The blame frame, part 2: Who wins, and who whines, when corn prices rise

In my last post, I took a lengthy look at the role that farmers play in the livestock production system. In case you didn't make it that far, here's my conclusion: In their role as feed-growers and animal-raisers, farmers are an important but virtually powerless piece of the system. Wedged between big companies selling them inputs (Cargill, Monsanto) and big companies buying their products (Cargill, Tyson), they're left with very little wiggle room. In this day and age, the major work of getting an animal from birth to barbecue is conducted by corporate entities who, if they're feeling generous, might contract with farmers for labor. The farmers aren't even allowed to discuss with a lawyer the terms of the production contracts they sign, for pete's sake.

And yet these are the farmers who, we are told, are behind the wheel of our farm policy van as it hurtles toward the next subsidy-bloated, CAFO-ridden, ethanol-jacked rest stop. Big Farma, that wealthy and powerful bloc of Midwestern commodity growers, is holding our food system hostage at cornpoint.

But is it really?

Ethanol — or more specifically, the high corn prices that ethanol demand has brought with it — is my case study of choice for today. The substance has gathered considerable support from policymakers over the years in the form of tax breaks, a tariff on imports from Brazil, and production mandates (another one of which was just passed by the House in the energy bill). This support, we are told, is payback for a successful farm power play: as the New York Times explained when the tax break was first passed, "In the political battle between oil and agriculture, the farmers won through sheer numbers."

That's right — Big Farma blocked Big Oil from the trough.

You have got to be kidding me.

Now this year, in an ironic twist, farmers are being blamed for depriving us of food. More and more voices have joined the chorus warning of imminent disaster, particularly for poor consumers, if we don't do something about ethanol and its terrible effect on food prices. The root of our problem? Big Farma, hard at work lobbying again, driving up that ethanol demand and food prices along with it.

Let's unpack that a bit.

The bacon robbers

One vocal participant in the food vs. fuel debate has been the meat industry, user of some 80% of the corn produced in the United States. To wit:

[Policymakers must] carefully consider the negative and unintended consequences of over-using grains for fuel. Companies will be forced to pass along rising costs to their customers, meaning consumers will pay significantly more for food. If left unaddressed, the bigger long-term issue will be the availability of U.S. and global grain for protein and other foods.
— Richard Bond, president and CEO, Tyson Foods

Bond is not speaking out of selfishness, oh no; he's kept up at night worrying about the stomachs of the poor. Yes, according to Tyson, consumers are the biggest victims of the ethanol boom that sent corn prices above $3 a bushel, up from $1.90/bu in 2005.

The logic goes like this: corn prices rise and farmers start raking it in. Livestock producers and corn processors have to pay more for their main input. These companies are forced to pass that price increase along to the consumer, not because they're greedy but just 'cause that's how the market works, so we all pay more to feed ourselves. It is particularly harmful to the poor, who already spend a large share of their income on food. In sum, high corn prices = human misery. Farmers get rich while the rest of us suffer.

Aside from the final hyperbole, the argument kind of makes sense — but its logic is deceptive. Here's why we should beware the Tyson frame:

  • Food prices are not rising as fast as Mr. Bond would have us believe. Obviously prices will differ from one region to another; but on average, according to the Economic Research Service of the USDA, food prices are projected to rise in 2007 by about 4%, only slightly more than they did in 2004 when corn prices were at near-record lows. Retail egg prices seem to be rising quickly, and dairy is slightly higher than in years past, but meat, poultry and fish prices are rising at exactly the same rate as fruit and vegetable prices. That's interesting.
  • Corn farmers are not doing as well as the Big Farma media coverage would have us believe. Higher fuel and fertilizer costs kicked in right around the time that corn prices started to rise; as a result, according to data from the USDA, the cost of producing corn is only about $0.40/bushel lower than the current high price that farmers can sell it for. Commodity prices are notoriously volatile (they fell $0.60/bu between '03 and '04 and then rose $1/bu between '05 and '06). A slight drop, or a further jump in fuel costs, and farmers will be back in the red.
  • There is evidence to suggest that the corn prices we're seeing now shouldn't actually have much of an impact on retail food prices. Economists at Iowa State, for example, found that if corn prices rose by 30%, retail chicken prices would rise by only 2%, pork and beef prices by a mere 1%. Pennsylvania economist John Urbanchuk ran the numbers on the food chain impact of a rise in oil prices compared to a rise in the price of corn; he found that in this era of high-mileage food, a $1/gallon increase in fuel costs would raise food prices three times more than would a $1/bushel rise in corn prices.

