The agricultural and food component of the U.S. economy is large and dynamic by most economic measures. While farming accounts for just over 1 percent of GDP and employment, the full economic significance of farming is much larger because agricultural products are used in value-added activities such as food manufacturing, services, and food stores. A broader definition of food and agriculture implies a 6 percent share of GDP and an 11 percent share of employment. More than half of the nation’s 2.3 billion acres is in farm and ranch-land uses. These lands also provide environmental and recreational services to an ever-increasing urban population and an important tax base to surrounding rural communities. Because of this varied footprint, the food and agricultural sector encompasses many contemporary issues that Americans care about, sometimes passionately and in highly charged political environments.
U.S. agriculture has historically been one of the most productive in the world, owing to its rich land base, advanced technologies, and consistent investments in land grant universities and extension systems since the middle of the 19th century. Modern agriculture has also evolved into efficient international agribusiness supply chains connecting agricultural input suppliers to farmers, processing plants, and wholesale and retail outlets. High levels of U.S. agricultural productivity have translated into a large commodities-export business. While the U.S. economy, in general, has a trade deficit, agriculture consistently has a positive trade balance.
There are about 2.1 million farms in the United States, but owing to the high rates of productivity for some, most production occurs on a small share of those farms. The latest Census of Agriculture showed that in 2012 two-thirds of all agricultural products were produced on 3.6 percent of the farms. This is somewhat misleading and understated, however, because approximately one-quarter of all farms, by the very liberal official definition of a farm, have no sales in recent census years. These are largely the rural places where people prefer to live for lifestyle reasons and the generous tax breaks provided to farmers and landowners. Recently, a growing share of domestic consumers are demanding local foods or foods with nonconventional attributes, such as organic production. This is a small but growing segment of the industry. By definition, local foods will be produced on smaller farms near urban markets along with some organic production, but organic foods are increasingly produced by larger farms owing to the same market efficiencies experienced by conventional large-scale production.
Agriculture is often used as the Economics 101 textbook example of an industry closest to meeting the characteristics of a theoretically competitive industry, such as the presence of many sellers. This is highly ironic given that it is an increasingly consolidated and integrated industry, and also the focus of many domestic policies and concomitant politics. Subsidies to farmers are nothing new—they’ve been going on in their modern form since the New Deal—and are often justified by national food security interests. The argument is straightforward: We would not want to rely on our trading partners for basic essentials of life in a turbulent world.
Alliances in the Making of Farm and Nutrition Legislation Have Prevailed
Many U.S. farm and food policies follow a five-year legislative cycle to produce a “Farm Bill.” This is an expansive piece of legislation composed of a dozen Titles that covers the traditional crop commodity programs, crop insurance, dairy and livestock programs, specialty crops, organic agriculture, conservation, credit, research, trade, rural development, nutrition, local foods, and beginning-farmer programs. The latest Farm Bill, formally entitled the Agricultural Improvement Act of 2018, was signed into law on December 20, 2018. This law replaced the 2014 Act, which was in effect from 2014 to 2018.
The 2014 legislation was two years late in passage because, spurred on by House Tea Party members, there was a somewhat successful effort to cut food assistance provided in the Supplemental Nutrition Assistance Program, or SNAP (and still sometimes referred to as the Food Stamps Program, though the name was officially changed in 2008). Despite tumultuous political times on Capitol Hill over the 2017-18 period, the bottom-line is that the 2018 Act is generally considered a status quo piece of legislation with veto-proof majorities in both Houses.
So, how did our lawmakers manage to pass the 2018 Farm Bill in a timely manner in contrast to the struggles of 2014? One short answer is the blue wave that rolled over the House in the November 2018 elections. Conservative Republican lawmakers in the House, encouraged by the Trump Administration, were fighting for more stringent work requirements for SNAP eligibility prior to the 2018 elections. This was a nonstarter for House and Senate Democrats. After the elections, the Republicans recognized that if they didn’t pass the legislation during the 115th Congress, the Democrats would pass the legislation in the 116th. Failure to pass the legislation in the 115th also meant the Democrats would get the credit for delivering the commodity programs to the farm sector at a time when farm prices were low and aggregate farm income had dropped from historically high levels. Secretary of Agriculture Sonny Perdue—former Governor of Georgia, cousin to Senator David Perdue (R-GA), with strong commercial agriculture interests—placated the Republicans by promising to issue a rule to curtail state waivers of the current work requirements for the 36 states that currently have waivers for their SNAP populations.
