| Agricultural Policy and Farm Politics |
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David
Orden |
The
New Century of Multi-Agriculturalism
David
Orden and Robert Paarlberg
Award-Winning Essay Selected by the Blue Ribbon Essay for the 21st Century Committee of the American Agricultural Economics Association
Published in the Review
of Agricultural Economics
Fall/Winter 2001
Abstract
Two large issues face American agriculture in the 21st Century. Commodity policy has erred by placing excessive regulations on prices and production levels, creating rent-seeking opportunities for some farm producers. Escaping the lingering adverse consequences of these market regulations remains a challenge, both at home and abroad. A new challenge will be to avoid an onerous re-regulation of agriculture according to production methods, creating new rent-seeking opportunities. Diverse farm enterprises can prosper in the future if informed consumer choice is preserved within free and competitive food markets, but finding a policy framework to foster this desirable multi-agriculturalism will prove daunting.
The
New Century of Multi-Agriculturalism
David Orden and Robert Paarlberg
Desirable farm and food sector outcomes have always required supportive government institutions and foresight in the design of agricultural policy. To envision the looming governance challenges of the 21st Century, imagine these sectors of the American economy by 2030 or 2050, some one hundred years after the activists of the New Deal redefined the regulatory and management roles of government, particularly in agriculture.
If the developers of biogenetics and informatics progress with their scientific revolutions, the prospects are good in the 21st Century both for an abundant food supply and for agricultural production practices conducive to protection of the environment. Anticipating further structural change, the farm population will be smaller than today yet still socially diverse, and the rural farm landscape will serve multiple purposes in production and recreation. As medical researchers and nutritionists pursue advances in human health, their new knowledge will contribute to provision of a safer and healthier consumer food basket. The prosperous post-war generation will have the means and incentives to demand each of these outcomes as it matures and ages. If we could be transported some thirty or fifty years into the future we would marvel at what modern agriculture has wrought, just as an unsuspecting observer transported forward from a century ago would already marvel today at how fortunate we have become.
Each generation faces its own challenge. The conditions that reshaped both the mission of American agriculture and the definition of good farm policy at the beginning of the last Century arose from constraints on the availability of land and labor. The continental frontier had closed, new federal immigration restrictions had reduced the influx of unskilled workers, and urban industries lured a growing share of farm people into town, where they could earn a better living working in factories and urban services. The task of agriculture was thus to produce more food without more acreage, and with much less farm labor. Good farm policy had to support the outmigration of farm workers by promoting technologies capable of replacing unskilled laborers on the land, and by extending new educational and infrastructural assets of those who remained on farms to ensure the most productive use of these new technologies.
This production efficiency challenge was met in the 20th Century with astonishing success. Public investments in roads, electrification, education and rural health played a central role. Yet in some respects public policy toward agriculture impeded progress. Following the economy-wide macroeconomic collapse of the 1930s, commodity price support and supply control programs were set in place that idled farm resources and distorted incentives, reducing agricultural production efficiency. Initially designed as temporary emergency measures, these market interventions quickly became entrenched, when farm lobby groups with an incentive to subsidize income over the long run gained policy control.
The Depression-era commodity policy misstep is still being corrected at the turn of the 21st Century. Completing this task is necessary to ensure the efficiency of agriculture, globally as well as domestically. Largely as a result of intrusive farm commodity policies in the United States and abroad, agriculture lags behind most other industries in achieving global market integration. Closing this gap is one of the challenges facing American farm policy.
Agricultural policy will also face other challenges as the new Century unfolds. Most farmers will persist in the decades ahead with their traditional competition to produce bulk commodities in large volumes at the lowest possible cost. Yet these traditional cost-cutting commodity producers will be joined in the 21st Century by growing numbers of farmers who will appeal to their customers not on the basis of low price, but instead on the basis of their unique (and often higher-cost) production processes. These process-defined farmers will compete not to produce good food that is inexpensive, but instead to produce good food that is gown or raised organically, locally, or (by some definitions) ethically. There will be plenty of economic space for bulk-product and process-defined farmers to prosper side-by-side in the future, but finding a policy framework to permit this desirable outcome will be daunting.
