EXAMINER Issue # 69 April 4, 2000
Monitoring Corporate Agribusiness From a Public Interest Perspective
The few sustaining the many!
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"That men do not learn very much from the lessons of history is the most important of all lessons of history."
- Aldous Huxley, Collected Essays (1959)
"We can't know where we are going, unless we know where we have been."
- Studs Terkel
Even though the agrarian populism of the late 19th century posed a number of specific economic solutions to the nation's series of farm crisis, it is important to remember that for farmers the popular monetary issues of the day, e.g. the use of silver and\or gold were only ephemeral issues.
Reflecting on the populism's analysis of the nation's emerging financial elite, historian Lawrence Goodwyn has pointed out that it is difficult to find a political doctrine narrower and more self-serving than the American banking hierarchy's fixation on "sound money."
" . . .the artificially contracted currency of the gold standard had three undeniable and linked products: it curtailed the nation's economic growth; it helped measurably to concentrate the capital assets of the nation in the pockets of the nation's bankers, and it helped measurably to consign generation after generation of non-banking Americans to lives of hardship and dependence.
"Beyond this, the triumph of the political and cultural values embedded in the gold standard provided the economic foundation for the hierarchical corporate state of twentieth century America."
The focus of Farm Alliance members, as declared in their Omaha Platform of 1892, was a rebellion against the American political system. In order to restructure the nation's financial and economic system, the Alliance rejected both parties, which they accused of being in "harmony with monopoly"
There were others at this time who called themselves "populists" but were really a shadow movement; they sought to work within the Democratic and Republican parties and the existing economic system. The residue of their efforts would soon be absorbed by the Progressive Movement.
Various noteworthy principles emerged out of the "agrarian revolt" of the 1880's. William Lamb, the leader of the Alliance radicals and perhaps populism's most articulate theoretician, spoke to one of those major principles in a historic 1886 open letter to the Rural Citizen.
Lamb believed society was dominated by manufacturers and their agents. The traditional image of the farmer as the "hardy yeoman" of the Jeffersonian era was quite out of place in the growing American corporate state at the turn of the century. Lamb believed the farmer of the new industrial age was a "worker," the "labor question" was the central issue, and that the organized farmers of the Alliance should join with the organized workers of the Knights of Labor.
As business centralized, Lamb contended, farmers who continued to strive for friendship and parity with the commercial world simply failed to comprehend "what is going on against us." Members of the Alliance had to outgrow such naivete:
"We think all members should show the world which side they are on . . .and we are looking forward for men that will advocate our interests, those who are working against us are no good for us . . . we know of a certainty that manufacturers have organized against us, and that is to say if we don't do as they say, we can't get their goods . . .Then for it to be said that we are unwise to let them alone, we can't hold our pens still until we have exposed the matter and let it be known what it is we are working for."
Now a century later by looking to the past we can see that the agrarian populists through a series of statements and platforms sought to offer society a means by which it could reassert the Jeffersonian principle that without economic democracy you cannot have political democracy.
The immediate lessons that can be learned from agrarian populism can be summed up in the words of Year 2000 Presidential candidate Ralph Nader:
"There is nothing to compare to the farmers' drive in Texas during the late 1880's which signed up 250,000 farmers and led to the early stage of the thirty-year progressive revolt --- still the country's most fundamental political and economic reform movement since the Constitution was ratified. And these farmers did it largely on foot and with pamphlets.
"How, without today's communications and transportation facilities, did the farmers manage to cover so much ground, create so many lasting institutions, and elect so many state legislators, governors, members of Congress, and almost the president of the United States? Because they owned what they controlled --- the land. And they controlled what they owned --- the land. And they aggregated their vote around specific agendas designed to limit the power of the railroads, banks and absentee `Eastern financial moguls.'"
At the heart of the Farm Alliance and agrarian populist platform for dealing with the enormous credit problems that plagued agriculture at the time was their "sub-treasury plan." Under this plan, farmers could deposit their crops in government-financed storage facilities, receive a certificate of ownership and a loan in the amount of 80% of the crop's current market value plus a one percent interest rate. If the price of the crop rose, the farmer could sell the certificates of ownership and pay off the loan; if the price dropped the farmer simply retained the loan and the government eventually would sell the crop at auction. Although the plan had no provisions for support prices above current market prices or for holding surplus stocks, it would meet the producers' immediate need for cash while insuring that large harvest-time supplies of commodities would not depress the market.
Although rejected at the time, the "sub-treasury plan" reemerged some 40 years later as the genesis of Franklin Roosevelt's New Deal's agricultural program.
