Expensive Nostalgia
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The High Cost of Farm Preservation
Editor’s Note:
An article entitled “Expensive Nostalgia: The High Cost of Farm Preservation” by Claude Gruen recently appeared in the Gruen Gruen & Associates online newsletter, “Trends.” Claude and Nina Gruen are nationally recognized economists. Their firm provides real estate consulting services nationwide and can be found on the web at www.ggassoc.com.
Society of Exchange Counselors member, Steve England, S.E.C., ALC, EMS, of Kearney, Nebraska reviewed the article and provided an interesting perspective that we thought you might enjoy. Steve is also an Accredited Farm Manager (AFM) with the American Society of Farm Managers and Rural Appraisers.
Point: Claude Gruen
“Driving past farms and ranches gives me a pleasant feeling of mythic nostalgia. It does that to city folks all over the developed world, regardless if they sprang from farm families. This motivates us to accept polemics in support of public policies that preserve farms and putative agricultural lands. This emotional feeling also causes us to shrug off the taxes we pay for these policies and to minimize the indirect costs of maintaining the rural farmscape.”
Counter Point: Steve England
Although there are some proponents of Agricultural subsidies that think that they are doing this to “preserve the family farm” the real reason this is necessary is to preserve the agricultural production capacity of our nation. Crops primarily are annual crops that produce a crop to sell once a year. Therefore it takes lots of lead-time, and a huge capital injection to maintain equipment, land, distribution facilities, technology, innovation, etc. If we tried to react to only the current needs of our nation or the world we would not be able to deliver cheap food to our nation as a national policy. As an example this is a huge problem in the energy field because we decided to import our energy from OPEC, and others which allowed our “wildcatters and oil risk takers” to go out of business. Now the entire internal infrastructure is gone so it is going to be a long process if we ever try to restart our own internal exploration and innovation in the energy field.
Since we as a nation spend the smallest percent of our wealth on food, it leaves more for industrial or technical innovations as a society to lead the world in innovation. Most of the world’s resources are spent just to feed its people. In my 30 years of farm management I have seen commodity surpluses evaporate over night and prices skyrocket when a world weather situation is unfavorable. If we had to wait for something like this to happen before gearing up our agricultural resources we could face major instability or possible famine even in this country. No one likes to see our tax dollars be used for subsidies for any industry but Agriculture is as vital to our national security as our energy problems that we talk about daily.
Point: Claude Gruen
“Although the acreage planted in artichokes has decreased by half, for example, I pay less for superior-quality artichokes now than I did 40 years ago. The prices of most other crops also have dropped since the ’60s, and the quality of produce available year-round in the developed world has improved because increases in productivity have dramatically increased yields.”
Counter Point: Steve England
The paragraph contradicts paragraph’s later in this article contending that U.S. stifles innovation with subsidies. The capital investment by the processors, marketers, seed companies, etc. result in incredible innovations daily.
Point: Claude Gruen
“The contention that we have to maintain the present supply of farmland or face a worldwide food shortage is flat out wrong. We are in an upside-down Malthusian world, with increases in the food supply outpacing increases in population. This relationship is not likely to change in the future, as population growth is predicted to stop long before technological and capital improvements cease to increase what can be grown or raised per acre.”
Counter Point: Steve England
It is true that in many parts of the world population is under control and distribution is the problem. We still have to get quality food to those areas hit by drought, famine, insurrection, disease, etc. and the U.S. has the ability to deliver this aid better than any other country and we should. If we can afford to protect ourselves by going to Iraq and then creating a democracy we can afford to provide surplus food for anywhere the world needs it.
Point: Claude Gruen
Many of those who argue for subsidies, price supports and farmland protection recognize that even while famine stalks many poor lands, the cause of this tragedy is not a shortage of food in the developed world. They recognize, too, that creating more surpluses in the rich countries is neither a temporary nor permanent solution to the problems of developing nations. One argument heard from those who understand this is that each nation or region needs to be self-sufficient. I have yet to see an analysis of how much the United States could reduce its present agricultural capacity and still have the potential for self-sufficiency, but experiences during World War II suggest a significant reduction would be safe.
Counter Point: Steve England
I assume that he is referring to during WWII we had sufficient food and were not worried about starving. However, in that era even most city home dwellers had their own gardens in the rear of their home and during the depression the rural folk always had sufficient food. This is a different time and less of U.S. citizens have a back yard and the knowledge to grow anything. We could pair back our production and live comfortable but the spin-off benefits of our world leading food production have to be considered.