One of the challenges as process-defined farming takes hold will be to avoid the mistake of imposing an onerous re-regulation on agriculture, this time according to production process standards. Until now production practices in American agriculture have been regulated mostly according to product standards, an approach that has given individuals freedom to farm in productive and innovative ways. Pressures will build in the new Century to limit this freedom to farm with regulations designed to constrain or stigmatize various emerging agricultural production technologies. Particularly as commodity production in American agriculture becomes more fully industrialized, there will be an urge among some important groups in society to bring this evolution to a halt. Political pressure to regulate industrial agriculture will grow stronger in the coming years partly because some of those advocating the new regulations will themselves be process-defined farmers. This cohort of farmers can be expected, as they grow more numerous and better organized, to advocate replacing product standards with process standards in the governance of both farm production and trade.
These challenges that agricultural policy faces in the 21st Century—to complete commodity program reform and to meet new process-defined consumer demands without an imposition of crippling regulations—are as different today as the challenge to raise production efficiency was at the start of the 20th Century, compared to the earlier settling of prairie homesteaders on a once seemingly endless continent. Process-defined consumer preferences are a novel concern for most traditional commodity producers. Yet politically-active process-defined farmers and their consumer constituents will increasingly condemn modern production techniques in the decades ahead, and will seek trade barriers and domestic regulations against those technologies. This conflict could transform American agriculture into a house divided against itself. To avoid a divisive outcome, a tolerance for different ways to farm must be preserved. Regulations must allow for a diversity of agricultural production practices—for new forms of freedom to farm guided by informed consumer choice and sustained within a framework of market-based global integration. Fostering this new ethic of multi-agriculturalism in America will be a challenge to policy analysts and decision makers alike.
Completing Commodity Program Reform
American agriculture at the
turn of the 21st Century scarcely resembles the troubled and impoverished
sector in need of emergency assistance some seventy years earlier. In
1933, the average income among six million farmers was less than one-half
the national average. This income gap has now been eliminated, despite
a trend decline in real farm commodity prices, because productivity has
improved for more than a half-century through technological advances,
capital investments, farm consolidation, and labor outmigration. Today’s
farmers earn more on average than non-farmers, and manage to do so in
several different ways. Farm assets and net income are substantial for
large-sized production units (just 125,000 commercial farms now produce
more than one-half of the nation’s agricultural output), while on
smaller farms the income received from non-farm sources is more important
than farm-derived income.
As the production of food and the income and employment of farmers have
undergone these dramatic changes, farm policy has tried to adjust. The
rigid commodity price support programs, that in the early 1960s were still
idling one-fifth of cropland, were slowly reformed: farm income support
through direct cash payments replaced some market price guarantees that
were backed up by government stock-holding. This policy evolution toward
direct payments began in the mid 1960s, when price support levels were
lowered for corn, wheat and cotton to enhance U.S. competitiveness in
world markets, and farmers were offered payments as compensation. A substantial
further advance came in the mid 1980s, when price supports, having been
set too high in anticipation of inflation that did not materialize, were
dropped nearly twenty-five percent, with direct payments once again offered
to participating farmers to provide a higher nominal return for their
output.
The 1996 farm bill has marked yet a third stage in this progression of farm policy toward direct payments instead of market interventions. The election in 1994 of a Republican majority in the House of Representatives (the first in 40 years) ruled out a continuation of annual acreage reduction programs (ARPs) which Republicans had always opposed. Republicans were more comfortable with existing direct payments that were partly coupled to planting decisions and market conditions, but when market prices shot up unexpectedly in 1995-96 the only way to keep the government payments coming was to decouple them from those prices.
