The Ideological and Institutional Foundations of Modern Agriculture Part II

1
The Ideological and Institutional Foundations of
Modern Agriculture Part II

• Ecological Agriculture Program
• October 21, 2003
• Chad Kruger

2
Introduction

• The federal government has played an integral
  role in the development of US agriculture.
• In the Jefferson vs. Hamilton/Madison debate we
  learn that there are opposing reasons for
  government involvement in agriculture 1) that
  farming cultivates a character quality
  beneficial to civic democracy or 2) that
  agricultural development is a means to an end of
  industrial and commercial development.
• During and after the Civil War, the government
  attempts to redirect the vision of the country
  from the civil conflict to westward expansion,
  opportunity and growth. A number of key
  institutions are established in the midst of
  the civil conflict to promote the ideological
  values and physical pioneering and colonization
  of the west.

3
Introduction

• In this lecture we are going to discuss the
  continued and expanded partnership (or
  marriage) between government and private
  interests in the development of agriculture in
  the US.
• Three key events or sets of events have laid
  the groundwork for the interlocked relationship
  between the Federal government and the
  agricultural sector today
• The Great Depression and the New Deal
• World War II - increased industrial capacity and
  new world role of the US.
• 80s farm crisis and the neo-liberal economic
  revolution

4
The New Deal Causes of the Great Depression

• Stock Market Crash
• Commoners were investing in the stock market for
  the very first time.
• This is the first public heyday of stock
  market investing in our countries history. The
  country (and world) was recovering from WWI.
  Electricity had reached most urban consumers, and
  the market for electric goods (radios, washing
  machines, etc.) was strong, as was the market for
  the automobile (GM had introduced pay as you
  drive financing that made car ownership
  possible).
• Conditions of market were exacerbated because
  stocks could be purchased on the margin.
• (ie. one could purchase stock on percentage
  10 of the value, using that 10 as collateral
  for the purchase of the rest of the stock on
  credit.) When the stock would rise, you would
  cash out and pay the remainder of the credit from
  the sale. This works as long as the value of the
  stock rises.

5
The New Deal Causes of the Great Depression

• Financial Panic
• On October 29, 1929 (after of week of crashes
  and recoveries), traders/bankers started calling
  in the margins on investors (requiring investors
  to pay for the losses of their stocks in cash)
• created a selling fever and ultimately the
  stock market crash.
• Financial panic created a deflationary spiral
  .
• of extreme consequence is the fact that
  ordinary people, for the first time, were largely
  involved in capital investment consumer
  confidence was shattered, demand for products
  dropped, retailers had to move inventory at heavy
  losses, industry suffered heavy losses in
  production and had to lay off laborers, deflation
  hurt debtors by increasing the real costs of
  debt, banks couldnt collect and there was no
  value in foreclosing on assets, banks collapsed
  taking good solvent people down with them.

6
The New Deal Causes of the Great Depression

• Agriculture
• We know that farmers were already dealing with
  difficult times in the 20s due to price
  corrections following WWI. Many had large debt
  burdens from purchasing land, which were
  exacerbated by expenses incurred in technology
  adoption (tractors and machinery became widely
  available in the 20s). Many of the Ag of the
  Middle farms/farmers had been squeezed out.
• The crash of the stock market exacerbated the
  situation for farmers as well. Demand for food
  and fiber dropped (how can demand for food drop?)
  Southern cotton prices dropped as demand for new
  clothes dropped. Demand for higher value
  agricultural products (meats, etc.) dropped
  considerably. Meatless meatballs example.
  Meats, dairy, fruits and veggies drop. Export
  markets drop.

7
The New Deal Causes of the Great Depression

• Agriculture
• Further exacerbating the situation was the
  inability of farmers to control supply. We will
  look at this problem in greater depth with a lab
  on the corn model later in the semester.
  Essentially, the problem with supply control in
  agriculture is that there are too many
  independent decision-makers in the sector. If
  demand for automobiles drops, the Big Three can
  stop producing by shutting factories down and
  laying of labor thereby curbing losses. If
  demand for food (and thus prices of commodities)
  drops, each farmer then has an individual
  incentive to produce more to cover the difference
  in price further exacerbating supply of crops
  and reducing prices.