Many of the inadequacies in the nation's political and economic structure at the turn of the 19th century which the "shadow populists" had sought to remedy, were soon championed by the so-called progressive movement. As Lawrence Goodwyn points out:
"The countervailing idea of the `progressive society' materialized slowly out of the symbolic values embedded in the gold standard. The `sanctity of contracts' and `the national honor,' it soon became apparent were foremost among them. But, gradually and with the vast distributional range afforded by the republican campaign treasury, broader themes of `peace, progress, patriotism and prosperity' came to characterize the  campaign by William McKinley.
"The `progressive society' advanced by Mark Hanna [McKinley's campaign manager] in the name of the corporate community was inherently a well-dressed, churchgoing society. The various slogans employed were not mere expressions of a cynical politics, but rather the authentic assertions of an emerging American world view."
During the Progressive era, which reached full flower in the early 1900s in the first Theodore Roosevelt administration, it was widely acknowledged that the United States's "new wave of prosperity" was creating enormous social and economic problems. However, it was believed that that same system that created them, could solve them. Consequently, progressives argued, if officeholders and businessmen were honest, upright, good and efficient, and applied the principles of science with the public good in mind, all the apparent evils of the time would disappear.
They also believed that scientific management and monopoly integration and power, if used wisely, could assuredly benefit all of society. To progressives, therefore, trusts were a fact of life: it was simply a matter of "good" and "bad" trusts.
The key to the monopoly question became one of motive rather than the existence of monopolies. When Edward Harriman and J. P. Morgan's fight for control of the Midwest railroads went to the U.S. Supreme Court and the Court ordered Morgan's Northern Securities Company dissolved because of its intent to restrain trade in interstate commerce, the "rule of reason" in antitrust judicial opinion was introduced.
"Rule of reason" considered only motives, good or bad, behind monopoly, not the de facto economic effects of the monopoly. In dissenting from the Court opinion, Justice Oliver Wendell Holmes wrote that common law precedents should be sought to distinguish between "reasonable" and "unreasonable" intent in restraint of trade. In writing for the majority, Justice John Marshall Harlan expressed the view that every monopoly restrains trade by the very nature and thus is to the public detriment.
To the scientists, professional people, businessmen and politicians --- the American elites --- bigness and vertical integration was the assured means to a more efficient, stable and prosperous society. Further, they sincerely believed that vertical integration and\or monopoly was in the words of environmental writer Joseph Petulla, author of The People's History of the American Environment, "the manifest destiny of capitalism."
A resolution of sorts to the trust and anti-trust arguments in the "Progressive Era" came in 1914 with the passage of the Clayton Act which sought to remove the ambiguities of the older Sherman Anti-Trust Act [passed in 1890] to more carefully define what specific acts constituted unfair competition. The Clayton Act also attempted to stress the value of competition even though it provided little ammunition against the huge monopoly conglomerates that by their very size kept competition out of the market. By enacting the Capper-Volstad Act agriculture became exempt from many of the provisions of the Clayton Act. To establish a means of enforcement of the Clayton Act the Federal Trade Commission (FTC) was established within a year.
LESSON # 3
Although agrarian populism had been political disposed of by both the government and the business community at the turn of the century, its influence certainly did not disappear for many farmers still distrusted the so-called guardians of economic power and their paternalism that was masked behind the aegis of "extending education" to the rural countryside.
No one group of farmers at this time, however, caused as much corporate consternation as the Non-Partisan League, formed in North Dakota in 1915 which targeted bankers, grain dealers and railroads for bitter invective. As its co-founder A.C. Townley once observed, "you could put a grain trader, a railroad exceutive and a banker in a barrel and roll them down the hill and a son-of-a-bitch would be on top the whole time."
The Non-Partisan League was indeed a class organization with a class program and a class strategy --- to capture and make use of the machinery of the state. State ownership and operations of banks and grain elevators so as to end usury and gross exploitation was openly advocated by the League, and achieved a large measure of success in the Northern Plains between 1915 and 1920.
Against this background of fledgling "radical" farm organizations and the emergence of the county agent as a key figure in a new industrialize agriculture, the American Farm Bureau Federation (AFBF) was born.
The Smith-Lever Act had already regularized the county agent system, reduced the status of the land grant colleges as participants in the "extension movement" and established Congress as the arbiter of questions relating to agricultural extension work. To facilitate the AFBF's work, which was primarily education aimed at improving technical productivity, the county agents were directed to work with the leaders and groups of farmers. This required that they also provide organizations among farmers.