The 1996 farm bill has achieved some reform successes. Farmers have responded to the planting flexibility it provided with substantial shifts in acreage among crops, and the delivery of decoupled cash payments has been prompt and efficient, which farmers have come to appreciate. Adjustments were also eased because the high market prices of 1995-97 did not push up loan rates automatically under the new bill. When market prices subsequently fell from these temporarily high levels, price supports were not so badly out of line. And for the first time since the Depression, a damaging reversion to annual acreage reduction programs was avoided (in 1998, 1999 and 2000) under the new law. As a result, foreign competitors, who had previously been able to count on unilateral production controls in the United States to cushion their own farmers from periodic market downturns, now had to share more equitably in the adjustment burden.
The progressive shift away from intrusive market supports and toward decoupled cash payments in the last half of the 20th Century also has limitations from a policy reform perspective. This approach has purchased greater market efficiency for American agriculture at a high cost to taxpayers. It has not brought into view any date certain for an end to farm support programs, nor has it achieved any significant income- or asset-based targeting—payments continue to be made to farmers because they are farmers, without regard to their actual need. A termination of payments to even the most prosperous commercial farm operators, the sort of “graduation” seen as desirable in most other social policies, has proven elusive in farm policy. Yet this costly and untargeted movement toward direct payments has been the only policy reform approach that has been politically acceptable to the farm program beneficiaries, who continue to exercise a dominating influence over the policy making agriculture committees of Congress.
Continued progress along the farm policy reform path of direct payments is not guaranteed into the 21st Century. With low farm prices, even the loan-rate caps in the 1996 farm bill have proven too high, stimulating production in 1998-2000. Farmers have shifted among crops, but they have cut back little on total output despite low price levels for all crops. In part this has resulted from improvised political decisions: in each of three consecutive years of low prices, Congress has responded with temporary legislation to spend more than originally scheduled on direct payments. With a budget surplus in hand, Republicans and Democrats in Congress have not been able to resist bidding against each other to vote emergency relief to farmers. The basic features of the 1996 farm bill have been retained as Republicans have retained a slim congressional majority through 2000, but a new Congress will have to revisit all of the farm policy issues in 2002. Without any semblance of budget restraint, the latest phase of direct payment reform has been costly enough to lose its appeal as a long-term farm policy solution.
Much is at stake in how this conundrum is resolved—not only the efficacy of domestic policy but the efficiency of the global food system as well. An open global food system is necessary for bulk-product American agriculture to prosper on commercial terms in the coming Century. Yet today’s global food markets remains tarnished by high tariffs and nontariff border restrictions, by domestic support policies that limit market access, and by trade-distorting export subsidies. A fundamental challenge for American farm policy is to reduce these trade distortions and thus foster more global integration for agriculture in the 21st Century.
Agriculture was originally kept out of post-World War II multilateral trade liberalization at the behest of the United States, and has been slow to come under international policy disciplines ever since. The 1986-1994 GATT negotiations finally achieved some credible rules, by establishing a framework to constrain tariffs, domestic supports, and export subsidies, and to ensure minimal international market-access levels. Yet protection for agriculture remains much higher than for other industries under the final GATT/WTO agreements, and U.S. farm policy has been disciplined little so far by these agreements.
Can less fettered world agricultural trade, essentially free trade, emerge from WTO negotiations by 2035 or 2040, roughly one hundred years after Depression-era farm policy interventions were initiated in the United States? This is a worthy goal, one from which the world as a whole could reap the great benefit of a secure and low-cost basic food supply. But the limited results and fourteen-year duration of the last GATT round (eight years of negotiations, followed by six years of implementation) is a sobering reminder of the difficulty of achieving farm policy reform internationally. At this pace, only three more global agreements on agriculture may be available over the next forty years. To achieve essentially free trade in agriculture in just three rounds of negotiations will take substantial progress under each agreement: curtailing the highest tariff rates and lowering tariffs by an average of ten percentage points each time, doubling low-tariff market access and cutting allowed export subsidies by one-third each time, and limiting domestic support levels by billions of dollars. These are tall orders for accomplishment.
