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State of the Food Economy- Winds of Change Call for Local Control & Less Agribusiness Monopoly Power

(Sunday, Jan. 19, 2003 -- CropChoice news) -- Dan McGuire, policy chairman of the American Corn Growers Association, presented the following speech at the annual meeting of the Kentucky Community Farm Alliance in Lexington yesterday.

Itís great to be here in Kentucky again. I had never been to Kentucky before last November and this is my second trip within three months.

Bringing the Food Economy Home is the subject of this panel. Itís a very timely and excellent issue to discuss and I commend the CFA for having it as part of your annual meeting program.

Imagine for a moment an economy where the agricultural sector output equals $226 billion and results in gross value-added of $111 billion dollars and net value-added of $91 billion. I just described the value added by the ag sector in the United States in the year 2001, so you can see the tremendous economic engine that the farm sector is as part of our overall economy. Imagine how much more value will be added when farmers get a fair price at the local level. But the farm sector is much more than economic engine. After all, we are talking about food, one of those life essentials that all of us expect and need every day to survive so we can do the rest of those valuable everyday activities we like to do in being productive members of our society and economy.

Those billions of dollars I mentioned came from the December 2002 edition of USDAís Agricultural Outlook report. By the way, it is the last ever edition of that publication which concerns some of us a great deal. We hope that the statistical indicators which have appeared every month in that report continue to be available. Hereís why. Another set of numbers tells a very important economic story about whatís going on in the farm sector of our food economy. It doesnít paint the same seemingly positive picture that those big billions of dollars and numbers I began with imply. This story is one of the messages I want to "bring home" here today with my presentation.

Tables 30 and 31 on page seventy of the December 2002 Agricultural Outlook report reveal some numbers that should alarm farmers, consumers and lawmakers. Table 30 shows that net farm income in 2002 is forecast to drop by $10 billion from the 2001 level and $11 billion below the 1992 to 2001 average. On top of that, Table 31, Average Income to Farm Operator Households, paints a more revealing story that many farm families understand all to well. It forecasts that the national average "earnings of the operator household from farming activities" will be only $2,622, or only 4% of net farm income and that 96% of total farm operator household income last year, on average, came from off-farm sources. That doesnít suggest a farm economy thatís in the best of shape, does it? When either one or both spouses in the farm family are working off the farm to subsidize the farming operation something is out of whack. Something is wrong with U.S. farm policy. It tells me that the farmer is actually subsidizing the U.S. food economy by mortgaging equity and asset value to produce crops and livestock for the rest of society.

Whatís going on in the farm sector? Of course, currently, the drought of 2002 has had a major impact in the west, southwest, in various parts of some mid-western states and in Nebraska where Iím from and have my farm. I donít know if the 2002 drought is impacting Kentucky much or not. Your cash receipts from both livestock and crop marketing dropped from $3.649 billion in 2000 to $3.548 billion in 2001 and I donít have any numbers for 2002.

But a lot of whatís going on in the farm economy is directly connected to U.S. farm and trade policy. Ever since the 1985 farm bill and the General Agreement on Tariffs and Trade (GATT, now the World Trade Organization or WTO) those policies have been steadily pushing an agribusiness-driven agenda in the U.S. Congress, and in the state and national capitals and centers of power around the world. That agenda is one of cheap, low priced raw materials at the farm level. Why would the U.S. promote such a policy? The answer is simple enough. The big multinational agribusiness grain processing companies weighed in with big bucks in Washington, DC to lobby that policy through. And I expect we all know their reasoning was to create an environment whereby the traders, processors, exporters and importers of grains, oilseeds and livestock could capture an even greater amount of the lionís share of the dollars that consumers spend. Some would call it a "cheap food policy." I donít think thatís quite correct. I describe it as a cheap grain or cheap raw material policy because low grain prices paid to farmers donít mean low food prices to consumers. But, that is what current farm and trade policy is all aboutÖcheap grain. Of course, thatís not what farmers were told. They were told, with some farm and commodity groups buying-in and leading the charge on the sales pitch that this farm and trade policy was designed to make them more competitive in the world market so they could export more.

In May of 1985 I was one of a handful of agricultural officials invited to participate in a think tank session in Easton, Maryland on future farm and trade policy, sponsored by USDA. I was the agency director of the Nebraska Wheat Board at the time and was there representing the farmer sector. A Cargill official was there representing the grain trade and pushing the agenda of getting rid of price support loans, grain reserves and any kind of supply management. He used projections and graphs suggesting that the U.S. would see tremendous increases in grain exports if we dramatically lowered our loan rates and grain prices and the value of the U.S. dollar was reduced. Well, price support loan rates, grain market prices and the value of the U.S. dollar were all lowered, but exports went down instead of up and today the U.S. is exporting less than it was in the early 1980s, even though the Congress continues to buy-in to the Cargill and grain trade policy pitch. I predicted at the time that the world would buy less from the U.S. once the low loan rate, anti-inventory management provisions of 1985 farm bill were known in the market. Why did I predict that? Because I knew what world grain buyers knew. They knew that the U.S. loan rate underpinned the boards of trade futures prices and when those new low loan rates kicked in market prices would drop in the U.S. and world prices would follow. So, world buyers sat back and waited to fill their import needs at lower prices and theyíve been buying on a "hand-to-mouth" basis ever since.

