . . We are facing economic stagnation or downturn in many regions of the world."

Generally, U.S. bulk commodity exports have languished in recent years. According to the U.S. Department of Agriculture:

* U.S. farm exports, which peaked in 1996 at $60 billion, have dipped below $50 billion since then.

* U.S. corn exports peaked at 2.4 billion bushels in the 1979-1980 marketing year. The closest exports have come to that number was in 1995-1996, when exports totaled 2.2 billion bushels.

Several economists said the key to increased exports is increased income, particularly in developing nations. As people in those countries have more money to spend, they tend to purchase higher-quality, higher-protein foods, such as meat and dairy products. That increases demand for livestock products, as well as for grain and other products to feed the livestock.

"The problem, in a word, is income," said Neil Harl, an agricultural economist at Iowa State.

"Will trade result in better income for low-income people who are the ones who cannot afford food? The picture there is not completely clear, although all boats are raised when trade benefits a country," he said.


ERIK ECKHOLM, NEW YORK TIMES: Prime Minister Zhu Rongji called  . . .  for a renewed assault on official corruption and for bolstering the dwindling incomes of farmers in a stern speech that highlighted gnawing threats to China's prosperity and social stability.

In his televised State of the Nation address . . . at the opening of the annual session of Parliament, Mr. Zhu praised China's "remarkable  achievements" in 2001, including an economic growth rate of 7.3% despite global economic woes.

But he devoted most of his 90-minute speech to a litany of problems that he said are dogging the transition toward a market economy. They include the stagnation or decline in incomes among the rural majority, soaring backlogs in payment of wages to rural teachers and pensions to urban workers and the growing threat of unemployment.

Even as China enters the World Trade Organization, the country's economy remains warped by its legacy of central planning, said Mr. Zhu, who is a leading advocate of market reforms. "Industrial structure remains irrational, and deep-seated problems in our economic system have not been solved," he said.

He described problems of environmental degradation, local protectionism, "deception, extravagance and waste" by officials, lax enforcement of the law and an epidemic of "grave work site accidents." . . . .

Mr. Zhu's speech reflected the complexity of governing China as it moves from a rigidly socialist past. But his approach also seemed to reflect his history as a manager of a planned economy under one-party rule. He offered few solutions to the country's problems, in part because of the limitations imposed by politics and the Communist Party's power monopoly.

He demanded immediate payment of back wages owed to millions of rural school teachers, for example, but he also said local governments, which pay those wages, must reduce taxes and fees. He did not explain how to square those goals. Mr. Zhu called for stern measures against official  corruption, but did not mention the systemic answers that many analysts feel are needed to curb it: more press freedom and competitive elections.

Altogether, in a speech that in its English translation ran 35 pages, Mr. Zhu used the phrase "we need to," or variations on it, more than 100 times, usually without offering specific means to achieve the goal.

In an indirect reference to the flaring anger among displaced workers and farmers that is reflected in unease among the delegates to the Parliament this year, Mr. Zhu offered advice to fellow officials. "We should initiate investigations and studies," he said, "go all the way down to the realities of life and to the people to learn their actual conditions, listen to their opinions, share their weal and woe, and lose no time in solving the problems they resent or are dissatisfied about."

Mr. Zhu said the government would continue with its expansionary deficit-spending policies in the year ahead, although some economists questioned the approach this week. The leadership's preoccupation with economic development, social stability and the wrenching changes associated with market opening was reflected in the speech.


SKIP WATERS, CHAIRMAN OF THE WESTERN ORGANIZATION OF RESOURCE COUNCILS (WORC): Independent family farmers and ranchers owe thanks to the United States Senate for standing up to the meatpacking monopoly --- twice --- as it debated the Farm Bill. Despite a well-oiled packer lobby campaign built on lies, economic blackmail and intimidation, the Senate adopted an amendment banning meat packers from owning livestock in December, and then refused to repeal the ban in February.