In 1911, the Binghamton (New York) Chamber of Commerce set up a bureau within its own organization to sponsor a county agent. With the support of the Lackawanna Railroad this business group was called the "farm bureau." USDA soon adopted the name for any group deemed a cooperating county organization.
In these early years the county agent was presumed to be under the direction of the college Extension director, but as local farm bureaus began to federate on a state basis and eventually gave birth to the AFBF in 1920, this relationship became largely illusory; the real power was transferred from the colleges to corporate agribusiness through Washington.
In addition to the monetary support provided by the Lakawanna, the Rockefeller-backed General Education Board, and other large agricultural input corporations, the Chicago Board of Trade also helped in the formation of these county farm bureaus by providing necessary funding. In 1922 Robert McDougall, the Board's president boasted:
"The Board of Trade was sort of a grandfather to the Farm Bureau movement. A cash grant of $1000 was made to each of the first 100 Farm Bureaus formed, beginning with the one in New York and spreading to Iowa and other Middle Western states."
During World War I and immediately after the county agents not only became increasingly involved in commercial activities as part of a growing movement for bureau federation. There was also a shift in the nature of the relationship between them and the Farm Bureaus. From the role of educator and leader they increasingly became "managers" of the various local Farm Bureaus, a government bureaucrat in a private organization.
Paradoxically, at the same time, while public funding of their work was increasing [93% by 1924], private funding was rapidly disappearing. By 1919, the USDA was so enthusiastic over the movement that USDA Secretary David F. Houston was calling upon farmers to join or form farm bureaus in order to "stop bolshevism."
When delegates from 31 states met in Chicago in 1920 and formally inaugurated the American Farm Bureau Federation, they made it quite clear that their objectives were economic and political: "To keep control of our food products" until they reach consumers, to stop any policy "that will align farmers with the radicals of other organizations," to "stabilize the nation," to "put agriculture into proper relationship with the rest of the world."
"I stand as a rock against radicalism," the Federation's first president, James Howard, proclaimed at the time.
Shortly after the U.S. Supreme Court in January, 1936 ruled that the Agricultural Adjustment Act (AAA) of 1933 was unconstitutional, President Franklin D. Roosevelt submitted to the Congress the Soil Conservation and Domestic Allotment Act of 1936. This redrafted Act was intended not only to side-step the Court's objections to the 1933 legislation, but also to correct the over centralization of the AAA. Roosevelt's people pointed out that such changes had been in the planning stage even before the Court's ruling and that its decision simply "precipitated as a sudden change that which had been planned as a gradual one."
The new Act aimed to "promote the conservation and profitable use of agricultural land resources by temporary Federal aid to farmers and by providing for a permanent policy of Federal aid to states for such purposes."
Close examination of this Act, however, especially compared to the 1933 legislation, evinces a fundamental change for American agriculture from a price objective to an income objective. It was a subtle, but important change, the first step towards removing agriculture from the marketplace and attempting to reformulate it structurally so it could be dealt with as a social welfare issue, thereby allowing taxpayers to underwrite it in times of need and allowing corporate agribusinesses to further externalize their costs.
In the AAA of 1933 a balance between agricultural production and consumption was to be achieved by reestablishing "prices to farmers at a level that will give agricultural commodities a purchasing power with respect to articles that farmers buy, equivalent to the purchasing power of agricultural commodities in the base period [1909-1914]"
But in the 1936 Act that balance would be achieved "at as rapid rate as the Secretary of Agriculture determines to be practicable and in the general public interest . . .the ratio between the purchasing power of the net income person on farms and that of the income per person not on farms that prevailed during the five-year period August 1909-July1914 . . ."
By basing the parity ratio on the net income of persons on farms as compared with the net income of non-farm persons, rather than on the purchasing power of farm commodity prices compared with the purchasing power of the non-agricultural sector, the federal government neatly abrogated the marketplace's responsibility to provide farmers with reasonable prices for their goods.
The move in effect told farmers that if they wanted to stay in business and accept what the market was willing to offer them for their raw materials, then they must be willing to seek some form of off-farm income or government help to survive. In the name of Federal assistance for the family farms in America this new legislation was developed and through the next 60 years served as a lucrative coup detat for corporate agribusiness.
Crops, according to the 1936 Act, were to be classified into two general categories: "soil depleting" (cash crops like wheat, cotton, corn, tobacco and sugar beets) and "soil conserving" (grasses, legumes and other forage crops that would rebuild and protect soils and which would not contribute directly to the nation's so-called "burdensome surpluses").
Payments were to be made to farmers for shifting specified percentages of their "soil depleting" crops to "soil conserving" and for approval soil-building practices. Field administration was to be carried out by state agencies and county and community committees on the condition that authorizing state legislation acceptable to the Secretary of Agriculture had been passed and put into effect by the end of 1937.
