Testimony<!--mstheme-->

prepared for the Committee on Agriculture of the Legislature of Nebraska

February 17, 2004

RE: Legislative Bill 1086

Presented by:

William D. Heffernan, Ph.D.

Professor Emeritus, Department of Rural Sociology, University of Missouri - Columbia

For decades we have been informed that one sector of the economy after another was being restructured. The agricultural sector seemed somewhat immune to this major economic reorganization because small, community-sized economic operations in the input/supply, production and marketing stages appeared to be stable. The family farm appeared to be the dominant structure and agriculture continued to be used as an example of a competitive economic system.

However, the restructuring of the broiler sector had begun in the late 1950s and early 1960s under the name of vertical integration or production contract production. In this new structural arrangement, the integrating firm, usually a feed supply firm, owned the birds and feed while hiring “growers” on a piece-rate basis. This change came much more slowly in other commodity sectors until about a decade ago when slightly different structural arrangements evolved in each of the different commodity sectors. The consequence was a major concentration of ownership and control in the agriculture/food system. What has been called “restructuring” is in reality a major alteration in the organization of the national and international economic system.

Unfortunately the economic system we had in agriculture fifty years ago, as well as the system we have today are both called capitalism. By identifying both systems by the same term, restructuring sounds like we are just tinkering with the same system. In fact, the two systems are quite different. What some call “early capitalism” is based on competition characterized by no single firm buying or selling enough to in any way influence the market price, by all parties having full information regarding the economic transaction, and by freedom of entry or exit. Early capitalism and “late or mature capitalism” are more different from each other than mature capitalism is from communism. Mature capitalism and communism both depend on highly concentrated decision-making frameworks, face many of the same administrative/organizational problems, and both are inherently undemocratic organizational structures.

Most, but not all, agricultural economists would have us believe that this movement from early capitalism to mature capitalism is inevitable. They sometimes call it a “natural system.” In fact, there is nothing inevitable about this system. The system was designed for the results we are seeing. A century ago after witnessing a movement toward the control of some economic sectors by a few firms, U. S. citizens decided that this was not desirable. They persuaded the government to change the policy relating to monopolies. Since World War II, however, some individuals, groups and corporations with political influence have been working to dismantle antitrust laws and other protections. These fluctuating policies suggest that national and global economic systems are put in place by humans and can be changed by humans.

Twenty-two years ago, legislators here in Nebraska decided they could initiate a new policy that would provide a more “level playing field” for family farmers. While Initiative 300 has not solved all the problems faced by farmers, I congratulate Nebraska for challenging those who say that the trend toward increased concentration of ownership and control and the elimination of family farms is inevitable. The result is that Nebraska is still a leading producer of red meat in the nation. This is at a time when our national agriculture/food policies and the international policies under the jurisdiction of the World Trade Organization (WTO) were tilting the scales in favor of the transnational corporations. We usually feel that these global trade issues must be left to the federal government, but you have shown that when the federal government does not act, a state can make a difference.

Initiative 300 cannot solve all of the problems that producers and consumers will face in the future, but it has shown that government policy can be designed to produce a food system that society desires. A look ahead suggests that agriculture in this country faces some major challenges.

A few years ago, economist Stephen Blank, University of California - Davis, wrote a book entitled, The End of Agriculture in the American Portfolio?. In it he argues that given that the United States can import food cheaper than it can produce it, we should import our food and use our farmland for its “higher value” uses such as recreation and urban expansion. Notwithstanding the myth that U.S. farmers are the most efficient in the world, he notes that they are among the highest cost producers in the world. This is a result of such factors as high land and labor costs and the enforcement of government regulations related to health and environmental issues. Global and national food policy is moving us in the direction Professor Blank described. That the value of our agricultural/food exports the past two decades has increased slowly, while the value of these imports has been increasing rapidly provides ample evidence of this point. I have said for some time that we will soon become a net importer of agricultural/food products. A couple of articles in the most recent agricultural newsletters report that a paper has been released by an economist at Purdue University predicting that such will occur in the next three to four years.

Maybe that prediction can be altered. Can you imagine continuing to develop an increasingly centralized and import-based food system when we are concerned about acts of terrorism? Do we really want to become dependent on other countries for much of our food in the same way we are dependent on other countries for oil? Food is different from all other goods and services exchanged in the global market. It is a necessity, even more than oil, and it is needed on a regular basis. Even the questions raised at recent meetings of the WTO suggest that more and more people in the United States and around the world are challenging the evolving global food system. Increasingly, we hear the argument that food is different and requires unique government policies.

Do not give up a policy that has served Nebraska well. If we can level the playing field so that family farmers can make an adequate living, there are plenty of young families eager to farm. They are not interested in assuming large financial debts that lock them into specific noncompetitive market arrangements in which they feel helpless to negotiate. Contracts are not inherently good or bad. When making major economic investment, they can be a major risk-management tool. The problem is not the contract itself, but rather the unequal power relationship that it represents. In a region where there is no market competition, the only time that the farmer and the marketing firm are in an equal power relationship is before the farmer assumes a large loan. Once a farm family depends on a single firm for repaying a large debt, the power relationship favors the integrating firm. At a minimum, the contract must extend the full length of the farmer’s debt payment period. No firm can guarantee such long periods because it may be bought by another firm and the original contracts may no longer be honored.

If we tell our youth there is no alternative but to follow the trends of the last decade, they will know that Professor Blank is correct. The evolving system is a race to the bottom for all farmers and ranchers in the world. Because we are high cost producers, our farmers will continue to be eliminated. You took a small step twenty-two years ago. Don’t give up now. Ask the question: What is the next step to assure that this country has a secure and sustainable food system?