8
The New Deal Causes of the Great Depression

• Dustbowl
• Phenomenon of drought and wind erosion in the
  Great Plains. Unfit cultivation practices
  combined with extended drought and heavy winds
  caused highly erodable soils to be caught up in
  the atmosphere. Described as dust blizzards
  with dust settling as far east as Boston and on
  ships in the Atlantic.
• Thousands of people migrated from the region
  and depended on the government for help in
  restarting. The Okies characterized by John
  Steinbeck in the Grapes of Wrath were the icon
  greatly troubling American society to see
  American refugees. (Whidbey cutover farmers)

9
The New Deal Impacts of the Great Depression

• Impacts of the Great Depression on agriculture
• - Reverse migration Many of the more recent
  immigrants to urban areas (WWI veterans and
  industrial workers) still had close ties to
  family farms and were able to return and work on
  farms for subsistence needs.
• - Advantage of agriculture Live at home
  campaign. The great advantage of being a farmer
  is that you can grow your own food and provide
  for much of your basic needs yourself.
• - Foreclosures in the midst of the downward
  financial spiral, land values fell, reducing
  asset wealth in addition to reduced profits from
  market agriculture. With reduced land values,
  banks do not want to foreclose on farms (because
  it costs the banks money, too) and many rural
  banks folded and took solvent accounts with them.

10
The New Deal The Government Responds

• Hoover
• Hoover was an economic conservative who operated
  with a laissez faire approach to economics.
  Government involvement in expensive programs to
  stabilize agriculture were thought to be
  unnecessary and potentially problematic (ie.
  guaranteeing farmers a price that would recover
  the cost of production would be expensive and
  would encourage inefficient and increased
  production when there was already a problem of
  moving commodities).
• The Hoover administration settled on an economic
  delay mechanism targeted at stabilizing prices
  The Federal Farm Board would purchase commodities
  on the open market when prices were low and then
  hold them and sell when prices were
  sufficiently high in an effort to create price
  equilibrium. Without supply control this works
  effectively as a subsidy creating inefficient
  and surplus production.

11
The New Deal The Government Responds

• Hoover
• - Promoted the idea of cooperation as the key to
  agricultural survival and recovery. Aaron Sapiro
  led cooperative efforts attempts to control
  the market usually were not successful. Farmer
  incentives never fully lined up with cooperative
  interests corporations could break cooperative
  efforts by offering a better price or quality of
  service at key times.

12
The New Deal The Government Responds

• Other crop holding efforts
• The Governor of Louisiana tried to garner support
  for taking a one-year holiday from cotton
  production.
• The Governor of North Dakota attempted to create
  a wheat export embargo for ND wheat
  (unconstitutional).
• Farmers in Iowa created the Farmers Holiday
  movement and lobbied for a farm strike on August
  15, 1932 to raise prices. Farmers attempted to
  block markets and foreclosures.
• The Communist Party tried to unionize farmers in
  the United Farmers League.

13
The New Deal The Government Responds

• The problem with all of these actions is
  two-fold
• 1) without legitimate, system-wide solidarity the
  action wont work and there are simply too many
  incentives for individuals to act against the
  interest of the group (need to pay mortgages or
  lose farms) and
• 2) there is a moral objection to using food as a
  bargaining tool especially in the midst of
  widespread poverty and starvation.

14
The New Deal FDR

• Key New Deal personalities
• Franklin Delano Roosevelt - President, raised on
  a farm, wide political constituency, experimenter
• Henry Wallace Secretary of Agriculture,
  geneticist, agrarian fundamentalist
• George Peek McNary-Haugenism approach (price
  supports and acreage reduction for commodities).