In the political dynamic between the setting of domestic policy and the locking-down of policy restraints through international negotiations, domestic reforms need to pave the way for international agreements, since they are seldom pushed by such agreements. The 1994 GATT/WTO agreements enshrined as exempt from international disciplines the very form of partially coupled payments that the 1996 U.S. farm bill abandoned. The United States must stay on this course of unilateral movement toward direct payments if it hopes to achieve the open trading system in which American agriculture can best prosper in the 21st Century. Continued domestic reform and international negotiating advantage can be reinforcing. If American farm policy stays on course toward less market interventions, the United States gains increased competitiveness in world markets, and can more easily press others in the WTO for simplification of trade and support policy rules and greater trade openings.
In pursuing this purpose, there are two major risks. The first will be the temptation, so apparent over the past three years, to spend too much on poorly-targeted direct payments to farmers. The domestic bidding war that has taken place recently between political parties easily can escalate into an international bidding war among nations. Even if the payments at issue are as decoupled as U.S. payments have become, it is naive to assume that production and trade will not be affected. At some point the strategic advantage in international negotiations (from increased competitiveness of our own income-subsidized farmers) will be offset by the retarding effect that mutually large subsidies will have on the pace of progress toward more open markets.
A second risk at the turn of the 21st Century is that the United States will be too slow to secure reforms for those few import-competing commodities that still receive significant border protection: in particular dairy, sugar and peanuts, but also some fruits and vegetables subject to high peak-season tariffs. Such programs have been insulated from reform pressure until now because the import restrictions employed to make them work are primarily damaging to foreign farmers, while the costs borne by domestic consumers are obfuscated. Yet there is a limit to the use of this policy option: once imports cannot be reduced further, then border measures alone will not sustain high domestic prices.
Recent stress on the U.S. sugar program illustrates this point. Until 2000, it was possible to maintain domestic prices for sugar at levels commensurate with legislated loan rates without forfeitures of sugar stocks, mostly by squeezing down on imports that exceeded the low minimum international market-access commitments. In 2000, domestic supply increased relative to demand putting downward pressure on prices, even with imports at the lowest levels international agreements would permit. The USDA announce a partial plow-down of the sugar-beet crop and purchased over a half-million tons of sugar to prop up prices, illustrating vividly the efficiency loss implied by the sugar program. More such waste is in the offing if the sugar program is not changed. The United States is committed to access of additional sugar imports from Mexico by 2008, under forward-looking NAFTA provisions designed to eliminate all of the agricultural trade barriers between the two countries. This will put still more pressure on the sugar program.
One unattractive option for sugar policy in the face of these pressures will be to hold up the level of U.S. prices by maintaining current loan rates and increasing constraints on domestic supply. Stocks can be accumulated by the Commodity Credit Corporation, and if that is not enough crops can be plowed down in the field, or marketing allotments or acreage restrictions can be re-legislated, or paid land diversions can be adopted. But these are the type of government storage and supply-control measures that Congress has progressively abolished for other crops. Their adoption now for sugar would damage the industry and weaken U.S. negotiating leverage in the WTO.
An alternative to the current program offered by some critics of sugar policy is to eliminate all domestic support unilaterally and simultaneously increase imports until U.S. prices fall to world price levels. This is too extreme a policy change, since world prices are depressed by production and export subsidies of the European Union and other high-cost sugar producers.
To resolve this impasse, a new policy is called for that progressively converts the sugar program to one based on direct payments. This policy would reduce government entanglement in the workings of the sugar market and provide more price flexibility in the short run, allowing multilateral trade policy reform that includes sugar to be sought in the long run. As a first move in this direction, the United States might adopt marketing loans that would free up sugar prices on the consumption side, while retaining current price guarantees to producers. A more dramatic option is to implement fixed direct payments and lower loan rates. Either step would move sugar policy at long last down the reform path seen for other field crops since the mid 1960s.