Have we seen much higher energy costs recently? Yup. Might that be the bigger culprit if we see food prices continue to rise? Quite possibly.

The economists at Iowa State conclude that "claims of higher consumer food prices [linked to corn] in the popular press are exaggerated; however, livestock producers are affected as feed prices are significantly affected."

That's the point I'd like to focus on here. The food vs. fuel debate has linked high corn prices, and the farm lobby that likes them, to our rapidly mounting food bills. But by the time industrial corn-based products such as meat are processed, packaged, and distributed, that corn makes up only a small fraction of the end price. Livestock producers buying feed, on the other hand, devote 60% of their operating budget to the stuff, and they'll take the hit when feed prices rise. Some of these will be small- and mid-sized family farms for which high fuel, fertilizer and feed costs are a major challenge. (I'd love to hear from any livestock-producing readers about how you're weathering this.) But as I covered in my last post, the majority of U.S. meat is no longer produced on these farms; it is raised in large-scale industrial confinement operations controlled by the likes of Tyson and Smithfield. So let's reframe: today's corn prices are very bad for Tyson. When Tyson's feed bill rises by 30%, you better believe Congress is gonna hear about it.

Surfing the golden wave

Last year over at Grist, Tom Philpott did a grand exposé of the real mastermind behind congressional support for corn-based fuel: Archer Daniels Midland, one of the world's largest commodity companies, which now controls more than a third of the U.S. ethanol market. It was a 30-year lobbying campaign by ADM, not a massive, powerful group of farmers, that solidified Congress' desire to go green by going yellow.

This Farm Bill season, the livestock industry has been pushing its own vision for the cornified future. In between PR statements warning of imminent consumer misery if corn prices don't begin to fall, Big Meat has been lobbying for policies to facilitate the price drop. Their proposals have included one that ADM can get behind too: letting farmers who have set aside marginal lands in the Conservation Reserve Program out of their contracts early, so they can get to work planting that land in corn. Supply goes up, price drops. The industry pulled a similar move in 2001 with a strong campaign against farmer-owned grain reserves and other programs to stabilize supply and keep prices from falling.

My point is not to dwell on their lobbying tactics, but to simply point out that while they have tremendous power over the shape of our food system and our farm policies, these companies have been impressively effective at keeping themselves out of the limelight in the food vs. fuel debate. We may hear about livestock woes, but always in the context of the consumer burden of higher food prices. The direct relationship between high corn prices and empty wallets has been repeated so often it's taken more or less as a given. Can't afford bacon? Blame Big Farma. But this version of the story hinges on the idea that farmers are an autonomous — indeed, wealthy and powerful — player in the system, not a shrinking population squeezed ever tighter between the big boys selling them inputs and those with whom they sign contracts to sell their corn or livestock, often two divisions of the same company. In reality, ADM, Tyson, Cargill and Smithfield stand to gain the most from policies that keep corn production high and corn prices low. And they stand to lose the most from policies that work for farmers and the environment.

It's to our own detriment to spend our time blaming farmers; we can't build strong coalitions or carry out effective policy reform unless we correctly identify who wins and who loses under the current system. As the Farm Bill hits the Senate floor on Tuesday, pay attention to how the media plays it — and to who might be playing the media like a mouth organ. Is Big Farma at work again? Is that really what's going on?

Then make a call to your Senator to support one of the amendments that could change our system for the better. And when the C-SPAN camera pans the Senate floor ('cause you know you'll be watching), you might just see Tyson and Smithfield diving out of the frame. They prefer to lurk in the shadows, furrowing their brows.

 

6 Responsesto “The blame frame, part 2: Who wins, and who whines, when corn prices rise”

  1. John says:

    Great series, Elanor. Do you have links to the Iowa State research? I'm curious about their findings, which are counter-intuitive.

  2. Elanor says:

    Thanks, John! I can't find an online version of the paper for some reason-- I'd pilfered a hard copy from FAPRI when I was doing some research in Iowa-- but it looks like one of the authors presented the findings in a powerpoint at the Farm Foundation's "Biofuels, Food and Feed Tradeoffs" conference this past April. If you go to http://www.farmfoundation.org/projects/07-25Biofuelsprogram.htm
    and scroll down almost to the bottom, you'll find a link to John Beghin's presentation "Global Dimensions in the Tradeoffs Between Biofuels, Food & Feed."

    Hope this helps!

  3. John says:

    Thanks Elanor!