The long-term, status quo policies of resisting reforms to subsidy payment limits for the largest farms also prevailed in the 2018 legislation. Only about 40 percent of farms receive any subsidies and subsidies are highly concentrated among the nation’s largest farms. The Environmental Working Group, using data they obtained through a FOIA request of USDA, reports that from 1995 to 2017, the largest 10 percent of subsidy recipients received 54 percent of all subsidies averaging more than $1 million over the period. Despite Senator Charles Grassley’s efforts, the 2018 legislation failed to require that farm subsidy recipients even be working on farms—this at a time when Republicans were strenuously arguing that work requirements for SNAP recipients should be significantly tightened. Instead, the farm subsidy requirement is that additional recipients of farm payments be involved in “active personal management,” something vaguely defined and unenforceable. The General Accountability Office (GAO) estimated that in a recent year the 50 farm entities with the largest farm subsidies had nearly 200 additional persons receiving farm subsidies through this loophole. The GAO also estimated that, in 2015, payments through this loophole amounted to $259 million of taxpayer money.
The rare bipartisanship that has fostered passage of the Farm Bill legislation for decades lies in the collaboration of two strange bedfellows, the farm-state legislatures and an urban coalition focused on the importance of SNAP to their constituents. More recently, the legislation has also included farm programs more appealing to urban lawmakers, such as support for local farmer markets and beginning-farmer programs. In exchange for the support of nutrition programs, farm-State legislatures are able to maintain and even strengthen farm subsidies. This coalition was solidified in the 1970s as farm-State legislators realized that to many in the general population agriculture had lost its historical uniqueness and possessed a dwindling voter base, with the farm population reduced to 1-2 percent of the population. This led to a concerted strategy to build what is today the Farm Bill coalition.
Small-government conservatives disdain both farm subsidies and nutritional assistance programs. In 2014 in the House, the Heritage Foundation and other conservative think tanks led an unsuccessful effort to diminish the power of this political coalition by breaking apart the farm Titles of the legislation from the nutrition Titles. Given the strength and successful record of the coalition, it is unlikely that such an effort to split the Titles of the Farm Bill will prevail in the foreseeable future. Indeed, in recent years the coalition has only been strengthened by the addition of environmental groups advocating for conservation issues and lawmakers from urban areas advocating for a more inclusive agenda of issues such as food safety and local foods.
U-Turns on Rules Under Trump
Unlike the largely status quo policies written into legislation under the 2018 Farm Bill, several politically charged rules related to agriculture and food processing are being reversed under the current Administration. It is clearly a case of “the devil is in the details,” but special interests are well aware of critical rules affecting their goals, which usually sum to their bottom lines. In many cases, the issues are longstanding and are altered repeatedly as administrations change. It is worth highlighting a few of the recent changes.
One change concerns the Federal rules governing line speed at the nation’s 174 chicken processing plants. Americans eat more chicken than any other meat. America also exports more than seven billion pounds of chicken, accounting for 17 percent of total U.S. production. The median salary of a worker in a chicken slaughterhouse is about $27,000 annually—and at least one-quarter of them are undocumented. Before the current Administration’s new USDA guidelines on the speed at which chickens could be processed the maximum speed was 140 birds per minute. In September 2017, the National Chicken Council, which represents the poultry industry, asked the USDA’s Food Safety Inspection Service to eliminate any restriction on line speeds. While the USDA did not totally eliminate line speed restrictions, it changed the guidelines to allow companies to apply for waivers to allow processing speeds of 175 birds per minute.
