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Subsidies vs Price Floors in Farm Bill History

by: Brad Wilson

Sat Jan 02, 2010 at 18:39:51 PM PST

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In response to Jill Richardson's "New Years Eve Daryll Ray-a-thon," in discussion in the comments, I tried to explain some of the politics and history of subsidies so people can more easily tell what side someone is really on when they talk about subsidies.  One response got a bit long, so I'm posting it here instead.

Some Brief History of Subsidy Politics

The policies in the gray box (price floors etc.) came out of the New Deal, Roosevelt, evolving through several farm bills and the Steagall Amendment 1941 (banking committee) for farm parity as an economic stimulus (like we need today, instead of losing money on farm exports and driving down world prices, hurting wealth and jobs creation in farm areas including LDCs).

Prior to Roosevelt, for decades farm prices were usually low with many "panics." Coming from Hoover into Roosevelt in the Depression, my family saw 7¢ corn and lost the farm.  During the 1980s farm crisis my mother recalled this time (young teen then):  " My Uncle Clyde wasn't able to get my dad a job in the creamery or anywhere else.  This was the summer of 1932,  and the depression got even worse.  We couldn't pay the rent, so in the fall we had to move up to Aunt Alice's and move into their upstairs!  I felt terrible that we had to move in with relatives.  Now I realize how my folks must have felt!  The most humiliating thing of all was that my mother had to get Stewart to drive her over to Uncle Bill's and ask to borrow some money!  I imagine he said, 'I told you so!'"  

New Deal policies take it through Truman, with no commodity subsidies except a few on cotton in the early 30s.  We had 100% of parity in agriculture overall 1942-52.  Program costs in one estimate were about $13 million in the black, meaning that the government made money on the program through interest on price floor loans.  So with price floors and effective supply management, and with international implementation as advocated by the Africa Group at WTO (and by EU in the 80s) it can work.  So no subsidies were really needed.

Under Eisenhower price floors were lowered, however, lowering market prices, as the NFO rose up to oppose the drops.  Price floors were lowered further decade by decade (Under Republican and Democratic Presidents, but pushed more by Republicans in congress for big business) until they were ended (dropped to zero) in 1996.  One exception was the price spike during the 70s caused by the secret Russian grain deal ("The Great American Grain Robbery").  

Introducing Subsidies

But in the mean time, subsidies were added to quiet down angry farmers. Subsidies compensated for farmer losses (which is rarely mentioned in most recent subsidy discussions).  

Subsidy compensations were part of Nixon/Butz policy.  With the 70s price spike costs raced upward.  Farmers won a rise in price supports (Carter) to address skyrocketing costs, but not back up to parity and not enough to prevent the 80s farm crisis.  The rise of the devastating crisis, in hindsight, occurred under the better farm bill than we've seen since.

Reagan greatly increased subsidies, but lowered price floors even more.  Farmers got more from the government for a lowering of farm income.  Bush senior continued this.

Clinton slightly raised the price floor, and vetoed Freedom to Farm once before signing it in the Gingrich era.  FtoF called for new "decoupled" (Direct Payment) subsidies for a few years, declining and ending for a free market (Hooverism/think 7¢ corn).  This was quickly seen as a way to destroy farming, and bankers joined farmers to win 4 emergency farm bills which added a second kind of (counter cyclical) subsidy.  I think LDP (3rd kind) was an administrative option that Clinton implemented to address the crisis.  So farmers ended with another big increase in subsidies and a total reduction in farm income, since market prices with no price floors, fell even more.  This was massive dumping on LDC farmers, not caused by subsidies, but by zero price floors/supply management.  So CAFOs and processors got the hidden benefits.

