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Biggest Secretly Bigger in ‘Reform’: Rebutting LSP’s White Paper 2


GENERAL INTRODUCTION TO THE SERIES

This is a response to part 2 of a 3 part series on Crop (revenue) Insurance in the Farm bill.  It was originally written as an email to someone asking me questions about the paper.  It’s a fairly hurried response, and therefore has the virtue of brevity.  The original is:

Land Stewardship Project, Crop Insurance — How a Safety Net Became a Farm Policy Disaster, A Land Stewardship Project Special Report:

“White Paper 2:  Crop Insurance Ensures the Big Get Bigger,” (http://landstewardshipproject.org/repository/1/1400/white_paper_2.pdf).  Link to Series:  http://landstewardshipproject.org/organizingforchange/cropinsurance/cropinsuranceensutesthebiggetbigger.

See part 1, Brad Wilson, “Corporations and Crop Insurance: Rebutting LSP’s White Paper 1,” Space, 1/3/15, https://zcomm.org/zblogs/corporations-and-crop-insurance-rebutting-lsps-white-paper-1/.

LSP is one of the great groups working within the paradigm of the Sustainable Agriculture Movement, which is now led by the National Sustainable Agriculture Coalition.  As such, LSP generally does great work on sustainable production and related farm bill spending issues, plus a range of state issues, such as fighting CAFOs.

My review here comes from a larger, more encompassing paradigm that I call “farm justice,” in which farm bill spending as a whole is a smaller subcategory, but where the biggest issues are those of nonspending market management.  It is because I’m writing out of this bigger paradigm that my views differ with those of LSP.

LSP has written on this topic previously in a series of papers, and I’ve written quite a bit about those papers as well.

SYNOPSIS

LSP’s second white paper argues that “the big get bigger” when subsidies are given via crop insurance.  I argue, in contrast, that even with the “reforms” that LSP recommends, the even bigger CAFOs and other commodity buying corporations are secretly “subsidized” off-the-books, and at levels that far surpass those that the biggest crop farmers get.  So while I fully support LSP’s goals of reversing the trend toward farm concentration and fostering much better sustainability, I argue that those goals can’t begin to be met if the larger issues of market management are not addressed.

I begin by explaining the 3 categories of crop insurance and crop (revenue) insurance.  These are:

1. insurance for things like hail and wind damage,

2. disaster programs for bigger kinds of damage, and

3. revenue insurance, as a new kind of farm subsidy.

Along the way I raise a number of points that LSP does not explain.

I then explore how LSP utilizes widespread myths about subsidies, (including revenue insurance subsidies).  These mislead us about the issues.

Finally, I provide some context for the views of LSP, related to it’s history and role in relation to sectors of the larger Food and Farm Movement.

WHAT’S CROP INSURANCE REALLY ALL ABOUT?

What’s called “crop insurance” refers to 3 things.

1. insurance for things like HAIL and WIND damage, which might be done in the private sector.  To make it into a government program is really just one more way to compensate farmers a bit for low prices, though no one else is mentioning that.  If it went to the private sector, then, the questions about farm size would be a matter of corporate choice. In that case, whether or not to chose to insure smaller operations across wider geographic ranges, and for a wider range of crops, would not be a government decision, unless it was handled by regulations.  So it would be a corporate fight.  But then government could help make it work in more sustainable ways for more crops, etc., as LSP and others have been suggesting.  So this is one of the three separate issues:  what kinds and sizes of farms (and size of groups of farms,) are insured with basic crop insurance.

2.  DISASTER programs are for bigger, longer-termed problems like multi-year DROUGHTS.  Those can take down an insurance company, so there’s a strong case for the government to do something (pooling farmers, etc.).  Often we’ve had emergency legislation, which Congress sort of doesn’t like, as you need to fight, repeatedly, to get Congressional leaders to let it happen.  That’s called the “ad hoc” approach.  In that case, members of Congress must spending political capital that they might prefer to use elsewhere.  They’d rather not have to spend it, so they like disaster programs that replace ad hoc emergency programs for these bigger problems.

