Posted December 14, 2006:
Crop farmers must have that “danged if you do” and “danged
if you don’t” feeling right about now. But, really,
it is not what they have done, it is what a low-farm-price policy
and a surge in ethanol-driven corn demand have wrought. Nonetheless,
the blame game continues and crop farmers have been hit with a double
whammy of late.
The first hit comes from WTO trade talk discussions and the argument
that US farmers, supported by what are described as generous subsidies,
are dumping corn on the world market at prices below the true cost
of production. International development NGOs argue that US subsidies
have stimulated US producers to grow more corn, soybeans, wheat,
rice, and cotton than they would have in the absence of subsidies.
As late as August 11, 2006, the cash price of a bushel of corn on
the CBOT was $2.06. As a result they call for the end of US farm
subsidies. At the same time, various groups argue for the reallocation
of budgeted funds from commodity programs to rural development,
conservation, subsidized insurance, decoupled payments or whatever
is in the interest of the person speaking.
The second hit is typified by the comments from Richard Bond, Tyson
Foods chief executive, who is quoted by Philip Brasher in a Des
Moines Register article as saying “Quite frankly, the American
consumer is making a choice here. This is either corn for feed or
corn for fuel - that's what's causing this.”
Brasher writes, “Tyson Foods Inc., the world's No. 1 meat
processor and poultry producer, warned Tuesday that consumers would
have to pay more for beef, pork and chicken next year because of
the rising price of corn.” Tyson Foods is reacting to the
high animal feed prices brought about by the current demand for
corn to be used to make ethanol. On November 22, 2006, cash corn
prices hit $3.59 per bushel.
Let’s get this straight. When the prices of corn and cotton
are low, US farmers are blamed for depending on subsidies to cover
their cost of production and hurting farmers in less developed countries
around the world. And when these same US farmers invest in ethanol
plants to sop up the surplus production, consumers are told that
the resulting higher prices will force them to make a choice between
food and fuel.
Seldom does anyone mention that meat producers have benefited from
commodity prices that are below the cost of production. Some of
the benefits of subsidized crop production have been enjoyed by
integrated meat animal producers like Tyson Foods who have benefited
from low cost feed inputs.
This double whammy confronts us with a policy challenge. Policies
that result in low commodity prices harm some people (farmers in
less developed countries) and benefit others (integrated livestock
producers, processors of grains and seeds, and bulk farm commodity
importers). Likewise, high crop prices benefit some people (farmers
in the US and countries around the world) while increasing the costs
for those who have benefited from the earlier low prices.
Lost in all of this is any discussion of corn farmers and what
it takes to produce a bushel of corn. No one wants to talk about
the characteristics of crop markets that result in long periods
of low prices. Policymakers run away from discussions of the type
of policy instruments it would take to provide farmers with a fair
remuneration for their investment and labor while at the same time
providing consumers stable prices and a secure supply of farm commodities
to meet their needs for both food and fuel.
To our way of thinking, what is needed is a “policy for all
seasons” that enables commodity farmers to receive the bulk
of their income from the marketplace while, at the same time, ensuring
consumers of the long-term stability of their supply of farm products
to meet their needs for food AND fuel.