    I went to FAPRI http://www.fapri.org/ and found a much longer paper by Beghin et al linked from the front page. The paper's abstract and links to the paper and appendix are at http://www.card.iastate.edu/publications/synopsis.aspx?id=1050.

  4. Elanor,

    You asked how small livestock producers are doing. We pasture so we get no inputs from corn, soy or Big Ag. We sell directly to consumers as well as to small local stores and restaurants so Big Corp doesn't control our pricing either. We use very little petro so we haven't been badly hit by the rising energy costs. We buy no fertilizer so that isn't something we see directly. We buy no commercial feed, just hay.

    The price of winter hay was up a very small amount but nothing that I wouldn't have thought was just annual inflation if the hay guy hadn't commented that his diesel prices were higher. It doesn't make a big change in our final pricing so our customers don't see it.

    The big alternative that small farmers can purse is pasturing. It works and makes us very independent of the big guys. If enough small farmers do that it will replace Tyson, Cargill and their ilk with a sustainable, local source of food for our nation.

    As a side benefit, we, like 96% of farmers, do not get government subsidies. So we save you, and me, money by not wasting our taxes on subsidies. It does rather irk me that the government takes my money to prop up my Big Ag competition.

    By the way, on the myth of corn and rising meat prices, we've kept our price to our customers stable for years. If we can do it without subsidies then surely Tyson and their brethren should be able to do as well with their economies of scale.

    Love your article. Keep up the good work!

    Cheers,

    -Walter
    Sugar Mountain Farm
    in the mountains of Vermont
    http://SugarMtnFarm.com/blog/
    http://HollyGraphicArt.com/
    http://NoNAIS.org

  5. demian says:

    Eleanor,

    Good look at the farm bill. But there are some sides to the biofuels debate that are worth considering. Although I do understand that yours is a food-related perspective on agriculture issues and the farm bill, so take this all for what it's worth.

    More and more people across ideological spectrums are questioning the value of corn ethanol. So please take a look at our website for a brief factsheet with numerous citations
    http://www.taxpayer.net/energy/ethanolprimer.pdf

    And for some corn state academic perspectives, check out another Iowa State paper, http://www.card.iastate.edu/iowa_ag_review/fall_07/article1.aspx

    a University of Minnesota report in Science magazine,
    http://www.alumni.umn.edu/Corn_Wont_Save_the_Planet.html

    and anther report by the left-leaning Brookings Institution and the right-leaning American Enterprise Institute available here. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1027692

    I guess I am just warning against automatic support for biofuels mandates, which it seems that your column tacitly supports in knocking down the food-fuels argument and linking to some support for proposed biofuels amendments.

    If we truly want to help ease our dependence on fossil fuels, then we would lift the tariff on Brazilian and other ethanol imports, and repeal the per gallon subsidy that we give to fuel refineries for mixing in ethanol. Yes, I believe the food/fuels argument is a red-herring. But the biofuels rhetoric in general is multi-faceted, and the merits deserve deeper consideration.

    And by the way, as one who works here in DC on farm issues, you can bet that The Corn Grower's Association, Soybean Growers Association, the wheat guys, and all the other big farm lobbyists are paying big bucks for work in the halls of Congress on the farm bill and in support of biofuels legislation.

    Like I said, take this for what it's worth on the non food-related side of the biofuels debate. Thanks for the good work on the farm bill.
    Demian

  6. Elanor says:

    Hi Demian,
    Thanks for your comment. I was wondering when the ethanol question was going to come up, so I really appreciate that you raised it. For the record, I am quite opposed to using corn as a fuel source-- and work on that in my other life as an environmental policy advocate. I think biofuels mandates without strict environmental protections built in are really dangerous. The motivation behind this post was not a pro-ethanol stance, but simply that I think the media coverage of Farm Bill issues hides the true beneficiaries of current policy (and the main forces behind the push to increase corn production), and I wanted to understand the players better. Your point about the National Corn Growers et al. is an important one; although I think the jury's still out on how well these national groups actually represent the interests of the average family commodity farmer (same goes for the national Farm Bureau lobby), their involvement demonstrates that farmers do benefit from high prices. But I believe that the real heavy hitters in this debate are agribusinesses like ADM and the big meat companies, not farmers.

    The commodity price issue is such a confusing one for me. I believe that farmers deserve a fair price for their products, but demand shocks like the ethanol boom tend to encourage more production even as they bring higher prices. From an environmental perspective, that's terrible. How do we find a balance?