3. The third categhory is crop REVENUE insurance, and that’s the real issue, the MEGA ISSUE.  Revenue insurance is where other kinds of subsidies are transformed into the form of insurance.  Revenue Insurance can then replace other, more controversial subsidies.  More importantly, like all subsidiy programs, it can direct everyone’s eyes away from the hidden MEGA issue, what I’ve called the WHALE in the room full of WATER.  This is the question of restoring Price Floors where corporations would pay fair prices, (Heaven forbid!).

Counter-Cyclical subsidies which farmers only get when needed, (except never enough to make up for the prior reductions of Price Floors and incomes,) are the best substitutes for adequate (nonspending Market Management) programs.

Congress, with help from Cargill’s Daniel Amstutz, invented a theory where if you get subsidies when they’re not needed, they don’t cause dumping (don’t “distort markets”).[1]  Except that’s never been true.  Subsidies don’t cause cheap prices.  Stuff happens, as they say.  Cheap farm prices happen pretty much automatically in deregulated ‘free’ markets and ‘free’ trade, and so it happens whenever there are low or no Price Floor & Supply Management programs and ‘free’ trade agreements.  That is, the chronic economic problem of cheap farm prices, (the chronic failure of ‘free’ markets for farm “program crops,”) usually happens all by itself, unless the US, the dominant exporter, or a larger group, manages price and supply.

Ok, give subsidies when they’re not needed.  It’s called “de-coupling.”  That led to a switch to Direct Payments (“decoupled” & “WTO compliant,”) a totally false hope for ending the dumping of farm products at cheap prices, (since it’s not based upon economic and political realities). It led to US being bashed a lot, so, while it worked as spin for a while, it failed, as corn, soybean and rice prices rose up, and the subsidies continued, causing outrage.  Yes, Direct Payments, the “good” subsidies, supported by the Religious Working Group on the Farm Bill and many others, were given even though corn, rice and soybean prices increased to above full costs for about 7 years, so that became controversial, and the (fake) “good” part was almost always forgotten.

Revenue Insurance is even worse.  Farmers can GET it when it’s NOT needed, and ALSO NOT GET it when it IS needed.[2]  For example, prices have crashed again, with corn falling below $3 at times and soybeans below $8 this fall for a while.  That’s also much like what’s projected through 2023, (for whatever such projections are worth).  If that happens, then (crop) Revenue Insurance will dry up, as it has no standard of a fair price.  Rather, it follows the market, letting the free market determine what’s a fair price, (which it has consistently failed to do, almost always, for 150 years, on into the 21st century).

We see then that government can do all sorts of things.  It can create a totally absurd program and pour money into it to make it “work” anyway (even though the meaning of “work” is absurd as well).  So then we can have absurd solutions that ask government to do it’s absurdities in a very different way, that are better for sustainability in the small sense (even as it maintains massive secret ‘free’ market ‘subsidies’ for CAFOs at the same time, thus furthering the removal of livestock and crop rotations from farms).

Any real fix, however, must include the bigger issues of the lack of price responsiveness, and of the need for market management.  Otherwise, it’s just a new, more politically correct, form of  absurdity.

WHAT LSP DOESN’T EXPLAIN

LSP doesn’t tell us that Crop (REVENUE) Insurance can never happen in the private sector, as they’d be insuring, not against rare hail storms for a few farmers, but against chronic low farm prices for huge groups of farmers.  We had prices that were below full costs, every year 1981-2006 (except 1996) for a sum of 8 main crops, and on to 2013, (about 6 out of 7 years, for 5 of these crops).  We had the same for dairy, every year 1993-2013, (except 2007, when just barely made a few pennies per gallon above zero).

We see, then, that insurance companies would be insuring chronic market failures, (the economics,) and against Congress not having adequate Price Floors, (the politics).  Meanwhile Congress has had no price floors at all since 1996, (to fix the economic problem of the chronic failure of ‘free’ markets).  Even before that farm prices were so low we had a “farm crisis” on back to 1981.