15
The New Deal FDR

• Programs
• - Farm Credit Administration (FCA), May 1933.
  Bought out farm mortgages from private lending
  institutions at discount, refinanced with farmers
  over longer periods at lower interest rates
• - Land Bank, Production Credit Association, Bank
  of Cooperatives all farmer-owned enterprises
  that received capital from the FCA.
• - Agricultural Adjustment Act, May 1933.
  Agricultural Adjustment Administration (AAA).
  Acreage-limiting legislation. Seven commodities
  corn, cotton, hogs, milk, rice, tobacco, wheat
  voluntary acreage limitation in return for a
  subsidy (price support based on parity). Barley,
  beet and cane sugar, cattle, flax, peanuts,
  potatoes, rye and sorghum added later.

16
The New Deal FDR

• Programs
• - Commodity Credit Corporation (CCC), October
  1933. Loans at 60-70 of parity to farmers who
  limited production to hold a crop until the
  market price moved high enough that the farmer
  could sell for a profit if the price didnt
  rise in the period of the loan, the CCC would
  seize the farmers crop in repayment for the
  loan.
• - Soil Conservation and Domestic Allotment Act.
  Acreage limitation on the basis of erodibility
  rents paid out of general program funds this
  Act was created because Supreme Court ruled that
  the AAA of 1933 was unconstitutional regulation
  of ag production beyond the power of Congress.
• - Agricultural Adjustment Act, 1938. Acreage
  limitations and crop loans through the CCC.

17
The New Deal FDR

• Programs
• Federal Emergency Relief Administration (FEMA),
  Civilian Conservation Corps, Civil Works
  Administration, Works Progress Administration
  mostly consisted of work-relief programs
  payment for labor.
• - Resettlement Administration (1935)
  Subsistence homesteading schemes (Dust Bowl
  refugees)
• - Farm Security Administration, 1937. Helped
  Farmers Union aquire facilitities to create
  substantial cooperatives.

18
The New Deal FDR

• Programs
• - Tennessee Valley Authority (TVA), 1933.
  Hydroelectric dams to provide comprehensive
  development in seven southern states land
  reclamation, fertilizer production, electricity.
• - Rural Electrification Administration (REA), May
  1935. Long-term, low-interest financing to
  farmers to wire homes and to establish rural
  electric cooperatives.

19
The New Deal FDR

• Programs
• - Soil Conservation Service (SCS, now NRCS) in
  response to the Dust Bowl. Advocated new and
  different cultivation and cropping technologies
  and systems to curb erosion. Established local
  soil-conservation districts as an extension
  type of model. Example Coulee Region Farm
  Planning Project Aldo Leopold and others.
• - USFS Shelterbelt Program. 220 million trees
  planted in the Great Plains to serve as
  windbreaks and erosion control.
• - Taylor Grazing Act, 1934. Removed much of the
  remaining Great Plains from public domain and
  placed into Federal reserves in the BLM as
  grazing land.

20
The New Deal FDR
Programs - Most prominent project in
Washington State the Grand Coulee Dam and
complementing Columbia Basin Federal Land
Reclamation Project. Considered to be either the
largest or second largest public subsidy of
agriculture in the history of the world --- the
greatest beneficiaries are McDonalds and other
fast food chains the French Fry.
21
The New Deal Impacts, successes and failures
Impacts - New Deal programs focused primarily
on building infrastructure and institutional
support for commercial, market agriculture. -
Subsistence or welfare programs were poorly
administrated and financed and were NOT the
ultimate objectives of the New Deal. -
Questionable how much of the recovery from the
Great Depression is based upon the success of New
Deal programs and how much is based upon World
War II and other normal reasons for recovery.
22
The New Deal Impacts, successes and failures
Impacts - Unquestionably set the stage for a
marriage between government and commercial
agriculture unparalleled by any other sector in
our economy outside of the military. - New Deal
programs and initiatives were intended to be
short-term, recovery based projects. It is no
longer possible for the government to withdraw
itself from the agricultural sector without
severe, and probably, devastatingly destabilizing
consequences for our agriculture and food system.
23
World War II America goes all out for war

• Impacts of the Great Depression on War Effort
• National economic crisis felt at every social
  level
• Intricate involvement of the government in every
  aspect of life the government became they
• War boom fueled economic recovery from the
  Depression