This matters because line speeds affect worker safety and the risk to consumers of foodborne illnesses, in particular, salmonella. Consumer groups oppose the waiver allowance because the pathogens in the salmonella group are one of the most common causes of foodborne illness in the United States, and the FDA has found them becoming more resistant to antibiotics. This is in contrast to some European countries, like Sweden and Denmark, that require the industry to adopt strict salmonella control strategies on-farm and in processing, adding about 1 cent per pound to growers’ costs of producing chicken.
Approximately 100 workers die annually in chicken processing in the United States. The Labor Department’s own data shows that worker injury rates at chicken processing plants are already more than 1.5 times higher than in other private industries. As a follow-up to this rule change, the Trump Administration is now seeking to eliminate any line speed restrictions at pork processing plants.
The Trump Administration also delayed and eventually rescinded a set of rules proposed under the Obama Administration known as the Farmer Fair Practices Rule. These rules made it possible for poultry and livestock farmers to take legal action against the highly concentrated processing companies that engaged in unfair practices. Concerns about the relationship between farmers and meat processors they sell to has a very long history, going back at least to the Wilson Administration. The debate initially resulted in the 1921 Packers and Stockyards Act to place a check on the market power of meat packers; legislation and rules governing this stage of the market have evolved continuously over this period.
While the economic analysis is mixed on whether, or how much, anti-competitive behavior exists, the processing companies continue to consolidate, providing farmers in any single region with few or even a single processor to whom to sell their production. The 2008 Farm Bill directed USDA to issue updated rules for the 1921 legislation to protect the rights of poultry growers in their relationships with the concentrated processing industry. The proposed Obama-era rules, with Democrats controlling both Houses of Congress, included provisions like lowering the standards that a producer needed to make a legal claim against a packer and a rule to make it more difficult for packers to price fix and avoid pricing transparency.
The big meat and poultry companies, preferring the status quo minimal regulatory marketplace, urged Congress not to finalize the proposed rules in defiance of the 2008 legislation. With the 2010 elections returning control of the House back to the Republicans, the rules were never finalized; instead the livestock companies successfully lobbied the Republican-controlled House Agriculture Appropriations Committee to reverse the intent of the 2008 Law through its funding authority by attaching a so-called “GIPSA rider” to appropriations. Congress used this process to annually defund these rules through 2015. Then, following an exposé by political comedian John Oliver, and his pleas to viewers to call their congressional representatives, the annual rider was unsuccessful in 2016. With the election of Donald Trump, the hard-fought, 10-year struggle to finalize the proposed interim Farmer Fair Practices Rule was rescinded in October 2017 and the Trump Administration indicated that it would take no further action.
Of special concern to environmental groups are changes initiated by the Trump Administration to the Waters of the United States, or WOTUS, which is an effort, according to Administration spokesmen, to “clarify” Federal authority under the Clean Water Act. The clarifications will supposedly establish rules for determining which waterways are subject to regulations requiring a Federal permit for any alterations.
The proposed rules introduced during the Obama Administration—under the leadership of the EPA and Army Corps of Engineers—elicited strong opposition from the farm community, most notably the largest and most politically effective farm group, the American Farm Bureau Federation. The reason is very simple: Agriculture is the number one source of pollution for rivers and streams, the number two source of wetland pollution, and the third largest source of pollution of lakes in the United States. Agriculture is also a major source of the expanding dead zone occurring every summer in the Gulf of Mexico as excess nutrients flow from the Corn Belt to the Mississippi River.
When then-candidate Trump stated that he would “eliminate all needless and job killing regulations on the books,” he specifically pointed to WOTUS. In December 2018, the Trump Administration replaced the 2015 Obama Administration’s proposed WOTUS rule. The new rule is based on the assumption that landowners should be able to determine for themselves whether they have a waterway subject to Federal regulations, without any need to consult with experts.
The 60-day comment period for the new rule will close on April 15, 2019. Some of the waterways excluded from protection by the Trump Administration would have been protected under both the George W. Bush and Obama Administrations. In contrast to the Trump rules, the rules proposed under these previous administrations would have protected wetlands with surface or shallow subsurface water connection to navigable waterways and some additional wetlands that were not directly connected by water to larger waterways.