The amendment is a first step at taking away the packers' power to manipulate markets for cattle, hogs and sheep. Allowing packers to own the animals they slaughter reduces competition for livestock raised by independent family farms and ranches. Prohibiting this practice will end the kind of self-dealing in the livestock markets that Enron allegedly used to manipulate energy markets. It will mean more competition and a better
opportunity for producers to realize a return for their labor and production, without raising prices to consumers.

The Senate's action is a victory for grassroots groups like mine, the Western Organization of Resource Councils, and more than a hundred other groups which fought against the packers' intensive lobby campaign and won! However, this fight will continue as the legislation moves through the House-Senate conference committee.

A House-Senate conference committee will decide whether it stays in the final bill and becomes law. The conferees need to sort out the facts from the myths spread around by the packers so that they can make an informed decision about the packer ban.

MYTH: The amendment would ban all contracts and agreements between packers and producers.

FACT: The packers brought up this argument after the amendment passed in December, and spread it despite the clear meaning of the amendment, the stated intent of the sponsors, the existence of state laws with similar language that have never affected a single contract, and statements by Senators Johnson and Grassley on the Senate floor expressly designed to further clarify the intent of Congress. The packers have continued to promote this myth even after the Senate added language to remove all doubt about the amendment's meaning.

Most of the sponsors and grassroots groups who support the Johnson-Grassley amendment do believe that such contracts and agreements need to be regulated by Congress to protect competition and market fairness, not banned, but none of us thinks the Johnson-Grassley amendment affects contracts, let alone bans them. This myth is being perpetuated by the packers in an effort to guarantee themselves continued record breaking profits through the monopolistic control they exert over the present market structure.

MYTH:  Packers need to own livestock to improve meat quality and to keep the price affordable.

FACT: An open and completive market atmosphere regulates price through the laws of supply and demand, with premiums built in for higher quality items. Packers have been able to use the supplies of cattle they own to distort the market, and underpay producers for their cattle, while the retail price to the consumer has increased. "Let the packers be packers and buy our product on a competitive basis," say five former Presidents of the Texas Cattle Feeders Association, who support the packer feeding ban.

MYTH: If the Johnson-Grassley amendment becomes law, the forced sale of packer owned livestock will flood the market and collapse the price of livestock.

FACT: The Johnson-Grassley amendment allows beef packers six months to get out of the cattle feeding business, long enough to feed out virtually all of the cattle they have on feed when the farm bill is signed in law, and turn them into boxes of beef. Pork packers will have even longer --- 18 months --- to finish the pigs they own when the law takes effect.

MYTH: Livestock producers are divided and confused about the amendment.

FACT: The ban is supported by grassroots groups like ours. 130 of them signed a letter to Senators in February including the national organizations of the National Farmers Union, and the American Farm Bureau Federation. It is supported by many state livestock organizations, including the Nebraska Cattlemen's Association and the Iowa Pork Producers' Association.  It is interesting to note, in the fact that that the producer organizations that have come out in opposition to the ban, the National Cattleman's Beef Association and the National Pork Producers' Council, have had paid packer representation on their boards of directors.

MYTH: The Johnson-Grassley amendment banning packer ownership is an unprecedented, radical intrusion of the government into the operation of free markets.

FACT: There is a long legislative and judicial history in our nation of law and regulation designed to preserve the very basis of our nation's prosperity and sustained growth: competition and equal opportunities in our markets and business structures. The Johnson Grassley amendment language would be an addition to a long list of prohibitions against uses of anticompetitive practices by packers that Congress first adopted more than 80 years ago in the Packers and Stockyards Act of 1920. It is still illegal for packers to own livestock auction yards, and auction yards are barred from many other related businesses. In order to sustain competition and free enterprise, this kind of regulation has been applied not only to our food producing industry, but to many other vital industries as well.