Another trend here is that many farm state Democrats continued to advocate for New Deal style programs over the decades of decline.  During the 1980s when farmers were again activated in a large number of groups such a farm bill was formulated and won quite a few votes in congress.  It was known variously as the Farm Policy Reform Act, The Save the Family Farm Act, and the Harkin-Gephardt Farm Bill (Harkin in Senate, Gephardt in House, both Democrats).  Today it continues as the National Family Farm Coalition's "Food from Family Farms Act."  The main groups supporting this bill or similar concepts include the National Family Farm Coalition and its members, the Institute for Agriculture and Trade Policy, Food and Water Watch, the American Corn Growers Association (not the National Corn Growers Association), the American Agriculture Movement, and the National Farmers Organization.  

In 2002 when Tom Harkin became chairman of the Senate Ag Committee he switched sides.  He stopped advocating for price floors and supported a greened up version of the worst Republican Farm Bill since Hoover, a green Freedom to Farm.  That goes for 2002 and 2008 farm bills.  In 1996, however, Harkin and the other Democrats (ie. Gephardt, Daschle, Wellstone) totally rejected this kind of a farm bill.  But all of them followed Harkin in a Green Freedom to Farm.

During the 1980s mainline churches also supported this kind of farm bill.  Today they support some version of a Greened up version of the Republican Freedom to Farm, as do most other progressive groups including the food movement, environmental movement and sustainable agriculture movement.

Sustainable and Organic farmers are a special case.  During the 1990s in trying to stop Freedom to Farm, the family farm movement worked hard to bring in sustainable and organic farm coalitions (SAWGs, NCSA, SAC) but failed and they have consistently supported some version of Green Freedom to Farm (big subsidies, no price floors or supply management).  Their policies provide or would continue multibillion dollar below cost gains for CAFOs and even bigger gains for Cargill (beyond billion in CAFO gains) and ADM.  Sustainable/organic folks have won greener subsidies like organic EQIP and CSP, but at those costs.  Likewise, when Michael Pollan, in Food Inc. and Fresh, speaks of cheap junk foods, Green Freedom to Farm Policies, with no price floors, do not raise the prices on corn, etc.  So when Pollan speaks of "subsidized corn" it's misleading.  The low/no price floors caused the low prices and the cheaper high fructose cory syrup and corn/soy transfats, as can be seen historically.  The subsidies prevent the destruction of farmers.  The bigger the farm, the bigger the losses to be compensated by subsidies.  Again, this is rarely mentioned when bashing farm subsidies.  Of course there are some economies of scale with larger farms, which changes their need somewhat.

So ending, greening, and/or capping subsidies are not policies that address the biggest CAFO benefits, processor benefits, ethanol benefits, exporter benefits against LDC farmers.  By the way, "family farm" advocates and their friends (ie. La Via Campesina with 200 million members) lost over and over on the price floor issue (without much food/consumer/environmentalist/organic help, and still today without help).  So some of them invested in ethanol to try to raise prices (and end processor below cost gains, dumping on LDC farmers).  So they lose money on corn, but then make it on ethanol, or in 2008, made money on corn but lost in on ethanol.  No where have I seen this understood in the progressive community outside of NFFC related groups.

(Least Developed Countries are 70% rural.  The US  has long had huge export market shares of some commodities, bigger than the middle East in Oil, but our leaders tried to get low world prices, not high world prices with it's clout, (clout of well above 50% export market share for corn and soybeans, for example, or up to +80%, but less each decade).

Subsidies vs Price Floors for the 2008 Farm Bill

Today these issues appear to be almost totally unknown outside of NFFC and its friends.  EWG listed 477 mainstream media articles supporting their position in support of a Green version of the Republican Freedom to Farm Act.  The Kind Flake Amendment and probably all others amount to the same.

Sometimes Republicans support Hooverism instead of what we have had  since 1996, which is Hooverism (free markets and free trade) with subsidy protection for farmers in rich countries.  Low subsidy caps are a way to force large farms out of business or to force them to break up.  It would probably be a kind of land reform, like forcibly running them out of business or making them illegal.  Note that in the 90s we had a $50,000 cap and called for $25,000, while well meaning progressives have recently called $200,000 cap a good step.  But these measures have nothing to do with price floors, and do not solve any of the big problems.  