Funds were to be transferred accordingly and after submission of such soil adjustment programs, payment would be made only after proof that the plan had been carried out. Unlike the AAA of 1933 where the operating funds came from processing taxes, the funding for this program, an amount not to exceed $500 million annually, was to be appropriated by the Congress from the Treasury.
By couching his new legislation in terms of soil conservation, Roosevelt gained greater acceptance for his farm policy from Congress and the general public, which were shocked over the Dust Bowl tragedy. At the same time, FDR was able to sustain the momentum for his New Deal farm recovery program.
After Dwight Eisenhower and the Republican Party victory in 1952, although still legally and politically bound to keep the 90% support level throughout 1954, Agriculture Secretary Ezra Taft Benson quickly began to attempt a quick repeal of the support level. At a June 19, 1953 cabinet meeting he suggested that the Eisenhower Administration seek a Congressional resolution permitting the immediate lowering of price supports.
Despite this suggestion and Benson continuing pressure for such a resolution, Eisenhower refused to heed his Secretary's advice immediately, arguing in typical Ike fashion that "gradualism" was the best policy. Eventually, however, Benson and the advocates of "flexible price supports" won the day and effectively ended a decade-long period of relative agricultural prosperity.
In reflecting on that time ten years later, Representative Harold D. Cooley, Chairman of the House Agricultural Committee, told an Independent Bankers meeting in 1964:
"For 11 consecutive years prior to 1953 the average prices paid to farmers were at or above 100% of parity with the rest of the economy. There was prosperity on the farms --- and along Main Street. Rural America --- the countryside and Main Street --- looked secure then and for all the years ahead."
The North Carolina representative went on to point out that the government, with broad cooperation from farmers, supported the prices of major storable crops for 20 years at an actual profit of $13 million, making such profits by selling the commodities --- such as wheat, corn, cotton, tobacco, rice and peanuts --- that it had taken over during its price-supporting operations.
"Those who deprecate the role of the farm program in this great era of farm prosperity emphasize that the period embraced war and postwar years, when the demands for the products of our farms were high, but they ignore the fact the markets, at home and abroad, for farm commodities have been greater in the last ten years than during any period of our history, and they forget that the farm economy collapsed after World War I, and this did not occur following World War II when the farm program was working."
By way of illustrating he recounted to his banker audience that in the ten years between 1953 and 1962 inclusive, while all other segments of the economy had been booming, net income for agriculture had been $25 billion less than in the previous ten years. Meanwhile, the USDA had been spending for all purposes in the previous ten years $35 billion more than in the 1943 to 1952 period. The costs from 1953 to 1962 were almost $20 billion more than all expenditures of the department in the previous 90 years of its existence.
"For 11 years --- 1942 through 1952 --- farmers had bargaining power in the market place," Cooley stressed. "Supply and demand were in reasonable balance and farmers enjoyed price insurance through the farm program . . .
"Many farmers have turned against their own program --- the program that prevailed during the years of our greatest era of prosperity. Why, and for what reason, I shall never understand. Farmers have lost their bargaining power in the marketplace, and 100% of parity for agriculture --- generally approved and accepted by the public a decade ago --- is hardly any more a dream."
After his address Rep. Cooley remarked to one banker that it was the American Farm Bureau Federation which had been responsible for gutting the Steagall Amendment farm support program, the very program many family farmers believed had accounted for their 1942-1952 prosperity.
In October, 1942 Congress passed a Stabilization Act which brought about reductions in the levels at which ceilings could be placed on farm products: specifically no ceiling could be applied lower than the parity price for the commodity or the highest price paid between January 1 and September 15, 1942. An escape clause, however, permitted the President to set a price below the indicated level if necessary to correct "gross inequities." The Act also set up tighter controls on wages and the implementation of post-war price-support arrangements.
Prior to the passage of this Act in 1941, representative Henry B. Steagall of Alabama attached a rider to the Commodity Credit Corporation (CCC) authorization bill which stated that any agricultural commodities for which the Secretary of Agriculture asked for increased production as a contribution to the war effort must be provided with support prices at 85% of parity.
Subsequently, in the Stabilization Act of October, 1942 the Steagall Amendment was amended in Section 9 and, in what some commentators have called the most important single action taken during the entire war period, it raised the support level of the Steagall commodities from 85% of parity to 90%.
