In this week’s Victual Reality, we ran an interview I did recently with officials from the National Corn Growers Association and the American Farmland Trust.
I edited the transcript in a certain amount of haste (it was right during the chaos of our Sow What? series on food and farming) — and I left out a couple of noteworthy bits. See below the fold. </p
I found it fascinating that these industrial corn guys can be pro-market zealots on one topic, and blithely dependent on government intervention on others.
For example, I asked them about supply management — the New Deal-era policy in which the government helps farmers avoid overproduction through grain reserves, land set-asides, and other mechanisms. Under supply management, the government essentially tries to keep crop prices from falling too low, which would hurt farmers, or going too high, which would squeeze consumers.
Supply management essentially ended in the early ’70s, when government policy shifted to encouraging farmers to produce as much as possible, all the time.
After the Nixon Administration began to dismantle supply management, corn production exploded and its price fell steadily. Big grain traders like Archer Daniels Midland and Cargill got access to an ever-growing supply of cheap corn, which they cunningly transformed into profitable products like high-fructose corn syrup and ethanol.
Taxpayers have paid out hundreds of billions in subsidies to keep farmers churning out products as prices fell.
Corn and its derivatives literally swamped the nation, ending up everywhere from our soft drinks and sweets and other processed foods to the bellies of our ruminant farm animals and even the gas tanks of our cars: all places it had rarely, if ever, been before.
Here’s what my interviewees said about supply management, emphasis mine.
Ralph Grossi, American Farmland Trust: We’re not fans of supply management. We think that has been a concept that’s been tried many times over the years and it’s failed miserably because supply management generally requires a heavy government intervention in the marketplace. And it is very hard to sustain markets and send the right signals when government is intervening on a regular basis, and so we would not be in favor of a supply management system.
John Doggett, National Corn Growers Association: We would definitely oppose any supply management scheme in any part of legislation.
Philpott: And why is that?
JD: Well because, one, as Ralph said, it doesn’t work. And two, we will then export that deduction someplace else, and all we have to do is look at what happened in the ’70s and ’80s when we had set-asides that encouraged farmers in other countries to ramp up production. We unilaterally disarmed and lost our competitive edge.
So they raise two objections to supply management. The first is that it represents an unacceptable intervention by the government into the marketplace. Can’t have that!
The second needs translating. Essentially, Doggett is saying that if U.S. farmers intentionally ramped down corn production, and thus pushed up its price, then big grain buyers like Archer Daniels Midland (incidentally, a funder of the Corn Growers Association) will simply look elsewhere for cheap corn, undercutting U.S. farmers.
He has a point. Argentina, for example, has emerged as a major corn producer over the past two decades. If the U.S. tried a supply-management scheme today, farmers there would likely respond to the ensuing price increase by ramping up production, and easily undercut their U.S. competitors.
Fair enough. Globalization pits U.S. farmers against their peers in the "developing world"; they battle it out to be the lowest-cost producer, and big buyers like ADM win. Doggett has no critique of corporate-led globalization; hardly surprising, given the roster of corporations that support his group.
But if the specter of supply management inspired my interviewees to invoke the genius of the unfettered market, ethanol makes them bow before the power of benevolent Big Government.
I’ll repeat of a bit of the interview as published, adding a line I unaccountably cut, which I’ll put in boldface for emphasis.
Philpott: The ethanol boom is what caused corn prices to spike — and ethanol has entered a glut phase. Will the government just keep raising the renewable-fuel standard [which requires a certain percentage of biofuels in the national fuel stream]?
Jon Doggett: Certainly no one anticipated that ethanol production would take off like it did after the passage of the 2005 energy bill. And obviously the high price for gasoline factored into that, and the renewable-fuel standard as passed into law in the energy bill factored into that. There were a number of things that caused ethanol production to come up as quickly as it did. We are at a bit of a plateau in demand.
But I think that the long-term scenario for renewable fuels is excellent because we’re not making any more oil, and the places we’re getting the oil aren’t very good places for us to go and get it. This market is going to have some ups and downs for the short term, but long-term I think that we’re going to see some excellent opportunities. But will the government raise the renewable fuel standard? Yes.
Fascinating. The market has decided there’s already too much ethanol being made, which should be a signal to cut back on production. But this corn man blithely figures that the government will just keep intervening to require more. "Excellent opportunities," indeed.
Grossi of Farmland Trust added something interesting on the ethanol phenomenon. He claimed that elevated corn prices were inspiring a change in industrial livestock-feeding practices: feedlots are rediscovering grass, of all things, as animal feed.
I’ve been in the dairy and beef business all my life. I’ve watched how we’ve fed beef in this country, where we brought young steers right off the cow right into the feedlot because we had cheap corn. And then we fed them corn for six months to fatten them up. Well, we’re already seeing an adjustment: because of the price of corn, the feedlots are leaving cattle out, believe it or not, on pasture, and putting weight on in the way we used to put weight on animals, and then bringing them in just to finish them in the feedlot. That’s how we adjust to these changes [in corn price]. That’s just an example of a very positive adjustment, we believe.
Interesting, if true.