What Are Commodity Crops and Why Do They Matter?

by Lois Braun

Commodity crops are any crops that are traded. Generally they are relatively nonperishable, storable, transportable, and undifferentiated: one corn kernel looks like any other corn kernel. But in our national discussion about food and agriculture policy, “commodity crop” refers to those that are regulated by federal programs under the commodity title of the U.S. Farm Bill. There have been 20 of them (listed in the box below), but the major five (in bold) that take the lion’s share of taxpayer money are cotton, wheat, corn, soybeans, and rice.

The Farm Commodity Program got its start in the 1930s, as part of FDR’s New Deal. At that time most North Americans lived on farms and most farmers were poor. Because there was no price floor, when prices of farm crops fell below the cost of production, farmers could lose everything.

To help farmers, the federal government sought to prop up prices by controlling supply, which was done by storing surpluses to take them off the market. This meant that program crops had to be crops that could be stored, as reflected in the list above. That is why things like tomatoes and apples weren’t included.

Also, in the 1930s most people had home gardens where they grew things like tomatoes and apples, so excluding fruits and vegetables helped focus the government’s largesse on a segment of society that was more likely to be impoverished: cash farmers.

The government also sought to design a program that would help farmers nationwide, which explains the diversity of crops on the list: no matter where your farm was located, in the 1930s you probably grew one of those crops.

Over the years, the list has remained relatively the same because of political forces that resist change. An exception is tobacco, which was discontinued in 2003 to help the nation “kick the habit,” though programs to help tobacco farmers transition to other crops continue.

How price supports work

There are three mechanisms by which the government can establish fair prices for farmers: 1) Control supply, because when supply goes down, price goes up; 2) establish and enforce a fair price in the marketplace; or 3) simply pay farmers the difference between the current price and a target fair price (so-called “counter-cyclical payments”). All commodity programs do one or more of these things.

When initially set up in the 1930s, the farm program took the first approach, controlling supply by requiring participating farmers to take land out of production, the so-called “land banks” or “set-asides." Participating farmers were also required to use good conservation practices as a
condition for their participation.

The government also purchased and stored agricultural products in years of surplus, to take them off the market and drive prices higher, and put them back on the market in years of deficit. Food assistance programs, such as food stamps and foreign food aid, arose as methods to dispose of this surplus. (Criticisms of this are that it creates food dependency in this country and undercuts Third World farmers.)

Industrial ag gets involved

Large industrial agriculture interests never liked the fact that prices were controlled by government intervention. They wanted farmers to grow large quantities of the products they sell and move around the world, cheaply, so they pushed for the elimination of “set-asides.”

They got their way in the early 1970s under President Nixon’s Secretary of Agriculture, Earl Butz, who urged farmers to plant crops like corn “fencerow to fencerow” with the mantra “get big or get out.” This and other policy shifts under Secretary Butz ushered in the rise of corporate agriculture and a decline in the financial stability of the small family farm.

Jump forward to 1996, when the World Trade Organization (WTO) complained that our system of supply control was contrary to their free trade rules, and when farmers (including sustainable agriculture advocates for more crop diversity) complained that the system locked them in, by forcing them to grow only those crops for which they had “base acreage” (a history of growing a given crop on a given number of acres).

Politics and the Farm Bill

So the 1996 Farm Bill, dubbed “Freedom to Farm,” decoupled farm payments from the crops produced and eliminated set-asides, as part of a plan to phase out subsidies entirely by 2001. The result was overproduction and a 40% fall in prices. Commodity crop farmers called “Uncle!” and Congress bailed them out to the tune of $20 billion, largely in the form of counter-cyclical payments (the difference between market price and a target fair price) and direct payments (based on land base but decoupled from actual production).

The 2002 and 2008 Farm Bills locked in this system, the cost of which is shouldered primarily by taxpayers, in contrast to the supply control systems it replaced, in which the cost was borne by the market. And that is the system we have today, as Congress starts to draft the 2012 Farm Bill.

What's wrong with the system

There are many problems with this system, because subsidies are inherently market-distorting.

1) Because direct payments are tied to the land and not to production, they are often bid into land values, to the benefit of landowner, who are often absentee city dwellers, not farmers. High land prices are the primary reason it is so difficult for beginning farmers to get started.