Cargill and DAM (and to a lesser degree, Tyson and Smithfield) are the huge beneficiaries of all the diversionary talk about subsidies, with no mention of price floors.  What they've bought in Congress is policy that blames farmers and leads to no mention that the policies are designed primarily to benefit them, even at the expense of America losing money on farm exports of the major commodities virtually every year for a quarter century.  If you look at the EWG 477 editorials, you'll probably find hundreds of criticisms of farmers (who are merely partially compensated for losses caused by the lack of price floors) for every criticism of these real beneficiaries.  Not also that Cargill, DAM, (processors and exporters) Tyson and Smithfield (poultry hog CAFOs) and the others (ie. Kelloggs).

You can find footnotes for much of this in my Zspace blog articles, as well as many links to online sources.  I am also one place that explores this movement crisis online.  I've seen NO other place online that writes much on these issues, especially in reference to mainline churches, hunger groups (Bread for the World and Oxfam are among the worst on the Commodity Title issues I raise), sustainable agriculture, and the food movement.  (I link a few things from IATP on myths and APAC's Daryll Ray on some media/etc. misunderstandings, however.)  

Further Reading and Links

From my blog see especially my "foodie" and food movement pieces, such as my comparison of the National Corn Growers Association with so called progressives that supposedly hold radically different views:

My "Farm Bill FACTs: Commodity Title: A Family Farm View" briefly goes right down a list of the main things I hear in the food movement and among the other groups I see as similarly missing the real issue, and then proves them wrong with online links:

If you look around at ( you'll see where I have footnoted pieces.

Brad Wilson :: Subsidies vs Price Floors in Farm Bill History
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It seems to me that most farms (0.00 / 0)
especially larger farms, that would be elligable for and have received subsity payments are growing commodity crops at high volumes. Those farms aren't selling direct to the consumer, but to the manufacturing industries, be they wheat for flour, grains for milling into feed, cotton for thread which will go to make fabric, etc. Even somethig like rice is sold to cleaners, then on to distributors, to stores and finally the end user (consumer).

Sounds like the subsidies are in place to ensure that the producer of the commodities is making just enough money to not go out of business, while ensuring that the raw feedstocks for manufacturing are kept as low in price as possible.

The subsidies aren't to benifit farms at all, but to support manufacturing industries.

Normal people scare me. But not as much as I scare them.....

subsidies are irrelevant effective diversion (0.00 / 0)
Naturally, commodity crops are grown at volumes high enough to try to make a living.  Consumers typically don't buy directly from farmers.  

Corporate groups sought changes in the farm bill that lowered price floors so that farmers would be put out of business, as I commented somewhere here.  See, for example, An Adaptive Program for Agriculture, Committee for Economic Development (1962).  Subsidies were an acceptable method of diverting attention away from the lowering of price floors to make this happen.  See analysis in "Crisis by Design" by Mark Ritchie and Kevin Ristau, and at my zSpace blog.  This then tended to drive down wages in the cities, as well as provide below cost raw materials to processors and CAFOs.

The subsidies have reduced some of the losses to farmers, but farmers generally lose money vs. full costs even with subsidies.

Again, subsidies are primarily a diversion, a scapegoat, to prevent attention to price floors.  Subsidies have been very successful at that diverting process.  Rarely are price floors mentioned, and it's very difficult to get anyone off the subsidy bandwagon and on to the realities of the farm bill.  Subsidies don't support manufacturing industries, because they don't lower market prices and/or cause oversupply.  Subsidies are largely irrelevant to most of the main food and farm problems (CAFOs, transfats, export dumping, high fructose corn syrup, loss of diversity, use of chemicals) which are mainly influenced by the lack of price floors.

"We're trying to warn this nation of a tidal wave ..., and it's coming your way, whether you want to know it or not...!"  female family farm activist in Iowa warning against agribusiness, Donahue Show, 1985

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