A memo: A school assignment

Over the last few weeks, I have been taking a fascinating class at the University of Minnesota in the Public Affairs program, Globalization and the World Food Economy. As part of this class, we had to write a memo to discuss the issues related to agricultural subsidies and how to try to change that system.

I submitted this yesterday to my teacher.

TO: Agriculture Secretary Thomas Vilsack
FROM: Joe Erjavec
DATE: March 13, 2009
RE: President Obama’s Food and Nutrition Policy

President Obama has promised policy changes across a wide range of issues, including entitlement spending. The United States’ farm policy has been an entitlement program for 75 years. The time for change has come. In this memo, I will propose what a new Obama food and nutrition policy should look like, and why it should be shaped that way.

To begin, I think it is appropriate to state the political reality that President Obama faces. Just days ago, Jackie Calmes reported in the New York Times that Senator Kent Conrad of North Dakota has rejected Obama’s call to cut subsidies to large farmers. In 2004, when the World Trade Organization (WTO) ruled against the cotton industry, Conrad said that it had “the potential to have extraordinary consequences up and down every main street in rural America” (Becker).

Of course, it would be ideal if there was not such great support for agricultural subsidies, but I believe that the administration should use this moment to get a comprehensive understanding of the complex set of forces that create, affect, and are affected by farm policy.

At the beginning of the Great Depression, 25% of all Americans lived on farms. As so much of the American economy was dependent on farming, it was good public policy to provide subsidies to those who would have otherwise gone completely bankrupt. (Although the situations are not entirely equivalent, this does seem to parallel the current bailout of the financial sector.)

However, the economic situation for the farming sector of the economy is much different than it was in 1929. The number of people living on farms has shrunk to a mere 2% of the populace. The larger farmers receive a majority of the subsidies for the eight program crops, which amounts to roughly $7-17 billion dollars per year, dependent on existing crop prices. This transfer of wealth is unnecessary and unfair benefit for the recipients. The great majority of food and fiber crops receive absolutely no subsidy.

Additionally, since 1929, the role of globalization in world trade for agriculture has been growing and is an essential characteristic of agriculture. The agreements surrounding trade have become so complex that to leave the system of subsidies in place does little benefit, except for the program recipients. Some of the negative effects of this are:

1. The subsidy stimulates the overproduction of food, which removes most of the opportunity for profit by struggling developing world producers.
2. Diminished reputation of the United States as a trading and negotiating partner.
3. Encouraging the production of food on land, which, for environmental reasons, would be better left untilled.

Some of the benefits that would accrue if we removed the subsidies are:

1. Reduction of tax burden.
2. Producing opportunities for competition for the production of both currently subsidized and non-subsidized crops.
3. Pave the way for including the environmental costs of producing food; stimulating research and adaptation of more ecologically appropriate farming methods. (The Reason Online article by Daniel Griswold, et al., gets into more details.)
4. Stimulation of the production of fresh fruits and vegetables.

In consideration of these points, I recommend that the United States work to remove the subsidies over the next five years. In my analysis, three important factors need to be considered in order to create any successful change.

First, there is plenty of political support for the subsidies. The reason for this is not the subsidies in and of themselves, but for the guaranteed stream of income that is part of the rural economy. A revenue neutral, or even positive, outcome for the recipients could be devised that would not involve subsidies. Payments for environmental services, for example, could provide incentive for farmers to grow crops that require no input of fertilizer, or allow them to grow fallow as a barrier against runoff of fertilizer to rivers. For instance, hypoxia—the removal of oxygen from water--is a huge problem. 8,500 acres at the mouth of the Mississippi River are hypoxic, according to David Perlman.) Note that this strategy would not necessarily provide any tax relief to the average taxpayer, but it would help to reduce the overproduction of crops.

Other types of non-agriculturally related investments in rural America should be considered both to reduce the politically sensitivity of the role of subsidies, but also to assist the bolstering of rural economy and its future, which has not be adequately addressed in recent years.

Second, there is growing demand for a healthier American diet. Research into the aspects of a healthy diet has led to the conclusion that a diet with a substantial percentage of fresh fruits and vegetables is a healthier one. I was impressed with a recent editorial co-written by American chef Alice Waters and Katrina Heron that discussed the National School Lunch Program, “No Lunch Left Behind.” She decries the lack of healthy food that is available as part of the lunch program. Many of the items currently available are “high-fat, low-grade meats and chesses and processed foods like chicken nuggets and pizza.” This is not the kind of food that I think the President visualizes as the centerpiece of a nationwide nutrition policy.

With that stated, the third important consideration is the increasing importance of a delivery method for the growing demand for fruits, vegetables, and other agricultural products. As I am certain the President and his administration is aware, many fruits and vegetables, as well as meats, are already being delivered through community supported agriculture, or CSA. According to the USDA’s National Agriculture Laboratory Website, there are currently 400 CSAs located “near urban centers in New England, the Mid-Atlantic states, and the Great Lakes region, with growing numbers in other areas, including the West Coast.” The financial incentive for farmers participating in a CSA is a reliable community of consumers, who provide a higher price for their products through a subscription, or share, of the output of that farm. The farmers provide a regular delivery of the food grown on the farm.

In conclusion, it has taken seventy five years for United States farm policy to reach its current state. The political power of those who benefit directly from its subsidies are quite entrenched. A quantum change is not likely to be successful in the face of this. What is necessary is taking a long-term strategic look at the shape of the American diet, the markets, and the state of rural American. If the President and his administration state their vision clearly and impassionedly to the legislators and voters of those states most likely to be affected by any change, I believe they will be agree to this vision of the future.

That is not to say that the President will not face further resistance to these ideas; he undoubtedly will. But as the President is a pragmatist, I believe he will be able to communicate why this will work and why it has to work. Rural America is in need of innovations to keep their communities and economies vibrant, and I believe that they have their own best interests at mind and at heart.

Thank you for your time and consideration on these matters, Secretary Vilsack.

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Becker. Elizabeth. "Lawmakers Voice Doom and Gloom On W.T.O. Ruling," New York Times 28 Apr 2004. 11 Mar 2009

Calmes. Jackie. "Obama's Budget Faces Test Among Party Barons," New York Times 09 Mar 2009. 11 Mar 2009

"Defining Community Supported Agriculture." 10 Dec 2008. USDA. 13 Mar 2009 .

Griswold, Daniel, Steven Slivinski, and Christopher Preble. "Six Reasons to Kill Farm Subsidies and Trade Barriers: A no-nonsense reform strategy" Reason Online 01 Feb 2006. 11 Mar 2009.

Perlman. David. "Scientists alarmed by ocean dead-zone growth," San Francisco Chronicle 15 Aug 2008. 11 Mar 2009

Waters. Alice. "No Lunch Left Behind," New York Times 20 Feb 2009. 11 Mar 2009