The policy challenges confronted for sugar illustrate that the issues faced in the reform of farm commodity policy are political more than ideological. This will not be an intellectual struggle waged between old and new beliefs (or paradigms) about the proper role of government in agriculture. It is more easily understood in simple institutional and material terms, as a long twilight effort to withdraw lucrative policy entitlements from well-organized farm lobbies both at home and abroad. The recipients of farm commodity programs at home (especially those with farm asset values to protect) will not give up their policy-induced rents without a fight. Nor will the congressional committees and executive branch institutions that have built their power around the periodic renewal of farm commodity programs be eager to relinquish their influence.
Domestic policy reform challenges are thus enmeshed in the broader objective of achieving global food market integration. To achieve the multilateral goal may require a heretofore unattainable revision of American farm policy legislation. This would be to eliminate the outdated set of permanent domestic farm laws (some of which date from 1938) that remain on the books, ready to take effect automatically if ever a temporary farm policy renewal measure should fail. Attention is required to the legal and operational mechanisms that will be required to eliminate these outdated permanent measures. Efforts to repeal permanent law have always been blocked by traditional commodity-program advocates, even in 1996 at what was then the cresting of a pro-reform political tide. Yet this political struggle may well be won in the 21st Century, not the least because of the changing material interests of American farmers.
Meeting the Process-Standard Regulatory Challenge
Even if the task of commodity program reform is finally completed sometime early in the 21st Century, other policy threats to the efficiency of the American farm sector will arise. Among the most important of these will be a possible re-regulation of agricultural production practices according to process standards rather than product standards. The proponents of this regulatory switch will include a broad coalition of consumer, environmental, labor, and animal rights groups, plus less-efficient foreign farmers, plus a new cohort of process-defined farmers in the United States who want to compete not on the basis of what they produce but instead on how they produce. In the 21st Century, growing numbers of process-oriented farmers and like-minded consumer activists will try to persuade government of the advantages of regulating agricultural products according to production process. Whether farm products are grown organically, or sustainably, or without hormones, or without genetic modification, or locally, or cooperatively, or “ethically” by some other special criteria will become contested as a basis for regulation.
Process standards have traditionally been rejected by federal policy makers as inappropriate for regulating agriculture. Granted, USDA has always imposed some process regulations related to food safety. But it is the quality of the food product, not the nature of the production process that is scrutinized by FDA. It is the level of pesticide residue on the food, not the frequency of pesticide use on the farm, that is regulated by EPA. And in the WTO, U.S. negotiators have opposed trade discrimination based on any production process standards (e.g., beef cattle raised without injections of growth-inducing hormones) that lack a scientifically-established justification.
Policy makers in the United States have not wanted to turn too heavily to process-standard regulation of agriculture for good reasons. They have not wanted to privilege one production process over another with mandatory rules, for fear of getting in the way of market competition and of undercutting science-driven technology change. Nor have they wanted to privilege local over non-local production and hence lose the efficiencies normally captured through specialization and trade. Consumers in the United States, until now, have generally welcomed the high farm productivity growth and the lower food prices that have been one result of the product standard approach.
The durability of this mutual understanding between producers and consumers is in doubt for the 21st Century. If cost-reducing technical innovation moves ahead without restraint, a number of already visible trends in American agriculture will strengthen. Average farm size will continue to increase, and production will become even more concentrated in the hands of relatively few wealthy producers. Farms will become not only larger but more specialized. Vertical integration will change the status of still more independent farm operators to nearly that of contract workers. The physical appearance of farming will also change decisively, as factory-like livestock containment facilities and giant commodity processing plants will continue to replace traditional family farm homesteads.
As these developments unfold in the coming decades, today’s consumer acceptance of farming practices designed primarily to lower costs will weaken. As consumers become more affluent, they will increasingly express preferences that go beyond food product quality or expense. They will want to know how their food is being produced. With commodity production continuing to become more industrialized, these affluent and sensitive consumers will not like what they see. The industrialized farms will be efficient, but a significant number of consumers will be uncomfortable with the manner in which crops and animals are raised on these farms. A growing number of consumers will be willing to pay a premium for foods produced using higher-cost methods—without chemical fertilizers or pesticides, hormone-free, not genetically modified, or grown with a more constraining ethic toward animal rights or landscape preservation.
