Thursday, April 4, 2019

The forced Sovietization of American private farms?

A recent article suggests that collective farming is being imposed on American agriculture - not by the state, but by agricultural companies.  I know it's a controversial subject, but this perspective shows the human impact of "big ag".

Chris Petersen, a third-generation hog farmer who says "I bleed rural" and tears up at the fate of family and friends, has found a way to keep his small holding going, and avoid the exodus that so many are making. His grown son and daughter have, too.

But meanwhile, Petersen is at war with the big companies that he says are destroying the culture of smaller places like Clear Lake.

"We are going down the same road as the Russians with the collective farm system," he told me yesterday. "There, the government controlled it. Here, it's the corporations."

While his is a dramatic rendering of the state of American agriculture, Petersen has a point: Across industries, the U.S. has become a country of monopolies.
  • Three companies control about 80% of mobile telecoms. Three have 95% of credit cards. Four have 70% of airline flights within the U.S. Google handles 60% of search. The list goes on. (h/t The Economist)
  • In agriculture, four companies control 66% of U.S. hogs slaughtered in 2015, 85% of the steer, and half the chickens, according to the Department of Agriculture. (h/t Open Markets Institute)
  • Similarly, just four companies control 85% of U.S. corn seed sales, up from 60% in 2000, and 75% of soy bean seed, a jump from about half, the Agriculture Department says. Far larger than anyone — the American companies DowDuPont and Monsanto.
As we have reported, some economists say this concentration of market power is gumming up the economy and is largely to blame for decades of flat wages and weak productivity growth.

. . .

The heyday, in Petersen's memory, was the 1970s, when "rural America was ungodly vibrant." Sixty cents per pound of hog gave farmers a healthy profit, he said.
  • The nearby city of Swaledale had just 220 people, yet when you added in everyone in the surrounding, smaller towns, there was sufficient business for a bank, grocery and hardware stores, a gas station, and two bars with restaurants.
  • Now, Swaledale is about 150, and the businesses have shuttered: "It's all gone. That's what they've done to rural America."
When Petersen says "they," he means Big Ag, which in his view is plain greedy. It is trying "to run us out," he says, banging the table with his fist.

There's more at the link.

I think the biggest factor in the problem is the so-called financialization of the modern economy - focusing on financial derivatives rather than on physical production.  Agricultural products are no longer sold by the farm to a processing company;  they're sold as futures on an exchange, where brokers may (and probably do) have nothing whatsoever to do with the producers or consumers.  Big agricultural companies have the financial muscle to control futures prices to a large extent through their participation in the futures market.  Private farmers don't.  Therefore, it's "big ag" that primarily benefits from the market, and uses that money to further consolidate its dominance in the rural economy - to the detriment of the private farmer.

Another factor, of course, is the unwillingness of consumers to pay what farmers consider a fair price for their food.  As the article notes:  "In 1960, Americans spent 17% of their disposable income on food; the figure now is just 6.4%, according to U.S. government figures. The tight margins ran out everyone but the big dogs."  Big supermarket chains are largely to blame here.  Cutthroat competition among them meant that they would offer to buy products at set prices, and refuse to pay more for them.  Farmers could either accept what was offered, or plow their crops under and go bankrupt.  During times of shortages, farmers had a little more "clout" in the process;  but ultimately, the buyers set the market price, not the sellers.  This was aided by the ability to import cheaper agricultural products from outside our borders if necessary, undercutting local farmers.  "Big ag" doesn't have that problem to the same extent;  they can control input costs over a much larger production base, where they don't have to share enough with local communities to enable the latter to survive.

Whatever the reason, I know several private farmers who've had a torrid time of it over the past couple of decades.  Some have survived;  others have gone to the wall.  I can't help but wonder how many private farms will be left for our children's children to experience.



STxAR said...

Buyers always set the price. Market forces, etc. The monopolies in ag set prices such that the profit margin is razor thin. Pressure from both sides.

Another issue, at least where I grew up out in Lubbock county, was the weird way farmers financed their operation. My best friend's dad farmed several sections. He would get a loan at the ag bank, run the business with it, then sell the cotton, and pay back the loan. Anything left was pay for his work. I remember an argument that he had with his son over whether it was okay to buy a dirt bike before he'd repaid the loan.