So, today U.S. exports are less, commodity prices are lower (except in times of major crop production shortfalls, and based on last weeks USDA supply and demand crop report, low supplies donít even keep prices up anymore) and the farm economy is in worse shape. Needless to say, I opposed that farm policy. Those of us who were truly representing farmers had to then and continue to oppose it today. For those who did their research and kept up with world markets, we knew that the U.S. futures markets set the world grain price and that lower U.S. prices meant lower world prices and that not only hurts U.S. farmers, it hurts farmers all over the world. But the grain traders and processors are still laughing all the way to the bank.

This policy was never about making U.S. farmers "more competitive" in the global market. In any case, with the exception of a very few, unique situations, farmers donít export anything anyway. They sell the raw materials they produce (crops and livestock) at the local or regional levelÖto the grain elevator, processing plant or livestock marketÖthat is if they still have a true market for their livestock. More and more, giant agribusiness conglomerates control the feeding, the packing plants, the distribution and the marketing. Oh, because of their production and supply contracts, they also control the market price. In grains, they even control the seeds through patents and technology use agreements. The agribusiness giants also sit on and control the futures markets. Itís an oligopsony at best and a monopsony at worst and itís not a pretty picture if the future looks like the economic model I just described.

But the future does not have to look like that. We can do things to change and shape the future. We donít have to listen to the big agribusiness giants and their pitchmen and their pitchwomen. Afterall, if the agribusiness "experts" were as good as theyíve pretended to be for the past 25 years, the U.S. would have exported its way to prosperity by now and rural America would be on easy street. Obviously, we have to think twice before believing the policies promoted by that group I jokingly refer to as the "agribusiness brain trust".

Instead, we need to look a different direction for expertise. We need to look to ourselves and we need to look outside of our own borders. I always think about farmer organizations in Europe. I have met a number of their leaders over the years. Most of them never did fall for the bogus agribusiness line about farmers somehow benefiting from low grain prices. In fact, were it not for those European farm groups who had strong backbones in representing their members in the market, in the GATT and in the WTO, U.S. farmers would have had a much worse farm policy much sooner. It was the European Union that held out the longest on the issue of dismantling domestic farm programs. The U.S. policy makers offered to sacrifice our farm sector right up front. Instead of attacking European farmers and farm groups, U.S. farm and commodity groups should finally sharpen up and learn from the Europeans about how to represent yourself and your members. We donít have to take our marching orders from agribusiness. If we do, thereís no future for farmers or the rural economy. Just from my brief contact with CFA it is my impression that the leadership and membership of this organization is more like those strong, stand-up-for-yourself Europeans. We can learn a lot from them about direct marketing, farmers markets and diversified agriculture.

Youíre already on that path here in Kentucky with the CFA and with your farmer-driven county councils. The relatively, new, re-emerging and growing concept of selling locally is a great model because it integrates the farmer so much more directly with the true major player on the demand side of the food economyÖthe consumer. The closer you are to the consumer the better it will be for you in the future. Consumers are more and more sophisticated and want to know more about their foodÖwhoís growing it, how itís grown and what kind of commodity it is. Is it organic, conventional or GMO? Is it grown locally or was it imported and used up a bunch of expensive Middle Eastern oil to power the ocean freight in the shipping process to get here?

So, a local focus is good but you also have to be concerned about larger U.S. policies because global farm and trade policy is also about having your local prices tied to the low world prices that U.S. policies promote and are designed to perpetuate. Ignoring those policies can have serious, potentially negative consequences for your future sustainability because such "global-driven" policies include the ever-present threat that imports will replace your product demand if you donít keep your prices as low as the price of the imports. Just consider what goes on in the U.S. beef industry. In 2002 the U.S. exported about 2.5 billion pounds of beef, but imported 3.3 billion pounds of beef for net imports of nearly 1 billion pounds. Whatís the point of importing all that beef, when the demand can be supplied locally? I say much of what goes on with exports and imports is a commodity shuffling game to keep inventories high and prices to producers low everywhere and all the time. Thatís what NAFTA was all about. Itís promoters wanted no national boundaries so that commodity inventory would put pressure on prices everywhere. So, we shouldnít be asking "Whereís the beef?" We should be asking "Whereís the beef coming from?"

In the case of local markets, where many of you may sell your products, closer connections directly to consumers is an exciting trend and an excellent marketing strategy. We need keep going that direction, building the momentum and cultivating that opportunity. We need to see states continuing to spend and encourage the increasing of their spending on innovative programs like the ones promoted by the Community Farm Alliance here in Kentucky. Whatever sources of available federal and state funds that can be channeled into these local and community-based food systems should be tapped into, aggressively implemented and expanded upon.

