Ag Sector

Economic Health of the Agricultural Sector (2014)

Farming is an inherently risky business. Some risk relates to decisions exclusively under the farmers’ control–selecting the best seed for local conditions, deciding how much or which crops to plant, and correctly timing the need for pesticide application are all part of the calculus.

However, considerable risks fall outside the farmers’ control–catastrophic weather events, the availability of farm labor at the appropriate time, prices offered by buyers (since farmers do not control the price they are paid for commodities traded on exchanges), and the price of energy (which affects the price of fertilizer and the cost to transport a crop to market).

The federal government supports the agricultural sector through a variety of direct and indirect subsidies. (Indirect subsidies for research and development of agriculture are in the article on Research below.)

Direct Subsidies are government payments to producers of agricultural products for the purpose of stabilizing food prices, ensuring plentiful food production, guaranteeing farmers’ basic incomes and ability to continue farming, and generally strengthening the agricultural segment of the national economy. Among the programs are conservation measures, including various incentives for farmers to control supply, so prices do not go into a free-fall that increases Government’s costs for price supports or, conversely, so prices do not rise rapidly such that products are unaffordable to the general consumer.

Direct payments (paid at a set rate every year) are cash subsidies for producers of 10 crops: wheat, corn, sorghum, barley, oats, cotton, rice, soybeans, minor oilseeds, and peanuts. Payments were calculated based upon a farmer’s past harvests; in the future the farmer could grow the same crops or different ones or none. Because recent analysis found that the program subsidized many farm owners who are not really farmers, the 2014 Farm Bill eliminated direct payments.

Counter-cyclical payments–triggered when market prices fall below certain thresholds.

Critics of farm programs that allow prices to fall below production costs and then pay farmers some of the difference with taxpayer dollars say the government is really subsidizing meat-packers, factory farms, and food processors.
Other critics say that, rather than (or in addition to) subsidizing commodity crops, small-scale farmers and producers of non-commodity and specialty crops (fruits, vegetables, nuts, etc., which are important in Oregon) should receive government support.
Still other critics say that the government should provide support to organic farmers and/or hydroponic operations and should encourage urban farming and other small-scale ways to raise food.

Marketing loans–offer favorable terms for buying or leasing a farm or ranch or for buying farm equipment

Disaster assistance programs–help a farmer recoup large losses due to natural phenomena if the farmer meets the program requirements.

Crop insurance subsidies–a reduction of calculated premium owed by a farmer for an insurance policy he or she voluntarily purchased. Federal crop insurance offers separate, tailored policies for more than 100 commodities, both conventional and organic. (So lettuce, for example, isn’t covered.) Most commonly, the covered perils are drought, excessive moisture, plant disease, frost/freeze, and the results of such perils, such as excessive loss of crop quality, inability to plant, and the expense of replanting a crop. Many farmers also buy private crop insurance, primarily to cover hail damage.

A criticism is that current programs have encouraged farmers to plant on marginal and environmentally sensitive land. The 2014 Farm Bill links crop insurance to conservation compliance practices, so the government doesn’t fund planting on wetlands, for example.

Anti-trust laws–three types of violations of the law that antitrust enforcement agencies can pursue:

• Collusion: When separate firms agree among themselves not to compete with each other, but instead to join forces against consumers or suppliers, such as the Archer Daniel Midlands lysine price fixing case in 1996
• Monopolization: When a firm monopolizes or attempts to monopolize a market Anti-competitive mergers: When a firm is likely to lessen competition in a market substantially by merging with or acquiring the assets of another firm

The antitrust laws focus on competition and the competitive process, and do not serve directly other policy goals like fairness, safety, promotion of foreign trade, and environmental welfare.

Because the structure of agricultural industries has become so complex and intertwined, it is not only difficult to determine if there is “too much” consolidation, but it is even more difficult to evaluate the impacts that the consolidation might be having on prices, the availability of goods and services, and competition.

Among those who believe that consolidation has accelerated during the recent past, many lay the blame on existing policies and the manner in which they are implemented. Among the culprits mentioned are patent law, agricultural subsidies that benefit multi-national agribusinesses more than farmers, weak antitrust laws and enforcement, and political influence.
Because the concentration of concern tends to be occurring either upstream from the farm (in the seed and fertilizer input sectors) or downstream (in the commodity trading, processing and retail sectors), it is difficult to view the issue as one that can be addressed through agricultural policy alone. Ultimately, some combination of reforms may be needed to fully address this issue.

[Information from Overview of Agricultural Subsidy, Animal Management, and Antitrust Enforcement, LWVUS website at http://www.lwv.org/search/content/agriculture%20study, as well as Economic Health of the Agricultural Sector, LWV of Montgomery County, MD]