Association Perspectives

Risk Free Farming?

Risk-free farming? That’s what two economists from Iowa State University suggest farmers now enjoy with implementation of the 2000 Agricultural Risk Protection Act and the 2002 farm bill.

“U.S. crop producers largely have obtained what they sought: risk-free farming courtesy of government programs. This conclusion implies nothing about the relative merits of the various programs or whether the programs should be modified. But the programs do create the incentive for farmers and landlords to focus on growing the commodities that are supported by farm programs,” the authors write. They also suggest that current farm policy is set up to benefit the “successful” farmers.  The paper can be found online at ISU’s Center for Ag and Rural Development, www.card.iastate.edu/iowa_ag_review/winter_04/article1.aspx.

We invite these bean counters to put aside their economic logarithms for a few days and visit one-on-one with grain producers in coffee shops across the Great Plains.  They will get an ear-full that while federally-subsidized crop insurance and farm programs provide greater stability to offset production and economic risks (exactly as intended by these programs) farming remains rife with risks.

There are input costs such as fuel and fertilizer which farmers as price-takers are unable to pass along in the marketplace. Many farmers cannot afford to replace older equipment with new, or to invest in improvements such as tile drainage to reduce their production risks. Limited cash flow and high risks discourage producers from venturing into new crops or value-added agriculture. The growth of both biotech and organic sectors brings a whole new consideration to legal risks.  Urban sprawl increases the risk of environmental liability.

The big picture poses many uncontrollable risks as well. Dietary trends (low-carb) and food safety scares (mad cow, bird flu) can tear down markets in a blink of an eye. High ocean freight rates and monopolistic rail practices make shipping farm commodities less competitive. Export competition, some with the advantage of far greater government subsidies than in the U.S., others with the advantage of cheap land and labor.  Interest rates. Political market barriers (ie Cuba). Fluctuation of the U.S. dollar.  All risks inherent with producing grain in America.

To be sure, even current farm programs have gaps that make farming far from risk-proof. “I have argued the greatest risk to farmers is a 25% to 30% yield loss and price equal to the counter-cyclical strike price.  Farmers lose the government payment, they have few bushels to sell, they receive no indemnity payment and they still owe the crop insurance premium,” points out Art Barnaby, K-State ag economist.

Risks vary by farm region and farm size, and farmers do their best to manage them, but will never eliminate them.  Risk-free farming?  We look forward to the next U.S. agriculture census. Might the numbers reflect a new wave of Americans flocking to the prairies to take advantage of this new era of risk-free farming? We’re not holding our breath. 

This editorial cartoon, the second in a four-part series, was recently distributed to small and mid-sized newspapers by the Wheat Foods Council, funded in part by the wheat checkoff.  The cartoon compares an obese American’s dietary habits with the habits of thin individuals from other countries who eat diets rich in carbohydrates. The WFC is pointing out that it's too many calories and not enough exercise that's making Americans gain weight, not carbs.  Indeed, a recent Center for Disease Control study pointed out that women are consuming an average 335 more calories and men an average of 168 more calories on a daily basis compared to 30 years ago. Previous federal studies have linked eating out and larger food portions to today's increased caloric intake.

Association Perspectives represents the views of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, Montana Grain Growers Association, and South Dakota Wheat Inc.