To the extent that these consumer tastes develop in adverse reaction to industrialized agriculture, alternative process-defined farmers will emerge to service these new preferences. Economically, there will be nothing to prevent the new process-defined farmers from working and prospering side-by-side with America’s low-cost bulk-product farmers. Market niches for products that are organic, or local, or have other special process attributes can thrive alongside traditional markets for low-cost commodities. Politically, however, the peaceful co-existence of these two different kinds of farming will be hard to maintain.
Livestock production is one arena in which a political contest between process-defined versus bulk-product producers is already emerging. Currently almost one-tenth of total hog production in the United States takes place within a single ten-mile stretch of countryside just north of Ames Iowa where giant metal sheds with confined sow gestation crates have recently been built to fatten 4,000 animals at a time for carefully programmed slaughter. North Carolina even tops Iowa in industrialized hog farming; it has nearly 500 hog facilities that house more than 5000 animals each.
Traditional small-scale hog producers cannot compete with these factory-like hog facilities because they cannot deliver as many fattened animals of uniform quality in regular numbers at a comparably low cost. Consequently, this rise of industrial hog farming is destined to displace inefficient small-scale producers. But it will also create a market opportunity for alternative process-defined producers, who will learn to prosper by offering “humanely treated” or “traditionally grown” pork products to affluent or sensitive consumers at a higher price. This by itself is to be welcomed as a healthy market outcome.
The new policy danger will arise when the cohort of new process-defined farmers become sufficiently large and well enough organized politically to begin challenging low-cost commodity producers for control of the nation’s farm and food regulatory systems. Process-defined farmers will join with other activists at this point to try to use regulatory policy to impede the production options of low-cost producers. If regulations are designed to protect legitimate public goods off the farm (e.g., water quality; the industrialized North Carolina hog operations produce roughly 2.5 tons of hog feces and urine annually per citizen of the state) or legitimate public interests on the farm (e.g., occupational safety for workers) there should be no objection. But if the regulations are designed simply to take away from bulk-product farmers the production process options that have helped them reduce cost, such as the ability to raise animals under certain forms of confinement, then important economic values will be threatened. Process-defined farmers will be using their control of government to impose crippling regulations on their industrialized farm competitors, rather than using their competitiveness in the market to take customers away simply by offering an alternative way of farming.
In the 20th Century low-cost commodity producers and their allies in the agribusiness input-supply and processing industries usually prevailed in the political struggle to control standard-based regulatory policy. These interests were able to defeat most efforts to impose process-standard regulations in part by tainting such efforts as bad for family farming. In the coming decades this defense will weaken, as it will be the operations of new process-defined farmers, not the industrial-scale bulk-product producers, that will come to be seen by the rest of society as more closely resembling the traditional family farm. When a sufficient number of alternative process-defined farmers are demanding new process regulations, those regulations will no longer seem so bad for the family farmer.
The ensuing political struggle will constitute rent-seeking behavior of a new kind. The prime policy objective of the process-defined farmers will not be to seek rents directly in the form of government subsidies, nor will they focus on taking away subsidies from low-cost farmers. Their objective will be to use regulations to take cost advantages away from industrialized farmers by restricting their production methods.
Unfortunately, partisan political competition will reinforce the tensions over process-standard regulations that will emerge within American agriculture. The Republican Party will remain comfortable defending the prerogatives of industrial farming in the name of deregulation, productivity growth, and free trade. The Democratic Party, traditionally more comfortable defending the interests of less efficient commodity producers, will switch to defending the claims of the process-defined farmers in the name of environmental protection, community protection, consumer rights, labor rights, or animal rights. The tide of the policy battle will ebb and flow depending largely on the ebb and flow of party control within state legislatures, governorships, the houses of Congress, and the federal executive.