24
World War II America goes all out for war

• Neutral, but allied
• Anti-Hitler / German aggression sentiment (Moral
  objective of WWII)
• Trade and financial support for England and
  France
• Pearl Harbor attack on US soil galvanizes
  Americans behind war objective

25
World War II America goes all out for war

• Consumption restrictions and benefits for
  farmers
• War Manpower Commission farm laborers exempted
  from draft
• Petroleum and tire rations farmers get special
  allocations
• Use of Cooperative Extension for running local
  County War Boards gave the Farm Bureau
  substantial influence over County War Boards
• New Deal subsidy programs became politically
  invulnerable temporary suspension of acreage
  restrictions.
• Price increases for commodities

26
World War II Factors of Production

• 1940, 1 farmer fed 10 people. Late 80s, 1 farmer
  fed 90 people.
• Increased structural capacity from tanks to
  tractors
• Technology Change
• - Improved Crop/Animal varieties, Land Grant /
  Extension researchers
• - Mechanization
• - Petroleum based agrochemicals
• - Anhydrous ammonia

27
World War II Factors of Production

• Human transitions 1940 23 of nation on
  farms. 2000 less than 2.
• rural to urban migration
• casualties of war
• the baby boom
• demographic changes increased average age of
  farmers
• role of women changed dramatically business
  managers, off-farm employment

28
World War II The Rise of Communism
Truman Doctrine - On Dec. 31, 1946, President
Truman declared an end to the period of World War
II hostilities. Early in 1947 the British said
they could not support the Greek government after
March 31. Many diplomats feared that the Soviet
Union would then spread its power throughout the
Middle East. President Truman met the problem by
asking Congress for 400 million dollars to aid
Greece and Turkey. Congress appropriated the
money. This policy of aid, popularly known as the
Truman Doctrine, was an American challenge to
Soviet ambitions throughout the world.
29
World War II The Rise of Communism

• Marshall Plan
• the Marshall Plan was a rational effort by the
  United States aimed at reducing the hunger,
  homelessness, sickness, unemployment, and
  political restlessness of the 270 million people
  in sixteen nations in West Europe. Marshall Plan
  funds were not mainly directed toward feeding
  individuals or building individual houses,
  schools, or factories, but at strengthening the
  economic superstructure (particularly the
  iron-steel and power industries). "European
  Recovery Program"--aimed at
• increasing production
• (2) expanding European foreign trade
• (3) facilitating European economic cooperation
  and integration
• (4) controlling inflation, which was the
  program's chief failure.

30
World War II The Rise of Communism

• McCarthyism
• Theres a communist under every bush Severe
  impact on the ideological position of farmers in
  rural America
• McCarthy sentiment STILL HAS A STRONGHOLD IN
  RURAL COMMUNITIES TODAY AND IS THE PRIMARY
  REASON THAT RURAL COMMUNTIES AND FARMERS HAVE A
  DISSONANCE TO UNIONIZING AND POLITICAL ACTION

31
Fiscal Conservatism

• 80s Farm Crisis
• 1971 Nixon changes fiscal policy allows dollar
  to float increased demand for US exports
• USSR agrees to purchase US wheat, other foreign
  countries began to buy US wheat
• 1972 1974 wheat and corn prices doubled and
  tripled respectively, acreage restrictions
  suspended
• Massive expansion in cultivation, capital
  expenditure for land, machinery and facilities
  financed largely with high-interest credit.

32
Fiscal Conservatism

• 80s Farm Crisis
• Rapidly rising land prices --- rapidly
  increasing asset wealth and collateral for loans.
• Bankers / Farmers Home Administration would
  only lend to big farmers --- or to farmers
  attempting to get big.
• Livestock dumping concentration on grain
  production decreased diversity
• 1979 Federal Reserve raised interest rates
  borrowing became more expensive, reduced
  inflation (relation of inflation to debt), raised
  the value of the dollar (reducing export demand
  for American grain)

33
Fiscal Conservatism

• 80s Farm Crisis
• 1980 Carter administration instituted grain
  embargo to USSR in protest of Afghanistan
  invasion.
• 1981 Reagan tax cut higher interest rates
• Rapidly declining farm prices 1979 (71 of
  parity) to 1986 (51 of parity) lower prices
  relative to the Depression
• Financial crisis farmers were unable to
  service debts

