By Richard A. Levins / Monday, July 17, 2000 / Minneapolis Star Tribune
Here's a new twist in farm policy: Give billions to giant grain companies so they can pass it along to farmers. As odd as this sounds, a proposal for larger locks and dams on the Upper Mississippi River System is being heralded as a way to help struggling farmers.
Further commercialization of the river will mean more environmental damage, taxpayers will hand over billions to the Army Corps of Engineers, and grain companies will have lower transportation costs. This much we know. Far less clear is whether our old friend "trickle-down economics" is up to the task of helping farmers.
Will lower transportation costs for grain companies improve farmer profits?
Not likely.
Farmers are sandwiched between much more powerful business interests. On one side, farmers sell their products to a handful of very large buyers such as Cargill and ADM. On the other side, farmers buy supplies from the likes of Monsanto, DuPont and John Deere. Each of these multinationals vastly overshadows any individual farm in size and economic power.
Farmers must also have access to land, and since land is in fixed supply, nonfarm landlords are able to bargain on very favorable terms with farmers.
In short, the story of "transportation costs will go down, so farm income will go up" is too simple for a global agricultural economy that farmers share with powerful corporations and nonfarm landlords.
A recent study by the Institute for Agriculture and Trade Policy (IATP) concluded that the immediate winner from the river project is clear: the global corporations that transport and sell grain on world markets will have lower costs. There are a handful of grain companies, and there will be even fewer as mergers are approved. ADM, one of the world's largest grain buyers, has been convicted in a high-profile price-fixing trial. Cargill, the nation's largest privately held corporation, has annual sales of $50 billion. These companies didn't get where they are by passing profits down to farmers.
Even in the unlikely event that benefits trickle down to farmers, the question becomes one of "why should the trickle-down buck stop with farmers?" By using a computer simulation model, the IATP study found that higher farm costs would quickly keep the benefits trickling down past the farmers and into the pockets of landlords and other farm input suppliers.
Landlords, in particular, have been in a strong bargaining position for grain farmer profits because land is the biggest cost in growing grain, and there is only so much land to go around. When farmers see higher prices, they compete all the more with each other for rights to rent available land. The nonfarm landlords, not the farmers, always win. The farm economics magazine Choices recently reported that "less than 40 percent of Iowa's farmland was operated or farmed by its owner" in 1997. The report also noted "a striking shift from ownership toward land rental between 1982 and 1997."
Recent records from farmers in southwest Minnesota give us another way to see how little bargaining power farmers have. In 1998, the average farm had a net income of only $8,600 after receiving $30,000 from the government. If farmers are not able to keep all the money that the government pays directly to them, how can we ever expect a public subsidy to grain shippers to help farmers at all?
Finally, the IATP study revealed another difficulty with the proposed navigation project. The Mississippi River project subsidizes corn, not farmers. To the extent any farmers will benefit, it will be those who sell the most corn. The river project does not reverse the long-run trend of fewer, larger farms.
Support for independent family farmers has been, and always should be, a principal goal for public policy. The proposed river project, however, will do little to advance this objective. If we are serious about helping farmers, we should look for better ways to spend billions of public dollars.
-- Richard A. Levins is professor of applied economics at the University of Minnesota and senior fellow with the Institute for Agriculture and Trade Policy.:
