The terms of debate around the 2007 farm bill’s controversial commodity title have gotten rather narrow.

On the one hand, you’ve got the House subcommittee on ag commodities, which essentially cut and pasted commodity language from the subsidy-heavy 2002 farm bill into the 2007 version now being drafted.

On the other hand, you’ve got a chorus of critics, ranging from Oxfam to the Cato Institute to the Environmental Working Group, demanding an end to ag subsidies. This group would like to see an unfettered market work its magic on agriculture.

Straddling in between we find the Bush administration, which chastised the House subcommittee for failing to reform subsidies. Last winter, USDA chief Mike Johanns floated his proposal, which wouldn’t abolish subsidies but rather tweak the program a bit to give it a "more market-oriented approach." Language in the proposal hinted strongly that subsidies would eventually be phased out.

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Forced to choose, the Oxfams, Catos, and EWGs of the world throw their lot with the Bush Administration. If they can’t get the subsidy-free bill they want, they’ll take the Bushies’ slow-motion reforms.

In last week’s Victual Reality, I weighed in on the debate by rebuking the Oxfam/Cato/EWG aproach. I argued that "abandoning farmers to the clutches of a highly consolidated food-processing market … won’t solve our enormous social, public-health, and environmental troubles related to food."

I acknowledged that the subsidy system was a mess, but was vague about what I would put in its place. Several people asked me what kind of farm bill I’d like to see. Given the alternatives on the table, answering that question is a purely theoretical exercise. But here goes.

First, let me address what I see as widespread misapprehension. When the commodity subcommittee decided to preserve the 2002 commodity programs last week, they weren’t doing the bidding of the big agribusiness firms like ADM and Cargill.

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ADM and Cargill are multinational firms with vital interests in South America, Mexico, Asia, Europe, and Africa. (ADM even announced its entry into the Brazil sugarcane ethanol market last week.) These companies want a more market-oriented approach — precisely because they have so much control over food and ag markets.

These firms know well that U.S. farm payments are a serious impediment to the Doha Round of global trade talks. If Doha succeeds, these companies will benefit. Doha would pressure countries in the global south to remove any remaining barriers to U.S. agribusiness — just as Nafta opened Mexico’s corn market to control by ADM and Cargill.

So if the House commodity subcommittee isn’t doing agribiz’s bidding, then who is?

A couple of weeks ago, I was in Washington D.C., and stepped into the Sustainable Agriculture Coalition’s office to talk with its director, Ferd Hoefner, who has been closely watching farm bills get drafted since the mid 1970s. I asked him what agribusiness was pushing for in the 2007 Farm Bill, and he said, "just read the Johanns proposal."

In other words, the Bush administration is essentially pushing the agribusiness agenda (surprise, surprise). Agribusiness, Hoefner says, wants to slowly phase out the subsidies and make the 2007 farm bill as "Doha-friendly" as possible.

Thus there really isn’t much distance between the Oxfam/Cato/EWG position and ADM’s.

As for the House subcommittee members, these Congressmen hail mainly from ag-heavy states, and they’re likely just trying to get the best deal possible for the big commodity growers among their constituents.

Agribusiness companies now frown on subsidies because they interfere with their access to some foreign markets; but they still tolerate subsidies, because paying farmers to grow as much as possible holds prices down.

What would really send agribusiness into revolt — and thus never happen — is precisely what I’m about to propose: a serious supply-management policy.

Supply-side economics

Let me explain. In stable, food-secure societies, agricultural productivity grows faster than population. When people reproduce at a greater rate than farmers can grow food, trouble comes knocking. Societies need farmers to produce a little more than people consume over a given period and hold it in storage; you never know when a drought, a flood, or some such calamity is going to come along.

Now, in the past half-century, U.S. farmers have certainly managed to meet this requirement; whether they’ve done so in a way that’s sustainable in the long term is another question.

But all farmers, whether they use petrochemicals and combines or compost and hoes, are always trying to make their land more productive — and their efforts underpin human societies.

