Transformational Farm policy: Will it Work?

Comments by Chuck Hassebrook, Executive Director of the Center for Rural Affairs of Lyons, Nebraska to Farm Policy and the Rural Economy: Alternative Approaches to the Economic Challenges – a research and policy workshop sponsored by the National Center for Food and Agricultural Policy and the Economic Research Service of USDA, June 24, 2005, Hart Senate Office Building, Washington, DC.

A transformational farm policy can work, but only if we set clear objectives and design the policy accordingly.

One of those objectives should be to foster genuine opportunity in agriculture and make it possible for modest-size family farms to earn decent incomes – incomes that enable them to contribute to the building of strong communities.

Strengthening Family Farms a Social Good
In my part of the country agriculture is one element in building strong communities – not the only element but a significant one. That makes strengthening family farms that contribute to strong communities a legitimate policy objective – a social good.

A substantial body of research demonstrates that social good. University of California researcher Dean McCannell summarized the research for the Congressional Office of Technology Assessment. He wrote that “All the serious studies reach the same conclusion …. Communities that are surrounded by farms that are larger than can be operated by a family unit have a bi-polar income distribution, with a few wealth elites, a majority of poor laborers and virtually no middle class.”

That is not progress. That is social decay. The current farm policy reinforces that decay. Its basic rule – the bigger a farm grows, the more money it gets from the government – ensures three outcomes.

  1. The farm program will do at least as much to help mega farms drive family farms out of business by bidding land away from them; as it does to help family farms stay in business.

  2. The program will do little to support the income of farm operators except on previously owned land. As the long as aggressively expanding mega farms are promised more government money for every acre they add, virtually every nickel of farm payments will be bid into higher cash rents and land purchase prices.

  3. As long as we squander billions on such dubious purposes as helping mega farms drive up land rents and drive out family farms, little money will be left to invest in programs that offer a future to rural America.

Growing Support for Targeting Farm Payments
That’s why 81 percent of farmers nationwide and even 70 plus percent of southern farmers support more effectively targeting payments to small and mid-size farms, according to an Extension Service poll prior to the last farm bill. It also accounts for growing cynicism toward farm programs among farmers. Many farmers, who in the past supported farm programs, now tell me they would be as well off with no program as with the current program providing unlimited payments to mega farms.

A serious attempt to reduce payments to mega farms could provide the fiscal basis for a serious investment in the future of rural America. Payment limitations that reduce the cost of farm programs by just 10 percent would free up sufficient funds to double the USDA investment in rural development. It could launch an unprecedented set of initiatives to create genuine opportunity for rural people.

The need is great. Our report Swept Away: Chronic Hardship and Fresh Promise on the Rural Great Plains demonstrates that per capita income in the farm dependent counties of Iowa, Kansas, Minnesota, Nebraska and the Dakotas is just 73 percent of income in the region’s metropolitan counties. Poverty rates are 60 percent higher.

Entrepreneurship Is Key to Rural Revitalization
Fixing agricultural policy is one element in addressing these problems, but it is not sufficient. The key to rural revitalization is entrepreneurship. In the most rural farm-dependent counties, we found the majority of new jobs are non-farm proprietorships – people creating their own job by starting a small business. Small entrepreneurship is the one development strategy that consistently works in these communities. 

It is also the strategy that has the capacity to bring back young people – including those who gain higher education. Our surveys of rural youth in three northeast Nebraska communities demonstrated that half would like to one day own their own farm or business. That opportunity has the potential to draw them back to rural America. Eight dollar per hour jobs in call centers won’t.

The next farm bill should make a major investment in rural development based on small entrepreneurship. For example, our Rural Enterprise Assistance Project (REAP) has helped 4,000 rural small businesses statewide get started or improve by providing loans, technical assistance and training. It can provide those services because the U.S. Small Business Administration Micro Loan Program funds it.

But that funding is fully subscribed. And currently, Nebraska is the only state where rural microenterprise development services are available statewide. The next farm bill should establish and fund a rural micro enterprise program within USDA to make grants to intermediary organizations to support small entrepreneurship across rural America.

Such grants could support loans, technical assistance, training and a host of other initiatives. For example, support is needed to develop rural small business networks for marketing.

In rural Italy, major metropolitan manufacturers have long relied on an informal network of small rural businesses to provide components and other outsourced goods and services. We need to build networks of micro businesses in rural America to provide corporate America a single point of entry to gain access to small firms that can provide outsourced goods and services in the volume they need when they need them.