Point: Claude Gruen
“The farm lobby also argues we must maintain farming as a way of life or as a unique sub-culture. A review of the costs of preserving farms and farming suggests that even if you feel farm preservation is worth the price, we are going about it badly. Worldwide, the annual direct costs of farm subsidies are estimated at about $235 billion. The Organization for Economic Co-Operation estimates a full-time farmers in the European Union receives $17,000 per year in cash or price supports, while the average full-time American farmer gets about $16,000.”
Counter Point: Steve England
The farm lobby does try to use every technique such as “saving the family farm” to sell their views. This does provide a safety net for some inefficient and uneducated farmers but in the total they produce very little.
Point: Claude Gruen
“Not all the recipients of this largess get up early in the morning to tend to the cows or fields. In August 2002, the San Francisco Chronicle reported discount broker Charles Schwab put his1600-acre rice farm up for sale because he no longer had time to go duck hunting on the property. The article noted the Environmental Working Group estimated the Schwab family collected more that $730,000 in subsidies for the farm over a five-year period.”
Counter Point: Steve England
As with every program a few that don’t need it get it. However, if Charles Schwab received $730,000 he owns a productive rice farm and hunting is just available, not a duck farm that also grows rice. I really don’t see much difference if Schwab used his money to buy 40 post offices and got a higher than local price for rent. The government subsidizes post offices also to make sure everyone in our country has the ability to send and receive mail.
Point: Claude Gruen
“Farm subsidies encourage production at levels above what the world can buy at anything close to the actual costs of production. The world price of food has dropped to the point where small farmers in developing nations cannot compete. For many of these countries, the type of farming that could succeed — if they did not have to compete with the subsidizing nations — offers their best path out of poverty. A March 27th New York Times article discussed the economic malaise of farmers in rural Poland, Slovakia, Hungary and the Baltics. The article suggested that after Poland enters the European Union May 1, some small-scale farmers may be bought out by wealthy investors from Denmark, Finland and the Netherlands, who will consolidate the farms and apply for and receive the subsidies from the European Union.”
Counter Point: Steve England
As compared to subsidies in the U.S. Europe has a system that has become excessive like lots of their other social programs. U.S. farmers would agree.
Point: Claude Gruen
“In the United States, farming is treated differently from all other industries, not only in terms of supports but also by discouraging innovation. University of Wisconsin-Madison researchers Rodolfo Manuelli and Ananth Seshadri found the timing of improvements in the design of tractors and their use on American farms could be explained by following the path of real farm wages. During the Depression, when farm wages were low, farmers did not have the incentive to switch from horses to tractors. Only in the 1940’s, when farm wages rose, were tractors widely adopted.”
Counter Point: Steve England
This contention is typical intellectual university theory. Innovation is always led by desire to make a profit. If one can buy a machine to replace wage earners and do it at a lesser cost it is done. Do people really think we would be better off with low wages and no machines? I wonder how big a government grant these two professors received to study their theory?
Point: Claude Gruen
“Yet rather than supporting improvements in the design of harvesting machines, the U.S. government is trying to help farmers cut costs by encouraging the immigration of workers. I agree with agricultural economists such as Phillip Martin at University of California, Davis, who believes introducing machines will enable farms to compete and also allow them to increase the pay of the workers they do need.”
Counter Point: Steve England
Taking policy advice from UC – Davis on Agriculture is like us taking your development advice from the no growth folks in Oregon or management of national parks advice totally from the Sierra Club. I don’t see where U.S. policy encourages the immigration of workers. The machinery innovation just in the last 30 years has been unparalleled. We now have tractors used daily that drive themselves. Planters that show the number of seeds planted per acre and the ability through GPS to adjust this to soil type as a farmer traverses the field with his planter. It is obvious Phillip Martin has never gotten out of California to the Midwest where most of the food, fiber and protein are grown for the world.
Point: Claude Gruen
“Whether we use our excess farm land for needed housing and urban development or as public open space, a rational reduction in the costs of agricultural preservation would pay large benefits to taxpayers, workers and the health of our urban places.”
Counter Point: Steve England
On the surface it looks like Farm Policy is way too expensive and even the Nebraska farmer hates to get checks from the government but most understand the need. Even with all of these subsidies the value of a bushel of grain sold is barely enough for only the best and brightest farmers to survive.
However, these dollars don’t just stop at the farmer or the wealthy landowner they permeate through a system of farm suppliers and manufacturers of equipment, seed, genetically modified crops, embryo transplants, agricultural chemicals, agricultural researchers, bankers, real estate brokers, etc. etc. These new tractors, planters, irrigation equipment, and GPS technology move to other sectors of our society and export to other countries so they can improve their production for their societies. The jobs created by the Agricultural industry are still what drive most local economies the vast non-metropolitan areas of America.