It also extended to these commodities the same post-war parity price guarantees (90% parity) that had been specified for the basic crops covered in Section 8 (cotton, corn, wheat, tobacco, rice and peanuts) for the two years immediately succeeding the first day of January following a presidential or congressional declaration that World War II hostilities has ceased. This guarantee of a reasonable parity price would enable, as Rep.Cooley noted, American agriculture to sustain an unmatched period of general prosperity for nearly an entire decade.
Yet, the Farm Bureau, as Cooley suggested, had successfully convinced the agricultural establishment's "conventional wisdom" economists and their followers in Congress that the farm price support program of that era was "un-American," and ultimately would lead to socialism, or worse, communism.
Doing away with nonrecourse price support loans, changing to recourse "marketing loans" and dramatically lowering the loan rate has not increased U.S. grain exports. What it has done is lower the grain prices and income received by farmers, while greatly enhancing the profits of the Cargills, ADM's and Continental Grains. Using official USDA export and price records, the American Corn Growers Association's Dan McGuire's documentation verifies that U.S. corn exports have never reached the 2.4 billion bu. exported in MY 1979/80 and MY 1980/81.
During that 3-year period of 1979, 1980 and 1981, the regular corn loan rate was $2.10, $2.25 and $2.40 respectively. The regular loan was $2.55 in 1982 and $2.65 in 1983, while the loan rate for corn in the farmer-owned reserve was $2.40 in 1980, $2.55 in 1981 and $2.90 in 1982. The U.S. exported more corn each of the three years MY 79/80, MY 80/81 and MY 81/82 than in the most recent three marketing years (including MY 98/99 projections). Indeed, corn exports over those three "high loan rate" years of the 1980s averaged 2.26 billion bushels while corn exports over MY 96/97, MY 97/98 and MY 98/99 are averaging only 1.675 billion bushels under the low loan rate of $1.89.
McGuire also shows that the 13-year average of corn exports (MY 1985/86 through MY 1997/98), since the so-called "market and export-oriented" farm law was passed in 1985, is only 1.756 billion bushels. That compares to the six-year average U.S. corn export volume of 2.057 billion bushels from MY 1979/80 through MY 1984/85 when the U.S. had higher loan rates that averaged $2.42 per bu. In fact, the loan rate for corn in the farmer-owned reserve within that period averaged $2.63.
A similar set of numbers can be provided for U.S. wheat exports under the farm laws since 1985, except the export track record is even worse. The U.S. exported 1.135 billion bu. of wheat in MY 1972/73 or 110 million bushels more wheat exports 25 years ago than what is projected for MY 1998/99. Additionally, wheat exports set their all time record in the early 1980's when price support loans were nearly $1.50 higher than today. Indeed, U.S. wheat exports were higher in 21 of the 25 years prior to the 1996 farm law than every year since the 1996 law was enacted.
"Obviously," the former Agency Director for the Nebraska Wheat Board concludes, "the farm policy philosophy in place since 1985 lacks credibility and must be changed. It hasn't worked and it won't work! Its time for a major change. Furthermore, the U.S. national `strong dollar' policy vis-a-vis foreign currencies is great for Wall Street but flies-in-the-face of the stated `export-market-oriented' farm policy. It cuts the legs out from under main street and rural America. So, forego this monetary policy or change this farm policy quickly!"
Agriculture's "conventional wisdom" argues that 1980's style "higher loan rates" encourage both excessive domestic and competing foreign grain production while 1990's style lower loan rates discourage such increased grain production.
Here again, as McGuire shows, the reality is the nine-year average corn production from 1977 through 1985 was 7.268 billion bushels, when loan rates ranged from $2.00 to $2.65. Compared to that period, the 13-year average U.S. corn production from 1986 through 1998 was 8.059 billion bushels, under the low loan rate period since the 1985 farm law. U.S. corn production, in the three years since the 1996 "Freedom to Farm" law was enacted, has averaged 9.417 billion bushels. This major increase in U.S. corn production has taken place under the low, and extremely low loan rates ranging from $1.57 to the current $1.89.
Meanwhile, under these policies, total world grain production has risen from 1,671 million metric tons (mmt) in 1989/90 to 1,850 million metric tons in 1998/99 as forecast by USDA's Economic Research Service. That's an increase of 179 million metric tons or about seven billion bushels. So, low U.S. price supports did not discourage foreign grain production. Just the opposite scenario unfolded.
Meanwhile, according to USDA data, total world grain exports dropped from 220 mmt in 1989/90 to 205 mmt forecast for 1998/99. That's a drop of 15 million metric tons or about 570 million bu..
"So," McGuire observes, "the farm laws since 1985 have been working exactly opposite to what was promised. Again, it raises the credibility issue relative to those continuing to promote this policy."
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