Kentucky is a significant grain producing state but youíre the biggest tobacco producing state. In reviewing USDAís Baseline Projections, from February of 2002, I noticed that they say the long term trend shows a reduction in tobacco leaf use over the next decade. That report also says that tobacco quotas will fall and that "imports are expected to increase annually after a period of stability. Export markets for both flue-cured and for burley are expected to tighten as quality and competitiveness of foreign-produced tobacco gains and global cigarette consumption falls." Thatís a quote right out of the USDA report of one year ago. And I expect that has implications for the agricultural economy of Kentucky. I know very little about tobacco production, but itís obvious that tobacco producing states must work to diversify their farm economies and that some of the tobacco settlement money is being used for that purpose. I donít know much about how that works but I do know that even Nebraska got some of that settlement money. I would urge Kentuckyís agricultural and political leaders to follow the CFA model and really target the farm sector with more of those funds and to devote big bucks to community-based food systems that promote sustainability. That is the future and those concepts are the way to really bring the food economy home.

There are also other ways to promote sustainability in the rural economy. A new and exciting initiative launched by the American Corn Growers Foundation and the American Corn Growers Association is our Wealth From The Wind program. Itís designed to diversify farm income streams by informing and educating farmers about the potential of either leasing part of their land to wind energy project developers, becoming part of farmer-owned wind power cooperatives or even installing small wind electric systems on their farms to help meet their on-farm electrical needs. Wind power wonít work everywhere and it wonít work for all farmers. Obviously, there has to be an adequate wind resource for it to work. For the larger projects there are connectivity and transmission concerns but weíre working on all those issues in Washington. Already, in Texas, Minnesota and many other states, wind energy is on the front burner. The Nebraska Public Power District just announced last week that it is studying a project to increase the energy it gets from wind power by as much as thirty three times. The ACGF and ACGA work with the Wind Powering America program of the U.S. Department of Energy, with support from the W.K. Kellogg Foundation, the Energy Foundation, the Homeland Foundation, Whole Systems Foundation, the South Dakota Corn Utilization Council, the Greenville Foundation and the U.S. Department of Energy/National Renewable Energy Laboratory, and with numerous farm, environmental and energy groups to be sure that farmers and the rural economy promote and benefit from wind power. We just recently announced the formation of the American Agricultural Wind Coalition to push a positive wind and renewable energy policy. I brought along two brochures to make available to you. One is our Wealth from the Wind brochure and another is Small Wind Electric Systems, A U.S. Consumersí Guide provided for distribution here today by the U.S. Department of Energy Wind Powering America program in Washington, DC. If you look at the center of the booklet you will see a United States Wind Resource Map. It shows that eastern Kentucky is in wind power class 2, with some areas in the far south eastern corner in class 3, so there could be some potential for wind power development. I encourage you to pick one up and work with us to get the word out on the positive future of wind power. We donít need to be importing all that foreign oil when we can harvest a lot of our energy needs right here at home. One renewable answer is truly blowing in the wind. Part of answer is in ethanol produced from corn and bio-diesel produced from soybeans. One place the answer is not is in low grain prices. We need leaders like CFA in agriculture that are willing to turn farm policy around and head it in the right direction. The American Corn Growers Association is working to that end and Iím part of a new commodity organization that was just formed in 2002. Itís the Soybean Producers of America (SPA) and youíll be hearing more about it. Like many of those European farm groups I referred to earlier, SPA will be standing up for farmers and working for higher soybean prices and sustainable economic policies that work for rural America.

One final point about exports to leave with you. Itís China as a market and a kind of poster child for how U.S. farmers are misled and how that misinformation is used to push current policies. It relates directly to corn, the largest produced crop in the U.S. Many U.S. farm groups fell all over each other a few years ago promoting PNTR for China and then Chinaís entry into the WTO, telling U.S. farmers how much corn we would be exporting to China by now. Instead, China is forecast to again export 10 million metric tons of corn this year in direct competition with the U.S. China is capturing many of our foreign customers, not just because the U.S. is having problems with GMO corn varieties but also because U.S. federal and state tax dollars helped transfer U.S. production technology to China just as it did to Brazil, which is now our major competitor for world soybean markets. The big feed and grain processors also use South American soybeans and soybean meal imports into the U.S. as a way to hold U.S. soybean prices down here. These are examples of how our food economy here at home is impacted by the U.S. global farm and trade policy agenda. Indeed, export promises have neither materialized in quantity promised nor in the increased commodity prices farmers were told to expect. Lets keep going after the export market but lets not hang our hopes on it. In closing on a very positive note, I want to emphasize that the growth in demand has been right here in the domestic U.S. market for many years. Lets look to our domestic market for the answers. Lets grow that market. Thank you. It was a pleasure being here.