One of Donald Trump’s signature issues is fairer trade deals for the United States, especially for the steel and aluminum industries. An early move on trade was to pull the United States out of the Trans-Pacific Partnership, which promised to have significant benefits to agriculture. The rhetoric of fairer trade deals appealed strongly to voters in parts of the country had suffered declining job opportunities for decades as these important industrial products were increasingly produced abroad. Trump’s major tool for accomplishing a rebalance of trade is tariffs—indeed, he often states that tariffs are the “greatest.”
Trump’s first imposition of tariffs affected solar panels and washing machines. This was later followed by the steel and aluminum tariffs; the only countries exempted were Argentina and Australia because they agreed to reduce their production capacity for these products. Tariffs on China were imposed in July 2018 on 818 categories of goods and the two countries are still in the process of negotiating fairer terms of trade. China’s unfair trading practices, including theft of intellectual property, are well-documented. There is now a strong possibility that trade tensions will be escalating with the European Union over agricultural issues, which the Europeans have argued have never been on the table.
From an economist’s viewpoint, however, tariffs are an undesirable policy tool because they reduce the efficiency of marketplace signals by distorting prices and reducing the productivity of at least one and likely more than one economy. Increased productivity is the driver of higher standards of living. Moreover, tariffs often result in collateral damage as targeted countries retaliate.
A major cost of the Trump trade wars has been borne by agricultural producers and major farm input suppliers. The United States has had a positive trade balance in agricultural commodities for decades. For example, in 2015, the agricultural trade surplus was $25.5 billion. For 2019, that trade surplus is forecast to be nearly cut in half to $13.5 billion largely as a result of Trump’s trade policies. On June 4, 2018, Trump tweeted that “Farmers have not been doing well for 15 years” and he stated that his trade talks would change that. The most common indicator of the extent to which the farm sector is “doing well” is USDA’s estimate of net farm income. In fact, until the trade wars, net farm income had been at historically high levels. In the aftermath of the trade wars, 2018 net farm income dropped precipitously; with the exception of 2016, net farm income had not been so low since 2002 (in real dollars). The latest 2019 forecast has real income increasing by 8 percent from the 2018 levels, but still below the average of real levels between 2000 and 2017. While high levels of farm bankruptcy have not been reported nationally, debt levels are rising and bankers are reporting lower levels of debt repayment.
The impacts of the trade war are not felt equally across agricultural producers, varying by the previously established commodity export market channels and the specific retaliatory measures taken by our trading partners. In recent years, Canada, Mexico, and China have been the major importers of U.S. agricultural commodities. Combined, the three countries represent about 40 percent of all U.S. agricultural exports. The largest declines in U.S. exports have been for soybeans and soybean products, with a 7 percent decline expected for 2019. China is the world’s largest soybean consumer and the United States is the world’s leading soybean producer. In a normal year, about half of U.S. soybean exports would go to China. In response to the U.S.-declared tariffs, China increased its purchase of soybeans from Brazil and other countries by about 50 percent. The two countries are attempting to resume high-level trade talks, but to date no progress has been reported. The long-run concern is that American soybean producers will be shut out of the important Chinese market that was developed through years of private and governmental efforts. Even before the trade wars, Argentina, Brazil, and Ukraine were capturing greater shares of Chinese corn imports, and the trade wars are only accelerating this trend.To cushion the blow to farmers, a favored part of Trump’s base, the Trump Administration’s USDA has provided two rounds of “trade mitigation payments” to farmers. But the bureaucratic delays and inconsistencies in the granting of mitigating waivers have negated most of the value of the payments, especially to smaller producers who lack the buffer to wait out the bureaucracy.
Agriculture, or at least large farms and producers of labor-intensive commodities, have also been adversely affected by the Administration’s historic efforts to deter migrants from entering the United States along our Southern border. While difficult to estimate, roughly 25-50 percent of hired workers in agriculture are undocumented. They have shown a greater willingness to do the grueling work involved in farm production tasks for relatively low wages, in contrast to legal U.S. residents. Without requirements that employers use e-Verify, undocumented workers were relatively safely employed in the agricultural sector. Current enforcement conditions are leading to more capitalization and shifting of commodity mixes on farms, and in the short run, sometimes, fruits and vegetables rotting in the fields unharvested.