Far from radical, the Johnson-Grassley amendment is an overdue first step. More needs to be done to ensure that our agricultural markets are open, fair, and competitive, and our vital food producing industry is strong and secure, especially in light of the terrorist threat facing our nation. But it is a good first step, and the conference committee must keep it in the farm bill.

Skip Waters, his wife Vanna, and their children, live on their family owned and operated ranch near Moorcroft, Wyoming.


The residents of 28 Vermont towns have voted overwhelmingly in opposition to genetically engineered food and crops at their annual town meetings this week.  In 31 towns that debated resolutions on this issue, only one, in the town of Rochester, was voted down, two were tabled, and the remaining 28 passed.  In the capital city of Montpelier, voters approved their resolution by a 2-1 margin (1577-752).

Most of the resolutions included language stating that genetically engineered (GE) foods have been shown to cause long-term damage to the environment, the integrity of rural, family farm economies and can have serious impacts on human health.  Most resolutions called upon state legislators and the Vermont congressional delegation to support labeling of GE foods and seeds, as well as a moratorium on the growing of GE crops.

In addition, eight towns took steps toward ending the use of engineered crops within their towns, whether by declaring a town moratorium or urging that the planting of GE seeds be actively discouraged within the town. Local moratoria and other such measures
were passed in Westfield, Jamaica, Greensboro, Calais, Marshfield, Ripton, Walden, and Charlotte.

"Once again, Vermonters have spoken out through their town meetings on an issue of vital importance to our towns and all of humanity," said Heather Albert-Knopp of the Institute for Social Ecology's Biotechnology Project, based in Plainfield.  The Project provided information and support for activists who wanted to bring the resolutions to their towns. Staff members at the Vermont Genetic Engineering Action Network and the farm advocacy group Rural Vermont were also involved in the effort.

"The more people know about genetically engineered food, the more they oppose it, but so far corporate lobbyists have prevented the state and federal governments from acting," Albert-Knopp said. "In our town meetings, however, people's real concerns can take precedence over special interests."

"It's about the freedom to govern ourselves," said Ben Grosscup, who spoke in favor of Marshfield's resolution. "The biotechnology industry, the federal government and international bodies like the World Trade Organization are trying to make us forget that we can have that kind of freedom."

"Ordinary people were pretty angry about the fact that engineered foods are not labeled," said Joey Klein, an organic farmer who presented the resolution in Plainfield.  "The idea of a moratorium on planting genetically engineered crops also made sense to people because they felt they were being treated like guinea pigs."  Klein explained that a moratorium was needed to protect the vast majority of farmers who choose not to plant GE crops, but are subject to genetic contamination from engineered varieties.

Susan Borg, who presented the resolution in Lincoln, said, "I don't want GMOs (genetically modified organisms) in my food, especially because they have not been tested.  Also, we can't have GE pollen blowing into our farms.  Contamination will make organic farmers lose their certification. Farms will be lost, which will hurt the property tax base.  This problem affects everybody. Beside, the idea that Monsanto can sue farmers for growing crops that were contaminated with their own GE pollen --- and win --- is appalling."

Resolutions opposing the genetic engineering of food passed this week in Montpelier, Calais, Marshfield, Walden, Putney, Plainfield, Woodbury, Jamaica, Lincoln, Waitsfield, Wheelock, Greensboro, Wolcott, Monkton, Ripton, Hinesburg, Randolph, Bristol, Moretown, Warren, Fayston, Marlboro, Charlotte, Westfield, Newfane, Brookline, Montgomery and Westiminster.  Starksboro passed a similar resolution at last year's town meeting.  Town selectboards have previously passed such resolutions in Norwich, Guilford and Dummerston, and the Burlington City Council has called for labeling, thorough regulation and clearer liability rules regarding GE crops and food in a resolution passed in September of 2000.



