This opinion piece was first published Nov. 1, 2018, by Michael Helmstetter, Ph.D., in Forbes: "Is It Time To Sell The Farm?"
This harvest season, American soy farmers are missing their biggest customer. “They can’t get rid of the beans,” said Joe Ericson, president of the North Dakota Soybean Growers Association, because China will not accept the usual soybean and soy product exports under a 25 percent tariff.
Unpredictable weather and fluctuating commodity prices already mean slim margins for the small family farms that comprise 90 percent of all U.S. farms. Trade wars atop so much uncertainty may be a death knell for the next generation of small family farms, an unintended consequence of a trade policy aimed at protecting national security and IP rights. In this environment, the threat to family farms brings up important questions: How can farmers retain economic autonomy instead of being beholden to political swings? How can farming, in general, become a more independent and autonomous economic force?
The balance, which currently tips in favor of revenge politics and pork (the political kind), must be righted. Once the ag community shifts focus to the future, to what works — R&D, investment and free trade — I am convinced the farm can, in fact, be saved.
The 2018 tariffs are massive in scope – currently imposed on $250 billion worth of products from China. Intended to staunch the endemic theft of intellectual property by China, the tariff action has since escalated into a punitive tit-for-tat. The policy damages more than farmers: supply-chain businesses such as grain elevators, hardware suppliers, oil and gas providers, transportation networks, veterinarians and the many others who comprise farming’s greater infrastructure.
Soy is perhaps the most cogent example of the damage wrought by the current trade wars. With 91.1 million acres of soybeans planted in 2018, it is the largest U.S. crop in acres planted. Worth about $41 billion, the U.S. soybean crop has lost $2 billion in value since the trade dispute erupted, according to Ohio State and Indiana University research. As of October 1, the soy price dipped to $8.44/bushel, the lowest in more than a decade.
The USDA Economic Research Service August 2018 report estimates that the farm sector will lose $9.8 billion in profits in 2018, a 12-year low. Providing $1.65/bushel on 50 percent of production, in addition to the $15 billion/year in price supports and subsidized crop insurance for farmers, the one-time federal aid package is not enough to recoup last year’s $21.7 billion in soy exports. The policy has angered some farmers, with one grower telling CNN the package amounted to “a $12 billion acknowledgment that [Trump] hurt us.”
Commodity farmers are accustomed to government attention. What is new about the tariffs is the scale of the potential harm. Small farmers, who split fewer subsidies between more farms, wonder whether the family farm is still worth it.
I heard this lament repeatedly this summer in discussions with soy farmers at the American Soybean Association Action Partnership and Biotech Working Group, and it’s been a common theme in the national and regional news, even making its way into political advertising. (One example from Missouri: “… I’ve spent my entire life farming in Greene County. For the first time, I’m afraid that my family’s six-generation farming legacy might end with me.”)
All the politics the farm can grow
The family farm is a core part of America and must be saved. The question is whether to rely on subsidies to do it. Government interventions that have become normal in American farming — the Farm Board, the Agricultural Adjustment Act (AAA) and the Commodity Credit Corporation (CCC) — didn’t exist for the first 140 years of American history. The Constitution (Article 1, Section 8) does not give the government a role in regulating farming.
Farmers planted and sold crops at will until the New Deal, which triggered government purchases when wheat and cotton prices fell below a certain floor. This program, which ended up folding, drove farmers into commodity crops. The AAA and CCC followed, paying farmers not to produce during times of oversupply, protecting them from falling crop prices and creating a culture of entitlements.
The AAA evolved into the Farm Bill, a $25 billion-a-year subsidy that aims to stabilize markets, subsidize low-income farmers and help with rural development. Over the decades, distributions have skewed toward the highest donor, with the biggest farms — 2.3 percent of the total — receiving the most subsidies, according to research by the Heritage Foundation. Meanwhile, President Donald Trump harnessed the CCC, which allows the President to borrow funds without Congressional approval, to establish $12 billion in subsidies.
Farming is intertwined with politics. Can it be disintermediated? Can farmers regain the autonomy they enjoyed in the first 140 years of America’s life? I believe that they can.
How to save the farm
Clearing the political paybacks out of subsidies would be an important step toward improving the governance of national ag. Because that is highly unlikely in the current political climate, the focus must turn toward R&D, investment and trade as vehicles to enable farmers to drive their own outcomes.
As I’ve covered in a previous post, we are at the tipping point of a new agricultural revolution. Few other times in history have presented the depth and breadth of options for agtech innovation. AI, cloud computing, big data and gene editing are transforming how we plant, grow, harvest and transport produce and meat out of the farm gate.
Soy, for example, could be moved out of an “export or die” model and be used in manufacturing, new types of feed, aquaculture, energy and other outcomes. Only through continued scientific research will these new markets emerge. Once established, farmers will be able to diversify their customer base and better withstand market shocks.
There is no R&D without investment, whether from the federal government, large corporations, venture funds, private-public enterprises, educational endowments, private money and elsewhere. The $156 million in recent funding for Indigo, a microbial seed treatment, is an example of the current appetite for investment in new ag technologies. Any policies or initiatives that encourage investors to put their funds into the burgeoning agtech market will yield diversified results, again percolating to the end farmer as a key beneficiary.
Its borders blocked, the farming industry is amputated from international supply chains, creating the systemic supply shock we see today. When combined with government subsidies that favor large wealthy farms, this shock will — should the trade war continue — indeed lead to a fallout in family farms. The lifeblood of many rural communities, small farms deserve the same freedoms as every other business, including the right to transact freely across borders. Reopen free trade for agricultural products, and the unintended devastation might start to go away.
When it comes to trade, the current national political focus is on punishment. It is up to the community — farmers, local and state legislators, entrepreneurs, investors, scientists, ag businesspeople and educators — to reorient the focus toward a successful future. When we seriously discuss and implement alternatives to trade wars, and strategically place money into developing new markets, the farmstead of the future can be ensured.