The horticultural crop producers—of vegetables, fruits, nuts, greenhouse and nursery products—have the highest share of operating expenses for labor (25 percent or more). These are the specialties that have been hurt the most by the failure of lawmakers to address the country’s immigration policies. The current administration’s immigration policies have only worsened an already tight supply of farm labor. On the other hand, horticultural crop producers have largely maintained their export markets during the trade war and most production takes place on very large farms (e.g., only 3.5 percent of horticultural farms account for half of all horticultural sales).
Dairy producers, on the other hand, have been harmed by this administration’s trade policies and, especially, the immigration policies. The value of U.S. dairy exports is forecasted to decline by 4 percent from 2018 to 2019. Milking requirements mean dairies are extremely labor-intensive operations, with about 10 percent of their operating costs from labor. Dairies are also more likely to be mid-sized farms than producers of horticultural crops, and are experiencing greater financial vulnerabilities.
Trump’s promises to reduce regulations (especially those associated with the Clean Water Act) and to eliminate the estate tax were embraced by the farm community during the campaign. Trade wars and the labor shortages were never an appealing part of the message to the general farm community, but then-candidate Trump was very clear about these priorities. Since the current Administration’s trade and immigration policies have rocked the world of agriculture, one has to wonder if the community did not really believe those policies would be implemented after the campaign.
The majority of the farm community is a generally conservative voting block—look at the Farm Bureau’s mission statement for confirmation—and they generally vote their ideology. It is an open question if that will continue in 2020. At a recent Farm Foundation policy forum, seasoned agricultural economists saw daylight developing between this Administration’s policies and the traditional farm community. Repeated visits by cabinet members to various farm conferences is perhaps evidence that the Administration recognizes that the strength of their relationship with an important part of the Trump base is at risk.
Agricultural Policy is Not Rural Policy
While the Administration is very much in tune with the large-farm agricultural community, the non-farm rural population is also a part of Trump’s base, and it has received little policy attention since the election. It is common for policy makers to equate agricultural policies with rural policies, but the vast majority of rural residents are not engaged in farming and the majority of rural economies are not dependent on agriculture. About 14 percent of the U.S. population lives in rural, i.e., non-metro, areas.
The disadvantages of rural areas are well documented, including fewer employment opportunities and less access to health care. While farm families have had average incomes greater than the average U.S. family income for decades, rural areas in general have experienced lower incomes and a higher incidence of poverty. The rural South, in particular, has a significant number of counties classified as persistent poverty areas and a shockingly high poverty rate among children. In addition to these historical challenges, rural places are facing new challenges, such as lack of broadband access in a national economy making full use of the technology. Many rural communities are also plagued by opioid addiction.
Due to the design of the electoral college, states with large rural populations have significant influence in our national voting; and the more rural the state, the more likely residents were to vote Republican in 2016. Immediately after the election, many in rural policy circles were hoping this support would translate into a significant investment in rural non-farm economies. To date, it has not happened, nor has the campaign promise to invest in all types of national infrastructure. Instead, in an early action, the Secretary of Agriculture reorganized the USDA to remove an Undersecretary for Rural Development position to make room for a new Undersecretary focused on agriculture trade. Under the Trump Administration, the status quo approach of equating action on agricultural policies as action on rural policies appears to be continuing—while less than 6 percent of the rural population lives in areas whose economies are dependent on agriculture.
Alternative Facts in the Agricultural Context
USDA’s annual outlays are about $140 billion, with the largest share going to nutritional programs. Besides agriculture and nutrition, the USDA’s mission is broad. Directing this mission involves a targeted research and information program with a history dating back to the establishment of USDA in 1862.
Most of the program is today housed in the mission area referred to as Research, Education, and Economics (REE). Like all government employees accustomed to transitions in presidential leadership, employees in this mission area were anxiously awaiting the appointments of the political leaders responsible for providing guidance. They got their first clue about the Administration during initial briefings, when political appointees were more interested in learning the names of the analysts working on global warming than the programs of the agencies.
