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Three issues dominate U.S. agriculture in 2000

posted on December 29, 2000


New Census numbers released this week reveal little new. The nation's population has been shifting to the south and west for much of the past 50 years.

Under reapportionment, several southern and western states will gain congressional seats. Several rust belt states lost population and will lose congressional representation. Less obvious in the numbers is the continued migration from Rural America to urban areas.

As representation shifts to more urban areas, Rural America will find itself with fewer advocates. The impact of that trend will become more apparent as Congress, especially the reapportioned one that will convene in 03, addresses the rural agenda that has developed this past year. Sid Sprecher explains.

There were three prevailing issues that dominated U.S. agriculture in the year 2000 and are sure to continue in the coming year ... consolidation in the agricultural marketplace ... controversy over genetically modified organisms ... and concerns over prices and income that likely will force changes in domestic farm policy.

One of the more contentious issues facing agriculture in recent years is the consolidation of the marketplace into fewer and fewer hands. That trend is epitomized in the hog industry, where in the past 18 months industry "Goliath" Smithfield Foods has completed the acquisition of the second-largest producer, Murphy Family Farms ... and made a strong pitch to purchase processing giant, IBP, Inc.

Analysts say the larger companies are seeking bigger profits by controlling vast segments of the market through vertical integration.

"And so what we have," says Economist Neil Harl, "is this towering concentration on the input side and towering concentration on the output side. And here are producers in nearly perfect competition, as we refer to it in economics, without very much economic power, without very much market power..."

A handful of companies control upwards of 70 percent of the cattle and hog slaughter in the U.S. Similar trends are occurring up and down the food chain, from biotech research to food retailing, where the five largest companies control nearly half of national sales..

Such huge levels of concentration induce those who sell to the retailers to get bigger so they have the economic leverage to battle for shelf space. This so-called "matching scale of forward players" overwhelms independent producers at the bottom of the food chain.

"So it just simply goes down the chain," says Harl, "everyone encouraged to get bigger to deal with the higher levels of concentration above them until you get down to the bottom and there's the producer without much in the way of economic power."

Pressure mounted on official Washington through the year to act on matters of consolidation. And while USDA did issue rules requiring large cattle and swine packers to provide contract information for public release, legislative and regulatory action was fairly limited. Instead, the government's biggest impact came in the form of direct payments to cash-strapped farmers.

A record $28 billion in government payments went out to farmers and ranchers in fiscal 2000. According to USDA, half of all farm income this year came from Uncle Sam. That's up from 13 percent just three years ago.

By commodity, the payments added more than 47 cents a bushel to the price of wheat and about 27 cents a bushel for corn. The infusion of cash kept many farmers in business, and yet stocks of those commodities remain high and prices remain low.

"Nobody begrudges what we've done here," said Agriculture Secretary Dan Glickman. "But it is probably not a very good long-term way to run farm policy."

Critics charge that on a strictly per bushel basis, the payments have encouraged continued planting of long-time program crops like corn and wheat in areas where they should not be grown. They charge the payments also gutted the intent of the 1996 Freedom To Farm law, which was intended to squeeze crops out of peripheral growing areas. The inability of Congress to stomach the financial pain in farm country made approval of the payments all the easier.

The increasing reliance by farmers on the government for their livelihood has cost producers much of their market power and has encouraged the overproduction of cheap grain – two factors that buttress the growth of the large-scale integrators in a burgeoning agri-industrial complex.

"Congress really has to come to grips, "Harl says, "with the question, 'Do we want to have a sector of independent entrepreneurs in agriculture or are we perfectly willing to accept a sector of serfs?' because that's literally what we would end up with if you push this a few years."

A number of farm policy rewrites already have been proposed, many couched in land and soil conservation programs. Among them are:

--Flexible fallow, which would allow farmers to voluntarily conserve acreage in exchange for higher loan rates on their remaining land in production. In years of low commodity prices, farmers could conserve more acres in return for greater price and income support.

--The Conservation Security Act, which would create a three-tiered progressive scale of payments to farmers based on the type of conservation practices employed. The conservation payments would be combined with a system of advanced payments to provide income stability.

--The Supplemental Income Payments Act, which would require the Secretary of Agriculture to make supplemental payments to farmers of certain crops in years in which the national gross revenue of the crop is below a certain percentage of the five-year average.

--Or, some other form of so-called counter cyclical payments, which essentially would provide higher levels of government assistance during times of low prices and lower levels when prices rise.

Pending farm policy overhaul also likely will include some kind of greater regulatory oversight on genetically modified crops, especially in light of the StarLink debacle. The September recall of taco shells containing the StarLink gene, which was not approved for human consumption, touched off new fears about laboratory-altered crop genetics.

While the widespread health risk of StarLink was negligible, the recall played into the hands of those who've campaigned for greater regulatory oversight of GMOs. And in the country, it underscored the high cost and inefficiency of trying to maintain separate production and marketing tracks for GMO and non-GMO crops.

With many commodities already in abundance, some also question the wisdom of planting high-yielding GMO crops. In addition, U.S. trading partners from Japan to the European Union have limits on the import of GMO crops.

There's no assurance the outcome of the GMO debate, or the other major issues facing U.S. agriculture, will occur in 2001. But with farming in the throes of transition, the coming year will help determine its size and scale, as well as who manages, controls and finances its operations.


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