"But I'd shut my eyes in the sentry-box,
So I didn't see nothin' wrong."
--- Rudyard Kipling

The sentry boxes of corporate America are its boards of directors, and there is ample evidence that Enron's directors kept their eyes shut when they should have been perusing the company's books. But all the sound and fury about Enron, whose collapse has led to Congressional hearings and media outrage, obscures a more basic problem that is ubiquitous in corporate life today: organizational structures that discourage honesty and suppress truth.

Let us deal with the board issue first. Yes, it is still the case that most board members are, in fact, willing dupes of management. Too many are overpaid, rubber-stamping corporate celebrities. Dogged by the constant threat of litigation, boards are selected by their subordinates --- the company officers. (Shareholders nominally choose them, but typically they vote for the directors the company recommends.) They seldom understand their function and are prone to meddle too much --- or, worse, not enough.

Three of the six directors who served on Enron's auditing committee --- the people responsible for double-checking Enron's bookkeeping --- were executives at firms in the faraway locales of Hong Kong, London and Rio de Janeiro. You can guess how much time they had for the vigilant  oversight required of an effective audit committee. And like directors on many other boards, some had served too long. How Enron's directors could have stood by while top Enron executives cashed out more than $1 billion in company stock in the last two years is unfathomable.

But it's not only about the boards. The Enron collapse is emblematic of a problem that is far more imbedded, more intractable and, alas, far more universal than the board failures and malfeasance of a single company. In any one case, you can always fire the chief and other executives, reconstitute the board and file for bankruptcy; that's the easy part. The hard part inheres in the very nature and design of large-scale organizations, whose ethos and leadership too often create mindless and complacent  cultures with vacant sentry boxes.

Unless the leadership and the social architecture of these behemoths change, I can promise you Congressional regulations will get tighter, the Securities and Exchange Commission more vigilant --- and the problems worse. The basic problem in most organizations today, both public and  private, is that they work to block transparency. Most are conveniently designed so that everyone seems to know what's wrong --- but nobody admits it or tells anyone else.

A case in point: When I consulted for the State Department, I quickly learned that junior Foreign Service officers often decided not to tell their bosses what they had learned in the field because they believed the bosses wouldn't like it. In fact, their bosses often felt exactly the same way about telling their own bosses what they knew. One State Department panjandrum told me that they gave their fledgling diplomats two rules: Never tell a lie. But never the tell the whole truth, either.

It is never easy for subordinates to be honest with their superiors. After a string of box-office flops, Samuel Goldwyn is said to have told a meeting of his top staff,  "I want you to tell me exactly what's wrong with me and M.G.M. --- even if means losing your job." Unfortunately, Enron's chief financial officer, Andrew Fastow, didn't have Mr. Goldwyn's sense of humor. When Sherron Watkins sent Kenneth Lay, Enron's chief executive, a letter warning him about Enron's accounting practices, she said,  Mr. Fastow tried to fire her.

Unlike top management at Enron, exemplary leaders reward dissent. They encourage it. They understand that, whatever momentary discomfort they experience as a result of being told they might be wrong, it is more than offset by the fact that the information will help them make better decisions. And the trend toward outlandish executive compensation should surely be enough to salve the pricked ego of any leader whose followers speak their minds.

Organizations tend to fail when decision making is based on feedback from yes men. Mr. Lay's failing is not simply his myopia or cupidity or incompetence. It is his inability to create a company culture open to reality, one that does not discourage managers from delivering bad news. No organization can be honest with the public if it is not honest with itself.

So how does an organization institutionalize honesty, the way so many corporations have institutionalized the suppression of it? There is no easy answer. Honesty and candor at the top helps; executives should speak their minds and encourage their peers and subordinates to do so. Many organizations have found ways to generate honest communication --- even urging employees to make anonymous suggestions if necessary.

But a culture of honesty, like a healthy balance sheet, is an ongoing effort. It requires sustained attention and constant vigilance.

Warren Bennis is a professor of management at the University of Southern California and author of On Becoming A Leader.


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