by Willard W. Cochrane^*

John Kenneth Galbraith recently said that "no one else in the last thirty or forty years has been so intelligently influential" in matters of agricultural policy as has Willard Cochrane. Dr. Cochrane has received all of the awards his profession has to offer, he has written some of the most influential books and articles on farm policy of the past half-century, and he has advised President Kennedy as Chief Agricultural Economist. Now "retired" in the formal sense, he continues his thoughtful pursuit of policy ideas that will advance the values of family farming and healthy rural communities in a world of globalization, agribusiness concentration, biotechnology, and agricultural industrialization.

We at the Institute for Agriculture and Trade Policy are proud to be able to bring Dr. Cochrane’s latest policy ideas before the public in these terribly difficult times for farmers and farm policy. This paper is a summary of a longer report that is available on our web site (www.iatp.org). We also invite you to visit our web site to learn more about Professor Cochrane’s many achievements during his professional life and about our other programs relating to food, agriculture, trade, and the environment.

Over the next year we hope to bring a number of different perspectives and views to the public attention through other publications and events. If you would like to receive information on these activities, please contact IATP.

Mark Ritchie

January, 2000

A FOOD AND AGRICULTURAL POLICY

FOR THE 21^ST CENTURY

Summary

by Willard W. Cochrane^*

Globalization, industrialization, and biotechnology bring special challenges for food and agricultural policy in the new century. We must learn to live in the new world order while at the same time advancing our fundamental values of family farming, a healthy environment, and prosperous rural communities. Agricultural policy is a subject on which many books have been written (of which I have contributed my share), and many more will no doubt be written. In this paper I undertake a brief appraisal of policy efforts in the food and agricultural sector during the 20^th century, then make some positive policy suggestions for the 21^st century.

Throughout the 20^th century, the United States enjoyed a relatively plentiful and reasonably priced supply of food. An abundance of resources available for food production in conjunction with a highly successful scientific and technological development effort made this possible. Production surpluses, not shortfalls, were the mainstay of policy discussions through most of the century. But our record on other important goals of food and agricultural policy is not nearly as good. For example, the farm programs put in place over the years--price support, deficiency payments and acreage controls--lacked the capacity, and in many cases the appropriate design, to bring about sustained prosperity for farmers. Some 65 years of such programs will end where they began, with farmers facing a serious economic depression.

We have also failed miserably in maintaining a family farm organization for U. S. agriculture. The total number of farms in the United States has declined from 6.5 million in 1935 to around 2 million in 1997. Most of this huge decline took place among family-type farms. And, as the following table shows, even the small number of farmers remaining in 1997 exaggerates how many family farms are left:

By all accounts, the farm depression of the late 1990s and increasing pressure to contract with huge agribusiness interests have still further reduced the ranks of independent family farms since the 1997 census of agriculture.

Progress toward achieving a high quality of life in rural areas has also left much to be desired. Certainly the poorest of the poor still remain out there--in small rural towns, in backwater agricultural areas and in immigrant labor camps. Federal governmental efforts to aid these people have been minimal, and even those efforts have been opposed by conservative farm organizations. But probably the most important negative factor has been the decline in the number of family farms, and decimation of the human population in the countryside. As farm families have disappeared, so has the support for small towns and the services they provided--health and educational services, and shopping and repair services.

America’s goals for the 21^st century would appear to be much the same, with some modification, as those of the past century:

• The production of a healthful, abundant supply of food, at reasonable prices, for all Americans;
• Maintaining a prosperous and productive economic climate for the commercial farmer producers of that food supply (recall that over half of the units now defined as farms produce very little in the way of products for sale);
• Protecting the remaining small to medium-sized family farm units from disappearing from the face of the earth; and
• The realization of a high quality of life for all people living in rural areas, together with a vibrant physical environment.

Even though the goals of American society may not have changed greatly over the past one hundred years, the conditions under which its food supply is produced and distributed certainly have. Farming is not farming anymore. Food production is an industrialized business that operates in an often unpredictable global economy. Economic concentration in both the input and processing sectors is an ever-increasing concern.

Some argue that the increased monopolization of agribusiness is the cause of our most recent round of disastrously low farm prices. Others argue that the sharp decline in farm prices in 1998-99 resulted from a contraction in foreign market demand. I hold to the latter view; however, I am strongly of the opinion that with the increased use of such business practices as contracting, patent rights and financial controls, the food production sector, farming, is being converted into a poorly understood area of monopolistic competition. And continued developments in this direction could have fearful consequences for both farmers and consumers.

Economic concentration in the agribusiness sector cries out to my fellow economists to put aside their free market daydreaming and develop theories that match the world in front of their eyes. Lacking those analyses, I argue for an active, innovative anti-monopoly division in the Justice Department in my policy recommendations. At the same time, I recognize that the standard legal concepts of monopolistic action, collusion, or connivance among parties may be a part of the emerging monopolistic problems in commercial agriculture, but they are not of the essence. Bigness is the problem and the power that bigness brings with it. A giant modern corporation operating in a local farm community can be likened to a bull elephant in a china shop. The power of the giant overwhelms and shatters the local establishment.