2) They incentivize farmers to grow subsidized crops to the exclusion of non-subsidized crops, such as pasture, hay, vegetables, fruit, and nuts. That is why the Midwestern landscape is dominated by corn and soybeans, making it vulnerable to soil erosion, water contamination, and the pest problems that result from lack of diversity. Because payments are tied to volume, farmers overproduce, seeking top yields by over-application of fertilizer, pesticides, and tillage.

3) Overproduction keeps prices low for commodity traders and food processors, who are their real beneficiaries. For example, subsidies result in below-production-cost prices for feed grains, which gives confinement animal factories an advantage over more environmentally sound grass-based animal production systems. Subsidies also make products derived from corn, soybeans, and wheat exceedingly cheap, leading to their overuse in our food system, in things such as corn syrup and cooking oil, which may be a contributing factor to our obesity epidemic. Cheap commodity crops are also dumped on the world market as food aid. Although famine relief sounds altruistic, in reality, unless carefully administered, it undercuts farmers in the recipient countries, fostering continued dependency on food aid.

4) By practically guaranteeing a profit—or at least making agriculture less risky, subsidies make
agriculture attractive to investors, who drive up land prices, as well as the prices of agricultural inputs. Thus subsidies do not really help family farmers, who are still being squeezed between their suppliers and their buyers and who are still being driven out of business, to be replaced by industrial agriculture interests, which care little for the land or the people who work it.

5) The system is costly to taxpayers, who pay directly for the subsidies, and indirectly for cleaning up the harm done, both to the agricultural landscape, such as soil erosion and water contamination, and to our people’s health, such as in diabetes and heart disease.

A better way?

A valid case can be made for subsidizing agriculture, because of its importance to society and because it is an inherently risky enterprise. However, it would make more sense to use subsidies to support agricultural conservation, rather than production; production should rightly be rewarded in the marketplace, whereas conservation is not. Conservation subsidies would pay farmers for activities that benefit society beyond their fence lines. Because conservation practices require care and attention, such subsidies would be harder for large conglomerates to exploit. They can also give a leg up to young and beginning farmers, or help start new community-based local food distribution systems, such as Farm-to-School programs or farmers’ markets.

The next Farm Bill is up for renewal in 2012. Let’s work to reform it so that it better supports an agricultural system that is good for the land, the people who work it, and the people fed by it.

[Lois Braun works at the University of Minnesota in sustainable agriculture research, developing hybrid hazelnuts, a native perennial, as a new crop for the Upper Midwest.]

Resources

Congressional debate about the 2012 Farm Bill so far seems to be occurring in committee rooms behind closed doors. Thus the organizations that campaigned to reform the 2008 Farm Bill are just beginning to update their Web sites. Here are a few to watch:

1. Oxfam America, a hunger relief organization, works to change how U.S. Farm Policy undercuts the self-sufficiency of farmers in the less-developed world: http://politicsofpoverty.oxfamamerica.org/index.php/tag/farm-bill/

2. Land Stewardship Project is a major advocate for small family farmers and sustainable agriculture: www.landstewardshipproject.org/programs_federal_policy.html

3. Minneapolis-based Institute for Agriculture and Trade Policy posted eight bulletins about the 2007 Farm Bill (which turned out to be the 2008 Farm Bill) on their Web site. Entitled “A Fair Farm Bill for…, the bulletins provide an overview of the status quo and proposed reforms. Although a few of the reforms were included in the 2008 bill, not nearly enough were, so the bulletins, though dated, are still very relevant: www. iatp.org/issue/agriculture/farm-bill

4. A Non-Wonk Guide to Commodity Programs. Scott Marlowe, Rural Advancement Foundation
International
, 2005: www.rafi usa.org/pubs/nonwonkguide

5. Farm Subsidy Database by the Environmental Working Group. Find out where some recipients of commodity payments live (cities) and other interesting farm subsidy statistics. The data are somewhat raw, making them difficult to interpret. For example, information broken out by crop is confusing, because some crops have multiple programs. http://farm.ewg.org

6. New York Times opinion pages: www.nytimes.com/roomfordebate/2012/02/21/the-farm-bill-beyond-the-farm



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