Food has far-reaching effects on economy

Food has been a main influence on behavior throughout the history of the earth. Business has revolved around it, wars have been fought over it, it has been used to foster love and hate, etc. In the United States, food has been one of the limiting factors in the settlement Westward from the original colonies.

In part, to reduce the negative impact of food shortages on the population, the U.S. government established the Department of Agriculture (USDA). Part of the mission of the USDA was, and still is, to insure an inexpensive food supply. Over the years this has meant various subsidy and conservation programs that have helped producers maintain a viable agricultural industry.

One of the problems with a plentiful and cheap food supply over a long period of time, is that the population forgets how that was created. When financial priorities of state are made, and budgets are debated, the subsidies being paid to the agricultural industry are questioned. This is, in part, because the general population does not connect the food they buy in the store to agricultural production.

It is tempting to judge, as foolish, the aid given to farmers, especially when we see aid numbers up in the billions of dollars. However, by the time that money filters down to the individual producer, those dollars are usually in the thousands of dollars, at the most, and typically in the hundreds.

Generally these payments replace losses on a ratio of I to 4; meaning the farmer is paid one dollar for every four dollars lost due to adverse weather, adverse market conditions, etc.

These government payments allow the individual family farmer not to thrive, but to barely survive. Those farmers on the financial edge do not survive. History reveals that a farmer will have a very good year once every five years.

However, in those five years he will also have a bad or disastrous year. The other three will be average. Therefore, if a producer is not carrying a heavy load of debt, that producer will break even for three years, lose money for one year, and make a profit for one year. If the producer is heavily in debt, then that producer will break even one year, lose money three years, and go out of business the fifth year.

In 1950 the total farm debt stood at $10.9 billion. That debt has grown to over $156 billion. As the older generation passes on the farms to the newer generation, total debt increases. This is because Mom and Dad now want to retire and take their equity with them so they can enjoy the rest of their lives.

The problem is that Junior is faced with land and equipment prices that are more than 100 times what his parents had to face. A typical new tractor (90-horse) will cost $45,000 or more. A new combine will cost more than $120,000 for just a base model and could go up to over $250,000. Costs have gone up while prices for commodities have changed very little in the last 50 years.

Only by advances in production has the agriculture industry been able to keep pace.

This is the enigma of agricultural economics for producers. The price received by Junior today for corn, wheat, oats, barley, hogs, etc., is the same price Junior's great-grandfather received for the same commodities. But where great-grandfather paid 15 cents a gallon for fuel, Junior must pay $1.55.

Most other costs have gone up proportionally. And, the return on investment for most family farms is less than 3 percent. Even passbook savings can do better than that.

So, how does Junior stay in business? Better yet, how do we convince Junior to stay in business so that the rest of us can eat? Why doesn't Junior just sell out, invest his money in the stock market, earn over 20 percent, get up late in the morning and just enjoy the easy life?

Why should Junior be required to work very hard seven days a week with no vacations for minuscule pay while others are living it up on Wall Street? Have we returned to feudal times where the barons all wear three-piece suits and live in castles in the suburbs?

In order for Junior to stay on the farm, he needs to earn a decent wage, commensurate with the effort he makes. He also needs some assurance that his business will not be wiped out by an act of nature or global economic forces. Since we all have to eat, it only seems reasonable to insure our food supply by providing a decent standard of living for those few who are willing to supply that food, and to help them through those times when negative forces impact food production.

In most ways, producing food is like producing any other commodity, you have inputs and you have outputs. However, there is a big difference in the need for the commodity. If most consumer goods were not produced this year, or for the next 10 years, it is doubtful anyone would perish over the loss.

However, if food production were to cease, there would be an immediate effect on the lives of everyone. There have been increases in food prices over the last 30 years, but mostly at the retail level and not even close to the increase in consumer goods. Out of every dollar spent on food, 79 cents goes to distributors, processors and retailers.

The amount of money received by producers for their products has not significantly changed in over 50 years. When the U.S. population was more rural and about half of us were farming, direct farm product sales to consumers were common. Today, only about 2 percent of the population lives on the farm, and direct sales are less common. Therefore, there is less competition for distributors and retailers, and consequently, they have taken more of the profit.

So, how do we keep Junior on the farm? Government can play an important role in this effort since the government can represent the entire population, including the farmers. Government should subsidize the producers to insure the food supply. How that is done is more a function of style rather than substance. But government must understand that there will be financial risks with this endeavor and that some losses will occur. Government subsidy and free enterprise may seem to be anathema to each other, but a blend of the two is possible, as evidenced by American agriculture over the last 50 years.

We should not get sucked into the idea that large corporate factory-style farms will be able to produce like family farms have in the past. Such farms can take advantage of economy of scale, but they are also subject to quality compromises.

What is worse, they are subject to concentration, and concentration spawns monopoly, which is what is happening now in the agribusiness industry. For example, if you want to buy a piece of farm equipment, you basically have four suppliers to choose from, worldwide. This translates into just one supplier in most of our small rural communities.

If we allow our food supply to be controlled by a concentrated few, then we will be subject to the policies, desires, goals, and wants of those few; or go hungry. This is not a theory, this is happening now in many parts of the world, including the United States.

Government must also be willing to treat farming like farming. This means accepting the volatile risks associated with agricultural production, supporting programs that reduce the effects of such risks, and possibly writing off debt when required to keep good producers in business. This also can mean reasonable regulations for distributors and retailers so they do not eat up all the profit margin and a fair share goes to producers.

In Alaska, we have a unique opportunity to help agriculture grow and develop. The role of government should be one to promote local production, provide the natural and financial resources, and monitor progress. In this respect, government should be just like loving parents to a newborn child. It should feed it, provide it a place to live, clothe it, teach it, and keep it safe.

Then, when the agricultural "child" is grown up, let it go out on its own, but always be prepared to lend a hand in need. Not with artificial limits, but with economically compatible aid programs.

We all want to keep eating, and keep eating well, and we do not want to have to spend more than 50 percent of our disposable income for food. We have the capacity to maintain this standard and enjoy high quality, locally produced commodities. We just need the political will and wisdom to do so.

All facts and figures stated in this article come from the "1992 Census of Agriculture" for Alaska.

Charles W. Thompson is the director of the Farm Loan Program for the Alaska Farm Service Agency, USDA.