But in doing so, they subject themselves to ever-falling prices. To explain why, let me pull something from a Victual Reality published in February:

To put it in economists’ jargon, [agricultural] productivity outruns demand. What does this mean? Simply that farmers — and the petrochemical, biotechnology, and heavy-machinery industries that cater to them — keep figuring out new ways to squeeze more and more food out of less and less land, but the human body’s caloric needs don’t change much. Food demand, in economists’ terms, is pretty inelastic. Between 1948 and 2002, total U.S. agricultural output rose by a factor of 2.6, while population didn’t quite double. Since the food supply grew faster than population, it’s no wonder that the prices farmers fetch for their goods have steadily fallen. Now, this steady downward pressure doesn’t mean prices don’t sometimes rise. Recently, for example, corn prices surged, bolstered by growing ethanol demand and Wall Street speculation. Again, though, external factors, and not farmers’ own planting decisions, sparked the rally. Moreover, farmers will likely respond to the windfall by scrambling to plant more corn — a factor expected to bring corn prices back down. As University of Tennessee agricultural economist Daryl Ray put it in an influential 2002 paper [PDF], technologies that increase supplies and put downward pressure on prices are quickly adopted. The lower prices then encourage the adoption of more cost-reducing technologies, and prices continue their slide. In other words: you can’t win.

In this arrangement, societies benefit from food security and low prices while farmers face ever-lower incomes. Society can compensate farmers for this service through direct payments, as is happening today — but that only sustains the price problem. It also encourages farmers to produce as much as possible without regard to quality or environmental concerns — as is also happening today.

But rather than compensate farmers directly, the government could organize them to manage supply and maintain a surplus. That’s the policy that held sway between the Great Depression and the early 1970s. I described that program in another old Victual Reality column:

To keep prices at a reasonable level, the government tried to manage farm output. The program worked like this: When farmers began to produce too much and prices began to fall, the government would pay farmers to leave some land fallow, with the goal of pushing prices up the following season. There was an additional mechanism that sought to stabilize prices. In bumper-crop years, rather than allowing the market to be flooded with grain, the government would buy excess grain from farmers and store it. In lean years — say, when drought struck — the government would release some of that stored grain, mitigating sudden price hikes. The overall goal was to stop prices from falling too low (hurting farmers) or jumping too high (squeezing consumers).

Why would the agribusiness lobby rebel if supply management came back? Simple: it would give farmers pricing leverage in a market now controlled by buyers. In short, it would ensure that they always pay a fair price for the corn and soy they consume — and not just in times like today, when a government-engineered ethanol boom is pushing up grain prices (and benefiting agribsussiness simultaneously.) Now, the New Deal farm policies came under severe pressure by the late 1960s. In short, because of mechanization and ever-greater doses of petrochemicals, farm productivity grew so fast that it overwhelmed these FDR-era schemes. Before long, the government abandoned supply management and switched to the direct-payment regime in force today.

And rather than try to manage supply, the USDA’s new role was to boost it. In the early ’70s, Nixon’s USDA chief Earl "Rusty" Butz urged farmers to plant "fencerow to fencerow," and that’s essentially been government policy ever since.

But times have changed. Ag productivity isn’t rising nearly as fast now as it was in the first few decades after the war. Returns on dumping chemicals and poisons onto the land are diminishing, and more consumers are demanding food grown with sustainable methods.

In short, it might be time to give supply management another chance.

By all means, end the subsidies. But revive the old New Deal programs in their place.

Such a setup would be much cheaper than the current $12 billion-to-$20 billion per year subsidy system. And if we really want to move to a more sustainable and local-centered food production, use the savings to reinvest in local-food infrastructure.

In Omnivore’s Dilemma, Michael Pollan asks renegade Iowa corn farmer George Naylor why, if the economics of corn and soy are so dismal (this was before the latest ethanol craze), why he didn’t simply grow something else?

Naylor replied: "We have a long-term investment in growing corn and soybeans; the elevator is the only buyer in town, and the elevator only pays for for corn and soybeans."

All over the Midwest over the past four decades, as agribusiness has tightened its grip, infrastructure designed to process and distribute anything besides corn and soy has essentially vanished.

Let’s help farmers manage supply of corn and soy down to reasonable levels, and — where there’s demand — rebuild the infrastructure for selling fruits, vegetables, and pastured meat and dairy products to their neighbors.

All of that, plus a competition title, and I’d be more or less happy with the 2007 farm bill.

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