Saving The Family Farm, Organically

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Here's an issue that's worth pondering: Do we really want American farming to go the way of manufacturing? The U.S. is now losing nearly 1 million manufacturing jobs annually, and there's a real possibility that domestic manufacturing will be largely wiped out in 10 or 15 years if the trend doesn't reverse soon. Should we risk the same thing happening to the farmers who produce most of the nation's food?

It's hardly a frivolous question. World trade talks stalled in 2003 mainly because the U.S. and Europe refused to commit to dismantling the expensive trade tariffs and subsidies that prop up their farm economies. Yet in the U.S., word is that liberals and conservatives are developing a consensus to finally do away with farm subsidies, which almost certainly would bankrupt hundreds of thousands of small farms.

Wouldn't it be wise to consider the consequences of such a radical move and develop an intelligent government policy before moving forward? Call me naive, but it seems to me there's an opportunity here to refocus at least some of the government money on supporting smaller farms that use sustainable growing techniques.

GROWING TOGETHER. It's clear the farm economy is threatened by many of the same forces that are destroying American manufacturing. The number of U.S. farms has plunged from 3.7 million in 1959 to just 1.9 million today. And further consolidation seems inevitable under current policies: The U.S. Agriculture Dept. estimates an incredible 94% of the $64,600 earned by the average farm in 2003 came from non-farming activities (usually a second job or a spouse's job in town). Most of the nation's food was produced by about 175,000 larger family farms (usually run by several members of the same family).

Trends in the food industry favor further consolidation. In just a few years, Wal-Mart (WMT) has built the biggest supermarket operation in the country. And a handful of companies -- including Tyson (TSN), Cargill, Smithfield (SFD), and Farmland National Beef Packing -- control most of the nation's beef, pork, and poultry production.

Meanwhile, farmers increasingly grow meat and grain under contract to a specific producer -- raising chickens, say, according to Tyson's exacting requirements, or corn tailored to have the right taste and consistency for Frito-Lay chips. That favors big, efficient farms that can keep prices low and make the capital investments necessary to meet the producers' exacting standards. Little wonder that the number of U.S. pork producers has fallen by 90% since 1970.

Can anything be done to slow these seemingly inexorable market forces?

DEPOPULATION EXPLOSION. Some economists -- notably Steven Blank, a professor at the University of California at Davis -- argue that the U.S. would be better off if it simply got out of farming entirely. The average return on equity of American agriculture has fallen from an already skimpy 2.5% in 1960 to just 1.5% in 2000, Blank figures. Lower-cost producers in South American and Asia can grow food cheaper, he argues, so it makes sense for the nation to invest its resources in other industries in which it has a competitive advantage. The government didn't intervene to preserve family pharmacies and grocery stores, the argument goes, so why should it spend billions to preserve family farms?

That philosophical argument aside, doing away with farm subsidies cold-turkey style could economically devastate many rural areas and likely would strip much of the population from parts of the Great Plains, the rural South, and the western Corn Belt. "We would see a collapse of the agricultural economy with very serious consequences for the general economy" predicts Karl Stauber, president of the St. Paul (Mn.)-based Northwest Area Foundation, which works to reduce rural poverty.

Over the long haul, though, phasing out government subsidies would probably help. That's because more than 60 years of subsidies and protection have badly inflated the price of farmland. For instance, big soybean farmers in Illinois and Iowa are among the most efficient and technologically advanced in the world -- but the $3,000-per-acre price of their land makes them uncompetitive with rivals in Brazil, where land costs a fraction of that price.

SURVIVAL RATIONS. Russell Lamb, an agricultural economist at North Carolina State University, figures U.S. farmland prices would fall by perhaps one-third with no subsidies. That would probably wipe out heavily indebted farms, but it would also make the survivors far more competitive.

There are, however, clear dangers to moving to untrammeled laissez-faire competition in agriculture. Food, after all, is different from other products because in times of war and other crises (like, say, a serious disease outbreak that could shut down the world's food-trading system for a time) you need it to survive. It's also clear that how and where crops are farmed and meat, fish, and poultry are produced are critical to the health of the environment.

Still, some of the advantages of reducing farm subsidies are obvious. Since 1999, the government has poured some $85 billion into farm subsidies, including an estimated $19.7 billion in 2003, according to the U.S. Agriculture Dept. It's also clear that big industrial nations (as a Dec. 30 New York Times editorial put it) are "harvesting poverty" around the world by artificially propping up prices and freezing farmers in developing countries out of lucrative markets in North America, Europe, and Asia.

NATURAL THOUGHT. If subsidies were phased out, smaller farms could survive by moving upscale into niche markets using sustainable growing techniques. The government's subsidy and export promotion systems have historically favored high-volume production of pork, beef, corn, soybeans, sugar, and other undifferentiated commodity products. Even with lower land prices, it seems doubtful that any but the biggest, most efficient U.S. farms can compete in those commodities as new, low-cost production ramps up in places such as China and the Ukraine.

However, small farms can compete if they focus on organics. Consumers have demonstrated they will pay more for environmentally friendly and locally grown foods (witness the explosion of farmer's markets around the nation and the growth of supermarket chains like Whole Foods (WFMI)).

And I suspect the mad cow panic and other scares associated with industrially produced food are going to add to the cachet of organic food. Already, Fred Kirschenmann, director of Iowa State University's Leopold Center, which promotes the use of sustainable growing techniques, can cite numerous examples of small farms that are making a go of it by switching over to organic farming. A good example is the Lafarge (Wis.)-based Organic Valley family of farms. It's a marketing cooperative of more than 600 organic farms that does more than $150 million in sales annually.

TRADE OBSTRUCTION. Right now, organic farming accounts for less than 1% of U.S. agricultural production. But if the whole, hugely efficient apparatus of American agriculture -- the farm-extension network, the experts in the land-grant universities, the export-promotion system -- really got behind sustainable agriculture, that could change in a hurry.

In any case, it's hard to make the argument that the world trade system should founder to protect an industry that employs a mere 1.5% of the U.S. population. Resolving the agricultural dispute "is absolutely critical in moving the trade talks forward," says Lamb, who favors dropping or phasing out ag subsidies. To my mind, sustainable agriculture offers the best hope for preserving America's independent family farms.