Thursday, March 31, 2011

Farm Subsidies, Water Policy and Food in America

Recently, a friend of mine drew my attention to the fact that rice is cultivated in California. In the semi-arid land of California with an impending water crisis where water is allocated, and allocations cut to protect endangered habitats and species, there are rice patties. This seemingly irrational behavior is the result of the agriculture system that has evolved in the United States under farm subsidies and water allocations. Farmers do not pay the full resource and environmental price of the federally managed irrigation systems (especially if local regulations limiting the pumping of groundwater are not effectively enforced). Farm subsidies have created incentives for water-intensive cultivation in the United States. In the United States farm subsidies over the years have become a maze of programs layered on top of each other involving food assistance, rural sewage, research and extension programs, but at their core the farm programs are subsidized commodity programs that pay predominately large high income landowners based on production or a history of production of eligible crops on land that is classified as eligible.

Commodity payments, what are commonly thought of as farm subsidies are income payments made to farmers or land owners who may no longer farm the land and simply collect payments from tenant farmers or let the land stand idle. Almost 93% of the payments are made for a small list of crops- cotton (22.3%), rice (7.3%), wheat (9.5%), corn (43.5%), soybeans (5.5%), and other grains and oilseeds (4.2%). These payments do not encourage the cultivation of fruits and vegetables, water conservation, or resource protection. These payments do not help the rural poor. These payments are predominantly made to wealthy farmers. These payments are fiercely protected by the congressional representation of the largest recipients. Not surprisingly, after four generations, agricultural sector has changed dramatically and the program beneficiaries lobby and co-opt other groups for support. By including popular but poorly funded programs for conservation and research. According to the Environmental Working Group, who has tracked and analyzed farm subsidies since the 1990’s ten states, Texas, Iowa, Illinois, Kansas, Minnesota, North Dakota, Nebraska, California, South Dakota and Missouri, accounted for 56% of total subsidies in 2009. Only in the bizarre universe of farm subsidies could you find payments to wealthy landowners to actually grow rice in an arid environment where there is talk of rationing water to people.

The subsidies essentially began during the agricultural price collapse in the 1920’s after the First World War with the creation in 1929 of the Agricultural Marketing Act and during the Great Depression of the 20th century (as opposed to the Great Recession of our own century) the 1933 Agricultural Adjustment Act. This was a time when 25% of America resided on farms and there were reported to be more than 6,000,000 small farms. The country was experiencing a great economic contraction and the Plains of North America was struck by successive droughts in the 1920s and 1930’s that resulted in hundreds of thousands of the homesteaders who had settled the prairie being displaced from the farms. The images of the “Dust Bowl” were poignant and the need acute. The Agricultural Marketing Act created the Farm Board, which fixed price floors for wheat and cotton. If market prices went below 80 cents a bushel for wheat and 20 cents a pound for cotton, the federal government would step in to buy the crop, pay to store it, and hope to resell it later for a decent price. After the creation of the Farm Board, many farmers shifted their entire crop production to wheat or cotton because those crops were protected and now provided a secure income. The resulting overproduction forced down the prices of both crops below the price floors. The government had to buy and store tremendous amounts of wheat and cotton, exhausting the programs entire funding. Instead of ending the program as a failed experiment, Congress added to the program creating the Agricultural Adjustment Act of 1933. This act tried to control oversupply by paying farmers not to produce. As for prices, they would be pegged to the purchasing power of farm prices in 1910 just before World War I.

This modification failed to solve the problem so the farm subsidies and control began on an eight decade journey to find the “right” incentive formula. It is no longer known what the goal of these programs is, but the nature and character of the American farm (and possibly the American diet) has been irrevocably changed by these Congressional programs. The beneficiaries of the subsidies have changed as agriculture in the United States has changed. In the 1930s, about 25% of the country's population resided on the nation's 6,000,000 small farms. In 2010 it is estimated that the $286 billion in farm sales is divided amongst 1.9 million farmers and that agriculture represents between 1 and 2% of gross domestic product even as agricultural output has grown. United States is a net exporter of food and typical American family spends 10% of their income on food. In 2009 according to the Environmental Working Group, subsidies paid for cotton, rice, corn, wheat and livestock, totaled $13 billion dollars a minor fraction of the budget. However, suddenly eliminating the farm subsidies seems almost impossible. Policy makers are reluctant eliminate the subsidies because they fear the consequences to farm employment and food prices.

Meanwhile, the United States has growing regional water problems. When agricultural land is irrigated, the water balance in nature is altered. The environmental impact of an irrigation system is dependent on the nature of the water source, the quality of water, the method of delivery and the local geology and climate. Irrigation of lands can destroy them through subsidence or the buildup of salt in the land and groundwater. Irrigation accounted for 65% of total freshwater withdrawals in the United States excluding thermo-electric power. Changes in climate or weather patterns and growth in population may increase demand for irrigation water because the Agricultural subsidy system creates resistance to changes in irrigation style and patterns. Hotter, drier summers increase pressures on water resources, but our agricultural sector does not respond easily to these changes. Second, recent demand for bio-energy has been met using corn crops from states that irrigate.

Water pricing and farm subsidies have been used in the past to solve economic and social problems. Unfortunately, we have not been able to achieve our conflicting economic, environmental and social goals through subsidies and price controls. Water rights must be owned and cannot exceed the sustainable rate of withdrawal. In California there is no longer any relationship between the water and the land, they have destroyed the natural ecology of water rich areas to deliver the water to Los Angeles, San Francisco and the farms. Water is wealth in California where you can grow three crops a year. As long as water costs less than the real resource cost, farmers will plant and grow as much as their water allocation as the state continues down the path of ruin. Annual water allocations cannot be banked, use it or loose it. Over 75% of all water use in California is for agriculture and the demand will always be just a little more than the last wet year when times were so good. The agriculture incentive scheme has become extremely perverse.

1 comment:

  1. Let the poor go starve! Our only salvation is to further enrich those who can affor financial advisers who have bought off the congress!