The next farm should also provide funding for research and education on rural entrepreneurship. It should provide funding for rural “individual development accounts” (IDAs) – as proposed by the New Homestead Opportunities Act introduced by Senators Byron Dorgan (D-ND), Chuck Hagel (R-NE) and 17 others. It would provide federal matching funds for savings accounts established by low and moderate-income rural people and set aside money for buying a home, gaining education or starting a business.

Farmers Must Be Agricultural Entrepreneurs
We must also invest in entrepreneurship within agriculture. The future opportunities for small and mid-size farms are in market niches, made up of consumers willing to pay premium prices for products with unique attributes and food produced in ways they support. For example, two-thirds of participants in a Better Homes and Gardens consumer panel said they would pay more for pork produced on small farms that treat animals humanely and are environmentally responsible.

The USDA Value Added Producer Grants Programs created by the 2002 farm bill funds efforts to build cooperatives and other initiatives to link those consumers with family farmers who have what they want. But congressional appropriators have cut over 60 percent of the $40 million in annual funding originally provided for the program. 

A similar fate has met other programs designed to support entrepreneurial small and mid size-farms. The Initiative for Future Farm and Food Systems initially provided $18 million of grants annually for research and education to enhance the profitability and competitiveness of small and mid size farms – but 70 percent of those funds have been lost to appropriators.

The last farm bill also authorized funding for linking beginning farmers with retiring farmers and innovative research and education strategies to open the doors of opportunity to a new generation of farmers. But funding has been withheld. The next farm bill should change that.

It should also include a “family farm innovation fund” – to provide seed capital for innovative initiatives to strengthen family farm opportunities. For example, an agricultural bank in eastern Iowa is sponsoring a series of forums on machinery cooperatives as a means of enabling small and mid-size farms to lower machinery costs to competitive levels. But it takes legal work and research to launch such initiatives. USDA innovation funds could support that.

Base Environmental Policy on Rewarding Good Stewardship
There is a third objective that transformational farm policy must address – environment. We all have a moral obligation to leave the land at least as well as we receive it. But the public also has an obligation to share in the cost of protecting the land and water on which all of us – current and future generations – rely for survival.

To effectively foster environmental stewardship, farm policy must address working lands and not focus solely on land retirement. The Conservation Security Program established by the 2002 farm bill is the basis on which to build. It has several key strengths.

It rewards farmers who practice environmental stewardship year in and year out. That is far better than only paying the worst actors to change – which has perverse and unintended consequences.

By paying only bad actors, it places the nation’s best environmental stewards at a competitive disadvantage in competing for land. Its ultimate outcome is to shift landownership toward those who care little about stewardship and practice it only when paid. Second, it creates an incentive to damage the environment to build eligibility for payments to protect it.

CSP takes the far better approach of both rewarding those who have always practiced stewardship as well as those making improvements. That will yield more far reaching and lasting environmental gains.

CSP is also good for farmers. If it’s implemented correctly, it will base payments to farmers and ranchers on how intensively they manage to protect the environment. Payments based on what farmers do are far more likely to remain in the pockets of farm operators than payments based on how much land is farmed. Payments based on the latter, are inevitably transferred from the operator to the land owner. Payments based on the farmer’s management are far more likely to remain with the operator.

Combine Conservation with Community Development
Finally, we must get much better at designing conservation programs to support communities as they protect the land and water. The Conservation Reserve Program was of clear environmental benefit, but of dubious community impact. It was especially damaging to opportunities for beginning farmers in high enrollment areas.

We can do better in integrating conservation and community development objectives. What if, for example, our conservation programs offered a five or ten-year stream of conservation payments to beginning farmers in one upfront lump sum payment in return for a legally binding five or ten-year conservation commitment. That would enable one program to establish both stewardship and resource stewards on the land.

We can also make better use of conservation programs to make rural communities more attractive places to live and visit. The rural communities that have grown in the nation’s midsection are largely those with environmental amenities – lakes and mountains. In the future, uncrowded natural space may become a key environmental amenity – and many farm and ranch communities could provide it.

What if, for example, our land retirement based conservation programs provided bonus payments for enrollments that allowed public access as part of a community plan to build tourism or attract young families to live? That would provide rural communities the basis to draw young educated people to raise their families close to nature. And it could also provide the basis for some tourism-based small businesses.

For more information, contact Chuck Hassebrook, Executive Director of the Center, This presentation was given on June 24, 2005 in Washington DC.

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