34
Fiscal Conservatism

• 80s Farm Crisis
• American Agriculture Movement (AAM). Discussed
  massive agricultural strike (but no indebted
  farmer could afford not to plant lose their
  farms) staged 2 tractor protests in Washington
  D.C. 1st was marginally successful, 2nd became a
  more obstructive protest and backfired.
• More than 300,000 farms (roughly 17 of farms)
  were lost between 1981 and 1990.
• The 1985 Farm Bill re-introduced acreage
  limitations through Payment-in-Kind programs
  and the Conservation Reserve Program.

35
Fiscal Conservatism

• Bayh Dole Act
• 1980 enactment of P.L. 96-517, The Patent and
  Trademark Law Amendments Act, more commonly known
  as the Bayh-Dole Act, and amendments included in
  P.L. 98-620, enacted into law in 1984.
• This is known as a technology transfer act
  the purpose of which is to help move research in
  the university system to the private sector for
  the development of products, processes, etc. that
  will bring benefit to the public
• In the 1960s and 70s the federal government
  had invested substantial amounts of tax revenue
  into research that should benefit the public. The
  Federal government held over 28,000 patents in
  1980 but fewer than 5 of those patents had
  accompanying use licenses by private sector
  businesses.
• The Federal government interpreted this as
  evidence that tax funded research in public
  institutions was not be efficiently used to
  provide public goods.

36
Fiscal Conservatism

• Bayh Dole Act
• The problem was believed to be a tenure problem
  (though not with real property with
  intellectual property). If a private company did
  not have the exclusive ownership of an idea it
  was expected that the company would not be
  willing to risk investing in developing products
  no guarantee of limited competition, etc.
• The Bayh-Dole act enabled public institutions to
  share patents (or at least get exclusive
  licenses to develop products) with private
  companies. The expectation was that this would
  increase the potential of publicly funded
  research to be processed into products and goods
  for the public.

37
Fiscal Conservatism

• Bayh Dole Act
• The Federal government sponsors approximately
  60 of the research of public universities and
  research institutions. Private industry now
  supports between 6 -7 of public university
  research.
• So whats the problem? In an era of decreasing
  tax revenues (tax cuts, no new taxes), this seems
  to be a new source of revenue for public research
  institutions.
• The problem is also a tenure problem. Private
  institutions will not invest in research in
  public institutions without a substantial
  guarantee that they will recoup and profit from
  investments. The 6-7 of private revenue is
  leveraging the 60 of federal revenue (in
  addition to state and foundation revenue) toward
  private research interests rather than public
  interests.

38
Fiscal Conservatism

• Freedom to Farm Act
• High crop prices in 1995 and 1996, along with a
  philosophical opposition to subsidizing
  agriculture and the interest in reducing taxes
  created a fever in Congress to undo the New
  Deal based commodity support programs that had
  been in use for 60 years.
• Congress passed a phase out package in 1996
  (known as the Freedom to Farm Act or the 1996
  Agriculture Appropriations Bill Farm Bill) that
  intended to phase out subsidies over the course
  of 7 years.

39
Fiscal Conservatism

• Freedom to Farm Act
• Between 1997 and 2000 depressed commodity prices
  had effectively ended the effort to phase out
  subsidies and in the first 4 years of the program
  subsidies were three times the amount that
  Congress had authorized in the Freedom to Farm
  Act.
• The most concentrated attempt to liberate
  agriculture from government intervention was a
  miserable failure.

40
Study Questions

• Why has the government been unable to withdraw
  itself from the agricultural sector since the
  Great Depression?
• What are possible alternatives to intellectual
  property rights that could supplement revenues
  for public research institutions, while still
  enabling technology transfer to farmers?
• Subsidies create inefficient markets (ie. they
  encourage overproduction and thus more subsidies)
  and are costly to the public, but are seemingly
  necessary for keeping farmers on the land. How
  can we create a subsidy program that keeps
  farmers on the land (farming sustainably) without
  being socially unacceptable and economically
  inefficient?