The stakes in this battle will be large, because if excessive process regulations are imposed on agricultural producers in the United States, production costs will increase, raising domestic food prices and undercutting the competitiveness of U.S. commodities in export markets. The position of U.S. negotiators in international trade negotiations will be undermined as well, because once process-standard mandates are embraced in regulations at home it will become more difficult for U.S. negotiators to argue against the use of such standards as an element in policy abroad. In Europe the switch to industrialized farming is not as far along as in the United States, so process standards—if accepted by WTO—could quickly become a favored means of protecting European farmers against U.S. imports. Strong green parties in Europe and elsewhere that are opposed to market-driven technological change would seize the opportunity—supported by high-cost traditional farmers plus various process-defined alternative farmers—to erect new barriers to trade. Whatever progress had been made elsewhere within the WTO to liberalize international agricultural markets would thus be threatened. Efficient agricultural producers and exporters, as well as low- and middle-income consumers seeking access to least-cost bulk commodities, would bear the brunt of this new regulation.
Yet if bulk-product farmers in the United States attempt to stonewall on all of the process-standard regulatory challenges that will emerge in the years ahead they may only be able prevail for a time, and at a growing risk. The more bulk producers are seen as resisting process standards, the more they will alienate some of their final customers by seeming not to care about the concerns of those customers. The more publicity industrialized farming receives as this fight goes on, the lower will fall the reservoir of public trust. If bulk-product farmers overplay their hand, they will strengthen the regulatory backlash against them.
The potential for such backlash was demonstrated in a recent clash over regulation of organic foods. Bulk commodity producers have, since 1996, captured new efficiencies through the planting of genetically modified (GM) seeds, particularly herbicide tolerant soybeans and insecticidal Bt corn and cotton. Within the United States these GM crops have so far been regulated by USDA, FDA and EPA in the same fashion as non-GM crops, with close attention paid to the possible risks they might pose to health, nutrition, or to the environment, but without any special attention to the genetic engineering process through which they were created. The life-science seed companies and commodity producers that profit from GM crops should have been content with this favorable regulatory environment, but in 1997 they overreached. They encouraged USDA to include GM crops (along with irradiated foods and foods produced using sewage sludge) in the Department’s proposed definition of what would be considered “organically produced” under the federal Organic Foods Production Act of 1990. Process-defined organic producers were outraged—they saw this move as an effort by conventional agriculture to deny them their niche market, a niche that rests on being a certified source of GM-free foods, or foods safe from other production methods that their customers find undesirable.
The political outcome of this regulatory battle has been revealing. Over a three-month period USDA received 270,000 separate citizen comments on their draft rule, most of them adverse. The Secretary of Agriculture then agreed that the draft would have to be rewritten to exclude GM crops, irradiation, and use of sewage sludge from the definition of what was organic. In this case of regulatory decision making, process-defined farmers prevailed.
Having found their collective voice on the GM crop issue, organic farmers sought more than a restoration of the status quo ante. They went on the offensive in 1999, joining other activists in support of a new “Genetically Engineered Food Right to Know” bill that would require labels on any food containing just one-tenth of one percent GM ingredients. The current cost advantages of using GM seeds will be lost if these activists are successful in passing a law that forces FDA to adopt a strict right-to-know approach with a 0.10 percent GM content threshold. The cost savings in production from GM seeds will be offset by added new costs of maintaining segregated storage, processing, and marketing channels to distinguish GM from non-GM foods, or by the direct costs and market price discounts induced in some cases by having to put a GM label on almost everything except foods certified organic. Similar initiatives that would restrict the opportunities available to traditional commodity producers and threaten their profitability are being pushed by other process-defined farmers.
A policy challenge in the 21st Century will be to limit the damage from this looming culture war between process-defined and bulk-product farming. With every year that goes by the demographics of American agriculture will make it more difficult to dismiss process-defined farmers as marginal in federal policy making. While the number of conventional commodity producers continues to decline, the number of alternative process-defined farmers continues to increase. There are currently just 12,000 organic farmers in the United States, but this number is growing by more than 10 percent annually, and the organic share of agricultural production, now valued at only $6 billion, is growing at roughly 20 percent yearly. It is not impossible to imagine, with rising consumer incomes and an aging, health-conscious population, that the domestic organic food market will grow to 5 or 10 percent of total food sales within the 21st Century. A policy framework will be needed that allows organic and other process-defined farming to prosper alongside industrialized farming as a competitive response to satisfying consumer preferences, rather than one that cripples industrialized farming with punitive or stigmatizing regulation.