In the late 70's, several of the farmers at church went bankrupt with that business model due to poor harvests and roll overs of the loans. Two or three bad years when interest rates were about 20% killed their livelihoods. I wonder if things have changed since then.

(Here's the church I attended: Lat Long 33.7821605,-101.7556352 When I was attending, there were cotton fields all over, it's a bit built up now.)

I met a farmer in south central OK that started small. He farmed with an open tractor for years, just riding under an umbrella, while neighbors went into debt to buy an air conditioned tractor. He bought a 2 room house and added on as he could afford it. He stayed away from loans, and built his business slowly. He was about 80 when I met him, owned and farmed a lot of land debt free. I never forgot the wisdom of his example.

Rob said...

Disposable income... the 17% of the GDP to feed the medical industry had to come from somewhere (it was 4% in 2004) as does the monthly feeding of the cable & internet people.

Fuel prices are about unchanged... The $2.69/gal I paid for gas yesterday comes out to $1.11 in 1984 dollars... I don't specifically recall 1984 gas prices but that seems right...

SiGraybeard said...

Financialization doesn't go far enough back in the chain of causal factors.

When industry does root cause analysis to determine why something has gone wrong, the procedure is to ask "five whys". Ask why something happened, when you get that answer, ask why that first thing happened, and repeat that until you run out. It often is found by asking "why?" five times.

Here you should ask "why do these few companies get so much control?" and maybe "why is financialization such a big portion of the economy?" Fun fact: in 2013, the Bank of International Settlements said that speculative financial transactions added up to the yearly GDP of the US every three days. Why? Free money from the Federal Reserve gets sent to the banks first and the biggest companies get to use that money before the inflation happens. (Their use of that free money starts the round of inflation)

With virtually everything wrong in America, searching for the root cause of the problem brings you back to big government manipulation (regulations) and the infinite checkbook of free money from the Fed.

Technomad said...

I'm an Iowan myself, and know quite a few people in the ag biz. Basically, ever since the McCormick reaper came in before the Civil War, the writing has been on the wall for small farms. "Get big or get out" has become the watchword.

Large operations have efficiencies that smaller operations don't, and I can't say I'm sorry that food is so cheap. I'm sorry for the people who've been forced out, but as a (thankfully, former) small businessman myself, I can tell you that success is never guaranteed.

Will said...

If there is any storage of Frank W James' (Farmer Frank) blog somewhere on the web, he had lots of info on big ag and how it was damaging the country. He considered Monsanto to be the most evil, and I do not choose that term lightly. He is greatly missed.

Thomas W said...

The word "forced" isn't really appropriate in the title. Nobody is forcing farmers to sell out to corporations. As you pointed out, it's economic -- large corporate farms can produce food cheaper.

The question is what to do. If we want small farms then we need to outlaw large agriculture and force consumers to pay more for food. Or people do something else. Farm work is very hard and the other part of the move to larger farms is kids who would rather move to the city than live out in the country working long hours every day.

We face similar arguments about the "throwaway society" and loss of the repair business. Yet when a new appliance costs about the same amount as a repair, why fix the old one? The answer, of course, is that repairs must cost much less than a replacement. So the way to restore the repair business is to have low end appliances, etc. sell for a few thousand dollars instead of today's few hundred.

As with much in the world there is a solution to these perceived ills, and the solution is to reduce everybody's standard of living.

Unknown said...

It's a bit more complicated than that...

The smaller thing is that the federal government aggressively pushed the practice of borrowing operating expenses as best practices, and had a large number of carrots and sticks to encourage this. (Not to mention that having a high net worth, of which almost none is liquid, tends to drive people to this strategy.)
The bigger thing, is that the federal government jerked the rug out from under this house of cards. As a reaction to the Savings & Loan debacle, the government, the federal government instituted a rule that if a business's net worth did not increase away least every couple of years, any outstanding loans would instantly come due. Farm equipment is expensive, and depreciates.

ADS said...

I don't pretend to know anything about farming, but I do live in a heavily farmed area. Most of the land is leased to one big player who has tens of thousands of acres for corn or soy. All the small farms are doing something specialty, such as raising mules, miniature donkeys, dairy goats (to make fancy beauty products), and the like. I don't know anybody who grows 40 acres of corn.