The Secretary of Agriculture was confirmed in April 2017 and, in July 2017, Sam Clovis was nominated as Undersecretary of REE and USDA Chief Scientist. His appointment came as a shock to not only employees, many with Ph.D.-level training and distinguished scientific credentials, but to the Senate charged with his confirmation. Although it is required by law that the appointee for the position of Chief Scientist be distinguished in agricultural science, education, or economics, Sam Clovis admitted that he was not distinguished in any of those fields. His credentials seemed to be that he was a climate change denier, the co-chairperson for the Trump campaign, and a radio talk-show host. Only when it was revealed that he was implicated in the campaign’s efforts to broker a relationship with Russian officials was his nomination withdrawn.
The next clue that the Administration was interested in degrading the scientific capacity of USDA came in the President’s 2019 budget. The policy research arm of REE, the Economic Research Service (ERS), was targeted for a 50 percent reduction and instructed to reduce or eliminate so-called low priority research areas—like food safety and nutrition assistance, rural development, and conservation.
ERS has a storied international reputation for rigorous and objective information. Notably, some of this Administration’s policy arguments are inconsistent with objective information in ERS reports. And rarely does either party discuss an important piece of legislation affecting agriculture, food, or rural development without reference to ERS reports or data products. In light of its importance, the Republican-controlled Congress rejected the Administration’s proposal to significantly cut the ERS budget.
The Secretary of Agriculture then employed a different approach to diminish ERS: move the Washington, DC-based ERS and the extramural research granting arm, the National Institutes of Food and Agriculture, out into the hinterland. That approach, revealed in August 2018, is currently the subject of concern by Congress as expressed through the appropriations process. In spite of the strong message from the Congress, Secretary Sonny Perdue is moving ahead with the plans and has informed individual researchers whether they will be moved or be one of the minority of staff that remains in a diminished Washington, DC headquarters. The reason for the concern is that such a move is already resulting in a widespread exodus of the highly trained staff in these agencies, achieving what is, allegedly, OMB Director Mick Mulvaney’s original intention through another route.
The Secretary’s plan also includes moving ERS out of the research mission area and into the direct policy arm of the Secretary’s office. Evidently, publicly accessible and objective policy analysis is not a goal of this Administration. As it did with the Sam Clovis nomination, distinguished scientists and agricultural administrators around the country object to the plan, along with some on Capitol Hill. In his recent book, The Fifth Risk, Michael Lewis documents similar efforts to hollow out the expertise essential to informing sound policies and managing risks for the public good across the government.
Perhaps this is the true deep state some in the Administration would like to eradicate—deep in knowledge and deep in dedication to public service.
Private Sector Leaders
Large-scale agriculture in the United States has experienced high productivity levels and will make an important contribution to meeting the goals of feeding a 2050 global population of more than 9 billion. Today’s innovations contributing to higher productivity levels are especially reliant on information technologies: For example, precision agriculture technologies that monitor yields and allow for the use of variable inputs now use “big data” and sophisticated analytics techniques, developed with investments from Silicon Valley entrepreneurs and others.
Agricultural production often comes with negative externalities, like environmental pollution and soil degradation, and these “non-market” costs are not considered in standard measurement of productivity. Furthermore, it is widely understood that agriculture is experiencing and will continue to experience significant impacts from climate change. Consideration of these impacts through public R&D investments and regulation is a critical role for government, but government has been too slow to respond to these challenges—before and after the 2016 election of Donald Trump.
In spite of political gridlock, the good news is that there is evidence that consumers and private sector innovators are leading notable changes. Our agricultural system is evolving along at least two distinct pathways to offer consumers choice in the marketplace, one being the conventional path of a strong focus on efficiency and low prices. The other is what has come to be known as the new food economy where consumers are demanding other food attributes, such as how their food is produced with consideration of the food safety, nutrition, and environmental and labor impacts of production systems. While the local foods movement is part of this larger new food economy, parts of the large farm and food sectors of the corporate supply chain are also participating in this movement through various corporate sustainability, or regenerative, efforts in collaboration with consumer and environmental groups.