A historic agriculture crisis requires three key ingredients: price drops, debt acceleration and misguided federal policy.
When it comes to naming recent misguided policy, it doesn’t take farmers long—most especially cotton farmers—to cite “that damned Brazil deal.”
In 2002, a Brazilian dispute over U.S. cotton subsidies was brought to the World Trade Organization. In short, Brazil, India and China argued that they, as “developing” nations, should be able to subsidize cotton, while the U.S., a “developed” nation, should not.
WTO trade deals can be enormous involving multiple economic sectors. When Brazil threatened to violate intellectual property agreements with powerful interests such as American pharmaceuticals, technology and entertainment if U.S. cotton subsidies were not terminated, the farmer was left alone on the other side of the table.
The consequences of the Brazil deal were implemented in the 2014 Farm Bill, which eliminated cotton’s long-standing safety net of counter-cyclical and direct payment programs. Cotton became the only commodity not covered by U.S. farm policy.
In an effort to ease the jolt to cotton producers, an optional supplemental to traditional multi-peril crop insurance was devised in the Farm Bill. However, the function of insurance, by whatever form, is not to provide price protection, especially in times of extended low prices. When insurance is all a farmer has, the farmer effectively has no price protection.
Then reality jolted harder than the Farm Bill authors anticipated. The 2014 cotton crop sold for around break-even 78 cents per pound, then 2015 prices dropped to around 60 cents. And when western U.S. planting began in April 2016, futures were 58 cents. (Today, prices are around 71 cents, but averages tend to rise each July and recede going into harvest in late fall.)
What’s more, faces indefinite flat prices, largely due to China’s massive storage of 60 million bales coupled with its “developing nation” WTO status, which allows China to subsidize from field to factory.
And in the meantime, “that damned Brazil deal” prevents further risk management assistance for U.S. cotton producers.
Other commodity industries watch cotton closely. As a result of the 2014 Farm Bill, their own price supports are based on a moving scale that depreciates gradually from crop year to crop year. But they don’t call it a “scale,” they call it a “race to the bottom”.
Each industry says the same thing: “We’re creeping towards cotton.”
The cotton farmer’s plight isn’t different; it’s just more critical.
This report estimates that 25 percent of cotton farm operations carried about $175,000-plus of debt from 2015 in hopes of a 2016 turnaround. If cotton sells in the 65-cent range, these operations would either cease or sell significant (and necessary) assets to remain operable. Likewise, better-capitalized farmers, pillars of rural communities, who didn’t carry over into 2016, are likely to quit or carry over into 2017.
But farmers aren’t the only ones cussing the Brazil deal.
Groups outside of farming—way outside of farming— are displeased that the Brazil consequences weren’t harsher on the American farmer.
One such group is the Heritage Foundation.
The history of American agriculture is a continuous feud with capitalized Eastern U.S. establishment groups that guise betrayal of the country’s interests with expressions of fealty to “the market” (e.g., opposition to railroad antitrust legislation, Rural Electrification Administration, farm credit system, cooperatives in the Capper-Volstead Act, etc).
It’s from this history that the contemporary conflict between rural America and Potomac think tanks like Heritage emerges— an economic confrontation pitting academic ideologues in urban towers against practitioners of frugality out in the country.
In a 2015 West Texas radio interview, Steve Verett, Executive Vice President of Plains Cotton Growers, described what it was like to witness to Heritage’s opposition to safety nets during the writing of the 2014 Farm Bill.
“I know that people in this part of the world, we’re all conservative … but Heritage has Heritage Action (political action committee) now, one of the most conservative groups that we typically think of, you know. When it comes to low taxes, government spending, we normally support that. But they’re going after the Farm Bill as if it’s going to solve our nation’s (debt) problem. And that’s their number one target: elimination of farm policy.”
Less than half a percent of federal spending goes toward agriculture programs. To the rural mind, if a GOP lawmaker from outside the heartland considers voting for the Farm Bill, Heritage goes crazy as Larabee’s calf and threatens to unleash its bankrolled PAC on re-election campaigns.
Then, with only large blocs of urban liberals left (note: U.S. Sen. Bernie Sanders was the only elected presidential candidate who voted for the Farm Bill), the Supplemental Nutrition Assistance Program gets tacked on to the Farm Bill, ticking federal spending up from half a percent to 4 percent.
In all of this, therefore, it shouldn’t be surprising that so many in America’s fields backed the presidential candidacy of Donald Trump (who many call “The Trumpster,” often through an ornery grin). Not only could Trump do better than “that damned Brazil deal,” he’d give China the jitters. Moreover, Trump is a referendum on present political ineptitude in halting federal overreaches like the Environmental Protection Agency’s Waters of the U.S., climate change regulations or the inheritance tax.
These overreaches are seldom blocked because the likes of U.S. Sen. Ted Cruz, the former presidential candidate who’s proven to be more taken by perpetually campaigning than governing, won’t amend (appropriation) bills, much less participate in the process.
Farmers, especially cotton growers, who formerly knew the government to help with one hand and the EPA taking with the other only know the overreach of the EPA now.
(When a group West Texas cotton farmers implored Cruz for a meeting about the 2014 Farm Bill, they were only met with silence, according to a former Lubbock County Republican Party chairman.)
The growing rural impression is that Heritage-approved politicians seem dead-set against the national security of accessible, affordable and domestically produced food and fiber, because it’s not “conservative.”
And yet, even with American farmers sloping further into crisis, Heritage attacks with a hostility of such vast ideological acreage that it makes the Midwest seem small by comparison. Advancing to eliminate what’s left of farm policy, particularly commodity policy and crop insurance programs.
“In my opinion,” Joe Outlaw, co-director of Texas A&M University’s Agricultural and Food Policy Center, remarked recently to the U.S. House Committee on Agriculture, “the interest groups that continue to call for changes that would negatively impact these two key policy tools (commodity policies and crop insurance) clearly either have no idea how difficult the financial situation is across agriculture or they simply do not care.”
It seems both of Mr. Outlaw’s options are true. They have no idea how difficult the price drops and debt loads are at present— and they don’t care.
After all, Heritage was all for the Brazil deal. And against the American farmer.
This article has been updated.