Part of the policy solution may be for traditional American agriculture to endorse more use of process-standard labels on foods, including even some mandatory labels, as an alternative to mandatory process-standard regulation of food production. This might seem a disagreeable second-best approach for today’s bulk commodity producers—who currently do not have to label their products as “grown using insecticides” or as “raised in confinement.” But if conventional agriculture accepts some process-standard labels in the short run, it may not have to accept more onerous process regulations in the long run. This is essentially why the WTO permits some label requirements on food products as compatible with free trade: governments that are permitted to require labels will be less likely to restrict imports altogether.
Process-standard labeling will
enter America’s food system in any case, because many foreign customers
are already employing labels domestically as an alternative to process
regulation, and will require labeling compliance as a condition for accepting
imports of U.S. farm products. Lack of harmonization of labeling requirements
among nations will inevitably cause some trade disruptions, but need not
undermine the global trading system. Voluntary market-driven identity-preservation
systems currently account for 10 percent of U.S. farm output, but within
a few decades they could be accounting for 25 to 30 percent or more, particularly
if the production of GM-free corn and soybeans under contract continues
to spread in response to international market demands. Conventional bulk
commodity producers in the United States will themselves call for standardized
identity-preserving GM labels on some foods, once a second generation
of nutraceutical GM products becomes available for these farmers to sell
to consumers at a premium. As these demands strengthen, government regulation
has a role to play to ensure that consumers retain confidence in food
products and their labeling claims.
The tactical advantage that bulk commodity producers should seek when
accommodating the interests of process-defined farmers on labeling policy
will be greater control over the terms and content of the labels.
hresholds will be important in terms of what regulators decide constitutes “insecticide use,” or what constitutes “confinement,” or how much GM content is required to trigger a mandatory “GM” label. Labeling requirements, if designed well, will not have to push all commodity production into identity-preserved marketing channels. For example, if GM labels were required only on packaged foods already labeled, and only on foods where processing has not eliminated the option to perform physical tests for GM content, and only on foods that have GM content above a significant minimum threshold, a mandatory labeling system could be imposed to reassure consumers (and undercut GM critics) at modest cost. By accepting such a labeling requirement, commodity producers could avoid any damaging charge that through their intransigence the domestic consumer’s “right to know” was being violated.
Twenty-first Century Multi-Agriculturalism
We have laid out two large policy issues faced by agriculture in the 21st Century. Commodity policy erred by placing excessive regulations on prices and production levels in the 20th Century, inadvertently creating rent-seeking opportunities for some farm producers. At the turn of the 21st Century, it remains a challenge to escape the lingering adverse consequences of these market regulations.
The new challenge for the future
will be to allow many different kinds of farming to prosper in America
side-by-side. Call it a renewal of freedom to farm, or a new multi-agriculturalism.
In this case, avoiding excessive government regulation of farming processes
will be the key. Policy makers must not place excessive regulations on
agricultural production methods in the 21st Century, inadvertently giving
rent-seeking opportunities to process-defined alternative farmers. It
would be a serious mistake to adopt arbitrary process standards as a means
to govern agriculture, since it would lead to costly production mandates
and restrictions on consumer choice both in the United States and around
the world. Yet it would also be a mistake for policy to entirely rebuff
emerging demands for the consumer right to know about process-defined
product attributes. If informed consumer choice within free and competitive
food markets can be preserved, many different kinds of farming can prosper
in the 21st Century, and a damaging re-regulation of American agriculture
can be avoided.
David Orden is professor of agricultural and applied economics at Virginia Polytechnic Institute and State University. Robert Paarlberg is professor of political science at Wellesley College and an associate of the Weatherhead Center for International Affairs at Harvard University. Senior authorship of “The New Century of Multi-Agriculturalism” is shared equally.