It is sometimes suggested that a return to the old Commodity Programs with their price and income support in conjunction with acreage controls would be an appropriate means for assisting farmers, large and small, in the difficult economic times in which they find themselves in 1998-99. Such a policy action would be a major mistake. This is true for a number of reasons:

• Under that program arrangement most of price and income benefits would, as in the past, go to the large producers who need them the least, and only driblets of those benefits would go to the family farmers who need them the most;
• The large industrialized producers, geared to a high level of production, are not likely to accept production controls;
• Supporting farm product prices and/or incomes above market levels, even in depressed periods, without effective production controls, can lead to only one result--burdensome stocks in government hands and unacceptably large program costs;
• The imposition of effective production controls to reduce available supplies in a country like the U.S. as a means of reducing global supplies would be self-defeating for the U.S.--competing nations would simply increase output and total world supplies, after a brief period of adjustment, would remain the same, or possibly increase, as the U.S. share of the world market declined.

Even though the old commodity programs have no place in the modern global economy, I do not agree with those who would abandon government programs of any type in favor of blind faith in ever-expanding export markets for U.S. farm products. Everyone, American, Canadian, Brazilian, Frenchman cannot expand the sales of his or her product by substituting it for that of someone else, who it happens, is trying to do the same thing. The events of 1998 and 1999 have made it clear that the global market has limits; in fact, the global market for food products contracted in that period.

In my view of things, the global market for food products is a closed system with a given population distribution, a given income distribution, a given set of national laws and rules, and a given set of human tastes and preferences. Taking account of these givens, there exists at any point in time a global demand for food products that is highly inelastic.1 It is highly inelastic for a very simple reason: the human stomach craves roughly the same amounts of the same kinds of foods day after day. This is not to say that the global demand for food products does not change over time. It, along with the aggregate supply of those products, will be expanding as populations continue to grow and national economies continue to grow. But demand and supply are unlikely to grow at the same pace; the determinants of these two relations are unrelated. Population growth and income growth are the principal determinants of the demand relation; investments in research, new technologies and various capital items (e.g., irrigation works) along with climate changes are the leading determinants of the supply relation.

Thus, it seems likely that on occasions aggregate global supplies of food products will push ahead of aggregate demand, and farm prices will fall sharply; on other occasions aggregate demand will push ahead of aggregate supply and farm prices will shoot skyward. Whenever either happens, which in my view will be much of the time, we must expect a change in the food product price level, and often those changes will be dramatic. In sum, agriculture is a high-risk, unpredictably unstable industry.

What we have in commercial agriculture is two different developments, which constitute problems for family farmers, because the outcome of those developments will determine the fate of those farmers. First, the continuing struggle, often minimized by economists, over who controls the use of productive resources on farms—the individual family farmers or some powerful outside purveyor of a key input (e.g., a genetically modified seed), the outcome of which will determine whether there are any independent family farmers left in the year 2010. Second, the immediate life or death, price-income crisis, the outcome of which will determine which family farmers are still in business at the end of this year or the next. Two different problems, with similar consequences.

I hold that a set of public programs to address these problems should be part of any policy prescriptions for the 21^st century. But these public programs must recognize that American agriculture is now part of a global economic system.

The following comprehensive set of policies represents what I believe are the necessary actions that the federal government must take if we are to effectively pursue the four goals I have outlined. 2

1. The production of a healthful, abundant supply of food, at reasonable prices, for all Americans

III. Protect the remaining family farms from disappearing from the face of the earth

1. Create a special unit in the Department of Justice to investigate monopolistic actions in the food production and distribution system and to prosecute firms whose actions are deemed harmful to the efficient and equitable operation of the food and agricultural sector of the national economy. This new unit should have special expertise in biotechnology and contract farming. While attention must be paid to the collusive and predatory actions of monopolists, the new unit must also recognize that bigness alone is an important aspect of monopolistic action.

1. As national programs for sustainable agriculture develop, family farmers should be brought into programs as key players. Here is an

• the confinement of birds and animals,
• the location of such factory type operations,
• the disposal of the wastes of the animals and birds confined in such factories,
• working conditions of human laborers in such factories.

• limiting rental contracts to only low grade cropland,
• extending the duration of rental contracts to very long periods,
• purchasing land where it can be phased into the ecological area program outlined in the next recommendation.

The policy agenda laid out above is an ambitious one. It would take a strong President to get it passed into law. If it was passed in its entirety, was adequately funded, and was placed into operation by leaders who believed in it, America would become a more pleasant place in which to work and live. The food and agricultural sector would be given effective program tools to ride out, but not without some pain, the economic bumps a global economy will surely encounter in the years ahead.

But, as is more likely, if only pieces of it survive the legislative battles ahead, the full agenda, as presented here, provides a directional guide to the development of an equitable and effective food and agricultural policy in the years to come. The downturn in product prices in the food and agricultural sector in 1998-99 is not the last that this sector will experience. And changing weather patterns as a part of the global warming phenomenon will certainly test the skill and fortitude of food producers in the years to come. Without effective federal programs, the 21st century may bring great opportunities for some, but it is likely to bring great problems to family farmers and the large industrialized producing units alike.