Much of the recent Farm Bill debate has focused on subsidies for rich farmers, but what about government support for some of the largest multinational agribusiness companies in the world? Research released last month suggests that stripping away direct and indirect subsidies benefitting meat and poultry companies could bring dramatic changes to our farm economy.
Elanor Starmer and Tim Wise at Tufts University's Global Development and Environment Institute first looked at how underpriced animal feed allows big poultry, hog and beef companies to undercut smaller, more diversified farmers. They found that industrial livestock operations (hog, broiler, egg, dairy, and cattle) that contract with the big meat and poultry companies got a $35 billion boost from under-priced animal feed from 1997-2005 - amounting to a 5-15 percent reduction in operating costs.
How did animal feed become so under-priced? The 1996 Farm Bill stripped away the last remaining production controls for most major commodities. So, in the nine years following the 1996 Farm Bill, production rose (28 percent for corn and 42 percent for soybeans), and prices fell (32 percent for corn and 21 percent for soybeans), according to Starmer and Wise. In the nine years following the 1996 Farm Bill, corn prices averaged 23 percent below production costs and soybeans averaged 15 percent below production costs.
And the big boys in the increasingly consolidated meat and poultry sectors cashed in. According to Starmer and Wise, the nation's largest industrial broiler chicken company Tyson Foods saved $1.25 billion a year, or $11.25 billion over nine years, from under-priced animal feed. And the nation's largest industrial hog company, Smithfield Foods, saved an estimated $2.54 billion over nine years from under-priced feed. Starmer and Wise concluded: "taxpayers and farm families have, in effect, been subsidizing factory farms' feed purchases."
The next step was to consider the various environmental costs associated with CAFOs that have been subsidized by taxpayers. The New York Times' Andrew Martin reported this month about how the Farm Bill's Environmental Quality Incentives Program (EQIP) has devolved from its original intent to help farmers with small scale conservation projects to providing a direct subsidy to CAFOs to deal with the "mountains of excrement that their farmers generate." In 2006, taxpayers sent these mega farms about $179 million for animal waste management, Martin reported. Early this year, Congress will renew the EQIP program as part of the new Farm Bill and is actually considering expanding the program to provide more subsidies for CAFOs to clean up their mess. IATP's David Wallinga has written on a number of problems CAFO operations can create through air pollution, water pollution, and health risks to farmers and workers - all costs not accounted for in the price we pay at the supermarket.
In focusing on hog production, Starmer and Wise calculated the additional cost to these operations if they actually paid for environmental clean-ups and mitigation. They found that if CAFOs had to pay the cost of alternative manure-management to protect the water and reduce over-application, it would raise hog CAFO's operating costs by 2.4-10.7 percent. In a climate of full cost feed and environmental regulation, CAFOs would see their operating costs rise by between 17.4-25.7 percent. This increase would eliminate the apparent cost advantage CAFOs currently have over mid-sized diversified hog producers.
This new research is a blunt reminder that the U.S. agriculture market is massively distorted by misplaced priorities. Our current system is no accident or the result of market forces. Rather, it is the deliberate outcome of a U.S. farm policy geared toward fewer farmers and larger more industrial operations. U.S. government leaders going back to President Eisenhower's Secretary of Agriculture, Ezra Taft Benson, have been telling farmers: "to get big or get out." And our policies have reflected that bias.
One bump in the smooth ride for the big meat and poultry companies is the recent rise in corn and soybean prices. Corn prices have risen to over $5 a bushel, soybeans to over $9 a bushel. But what happens if prices crash? Al Kluis of Northland Commodities told the Star Tribune that "the history of commodity bull markets is that prices will drop twice as fast as they went up."
Unfortunately, neither the House or Senate versions of the Farm Bill address price volatility, despite a number of proven policy tools that could help ensure prices don't go too high for consumers or too low for farmers. A system of fair prices for farmers and consumers, combined with a full accounting of environmental and health costs, would help level the playing field for farmers of different sizes. In that alternative future, our farms and supermarkets might look a lot different.
