Richard A. Levins is professor of applied economics at the University of Minnesota and senior fellow with the Institute for Agricutlure and Trade Policy. The following was written by him and appears on this site with his permission.
HERE'S a new twist in farm policy: Give billions to giant grain companies so they can pass it along to farmers. As odd as this sounds, a proposal for larger locks and dams on the upper Mississippi River is being heralded as a way to help struggling farmers. Further commercialization of the river will mean more environmental damage. Taxpayers will hand over billions to the Army Corps of Engineers. And grain companies will have lower transportation costs. This much we know. Far less clear is whether our old friend "trickle-down economics" is up to the task of helping farmers.
Will lower transportation costs for grain companies improve farmer profits? Not Likely. Farmers are sandwiched between much more powerful business interests. On one side, they sell their products to a handful of very large buyers such as Cargill and Archer Daniels Midland. On the other side, farmers buy supplies from the likes of Monsanto, DuPont and John Deere. Each of these multinationals vastly overshadows any individual farm in size and economic power. Farmers must also have access to land and, since land is in fixed supply, non-farm landlords are able to bargain on very favorable terms with farmers.
In short, the story that "transportation costs will go down, so farmer income will go up" is too simple for a global agricultural economy that farmers share with powerful corporations and non-farm landlords.
A recently completed study by the Institute for Agriculture and Trade Policy concluded that the immediate winner from the river project is clear: The global corporations that transport and sell grain on world markets will have lower costs. The handful of grain companies is slated to become even fewer as mergers are approved. ADM, one of the world's largest grain buyers, has been convicted in a high-profile price-fixing trial. Cargill, the largest privately held corporation in the United States, has annual sales of $50 billion. These companies didn't get where they are by passing profits down to farmers.
Even in the unlikely event that benefits trickle down to farmers, the question becomes, "Why should the trickle down buck stop with farmers?" By using a computer simulation model, the IATP study found that higher farm costs would quickly keep the benefits trickling down past the farmers and into the pockets of landlords and other farm input suppliers.
Landlords, in particular, have been in a strong bargaining position for grain farmer profits because land is the biggest cost in growing grain, and there is only so much land to go around. When farmers see higher prices, they compete all the more for rights to rent available land. The non-farm landlords, not the farmers, always win. The farm economics magazine Choices recently reported that "less than 40 percent of Iowa's farmland was operated or farmed by its owner" in 1997. The report also noted "a striking shift from ownership toward land rental between 1982 and 1997."
Recent records from farmers in southwest Minnesota give us another way to see how little bargaining power farmers have. In 1998, the average farm had a net income of only $8,600 after receiving $30,000 from the government. If farmers are not able to keep all the money the government pays directly to them, how can we ever expect a public subsidy to grain shippers to help farmers at all?
Finally, the IATP study revealed another difficulty with the proposed navigation project. The Mississippi River project subsidizes corn, not farmers. To the extent any farmers will benefit, it will be those who sell the most corn. The river project does not reverse the long-run trend of fewer, larger farms.
Support for independent family farmers has been, and always should be, a principal goal for public policy. The proposed river project, however, will do little to advance this objective. If we are serious about helping farmers, we should look for better ways to spend billions of public dollars.
This article first appeared in the May/June issue of the Ozark Sierran. It is reprinted here with the permission of the author, Caroline Pufalt.
Link to a more recent article regarding the proposed plan Army Corps Lock and Dam Study
Fearing the scrutiny of an Army Corps of Engineers' study and public review, agri and barge industry interests are pushing legislation that would double the lock size of five lock and dam units north of St. Louis. This industry action is coordinated under the lobbying umbrella of the Midwest Area River Coalition 2000 (MARC 2000).
Their action is premature because the Army Corps of Engineers is in the process of completing a major study regarding potential lock and dam expansion. But MARC 2000 is pushing their legislation before the completion of that study. The rush was probably prompted by preliminary results of the Corps study that showed the project economically unjustifiable. Since the Corps is an organization loathe to pass up an opportunity to build or expand locks and dams, the study results were somewhat of a surprise. The Corps itself seemed surprised and will likely review and redo its economic analysis.
But MARC 2000 could not wait for this process and the public review and comments that would follow a completed Corps' study. Those comments would likely have focused on two issues: the economics of the project and the environmental impacts of the expansion.
From an economic standpoint, expansion of the lock and dam system is a classic waterworks boondoggle. MARC 2000 argues that expansion of the system is needed for increased barge traffic for grain exports. The transportation advantage that barge traffic gives to agri industry is supposedly needed to compete with grain exports from other countries, such as Brazil and Argentina. Also, MARC 2000 claims that the U.S. will have increased grain shipments due to bioengineered crops.
Navigation on the Mississippi is the second most expensive method of transportation in the country. It is second only to space travel. And, the taxpayers foot most of the bill. The barge industry pays a modest gas tax that is set aside for navigation related "construction." It pays nothing for the day-to-day maintenance of the navigational system. Even with the gas tax set aside, the public would likely pay for half of the proposed construction. Any advantages of this subsidized transport are likely to benefit corporate agriculture more than the family farmer.
Expanding the locks and dams and the associated traffic increases would cause further environmental damage to the already strained ecology of the Mississippi river. Dams and related structures are designed to create sufficiently deep water for navigational vessels. But, that in turn limits the river's ability to create and maintain fish and wildlife habitat such as side channels and fresh water marshes. The river becomes more of a fast flowing ditch and less of a living, changing ecosystem.
At this writing, Missouri Senators Bond and Ashcroft and Representative Hulshof have expressed interest in the proposed legislation. Since Missouri is obviously a key state in the upper Mississippi river basin, our legislators' actions will have an important impact, for better or worse, on the river and on our pocketbooks.
Please tell your representatives what you think:
Site Last Updated Sunday, 04 February, 2001. 17:35:21