Revenue Insurance is the new Direct Payments, but, better than DP, it can more easily be spun as a sound “business” practice, as “risk management.”  LSP gets sucked into that illusion, suggesting that the program is “risk management,” is really OK.  It isn’t!  They suggest that it should be done in the private sector, (i.e. not with premium subsidies for farmers, and not with the operating expense subsidies for insurance companies).  Really, that’s total nonsense.  The program, (insuring against decades of chronic low prices and against Congress not acting,) has no private sector viability at all.  It’s an absurd program that can only work if totally propped up by Congress.

In the end, crop (revenue) insurance is the latest way of making the farm bill worse and worse.  About the only thing good about it is that it’s better than a total return to Hooverism (where farmers have the cheapest of cheap prices, like today, but without any subsidies).

FARM SUBSIDY MYTHS BEHIND THE ANALYSIS

In this white paper, LSP also falls for the basic farm subsidy myths.[3]  They blame the bigt farms, the top 10% of recipients.  They don’t see that full-time farms ALL fall into the top 10% of “recipients,” and that the majority of these are family-sized or a bit smaller, or a bit larger.  (Note: many farmers have lost their livestock, so they must be 40% bigger to remain the same size economically, plus they’ve had to be bigger to be the same size as prices have fallen to the lowest levels in history, repeatedly, such as 1997-2005 for all of the big crops, and on to 2013 for some of them, etc.)

So LSP treats the top 10% as huge farms, as does almost everyone else.  There is no valid data supporting those claims.   LSP also treats the smaller “recipients” as “producers.”  But in fact, the bottom 80% are less than 10% of the size of a very small “full-time” family farm.  The bottom half are at most about 4% of the size of a full-time farm, and the bottom 1/3 are at most about 1%.  So it’s not realistic at all, and not based upon valid analysis.

We see, then, that the 48,000 premium subsidy recipients for 2011 in the report are really mostly the full-time family farms, instead of the “producers” that are only 10% or 4% or 1% or less of a “full-time” size.  So it’s not the injustice that we’re led to believe that it is.

All of this about the top 10% is based upon the invalid analysis of the Environmental Working Group and many, many others.

A second myth is simply that, with greatly reduced prices, (1953-2006, -2013, -2018? -2023?), the biggest farms are paid less by the biggest amounts, which is why they get the biggest subsidies.  LSP makes no mention of these reductions, (as far as I’ve seen in the various articles, and in skimming this one).  Instead they’ve claimed falsely (in keeping with myth gone viral online and in the printed media,) that farmers have had record high prices[4] and/or incomes lately.[5]  (We had maybe half of some record prices, and one recent year of net farm income that averaged as high as 1942-1952 [when we had corn yields only 1/4 as much]).

LSP’S CONTEXT WITHIN THE LARGER MOVEMENT

In general, my view is that, with the reduction (1953-1995) and ending (1996-2018) of Price Floors and the adding of subsidies (1961-2018), the farm bill has gotten worse and worse in it’s subsidy part, for sustainable agriculture.  That is, the first subsidies were worse for sustainable agriculture, and it didn’t improve.  That ticked off a lot of organic/sustainable farmers, as they got even less, under the increasingly unjust farm programs, for having a crop rotation.

What then happened is that the sustainable family farm movement split off and formed their own group.  This movement sector does not support the big issues of distributive economic justice.  They don’t oppose the cheapest of cheap grains for unsustainable CAFOs at NSAC and earlier umbrella groups, for example.

As I recall, originally LSP fought against those divisions and changes, but more recently they’ve stopped doing that.  Other groups, such as Iowa CCI where I worked at the time of the split, and IATP fought with LSP over these issues, for example, in the Midwest Sustainable Agriculture Working Group (MSAWG) and at the National Dialogue on Sustainable Agriculture (1990s)  I  was one who spoke up on this, calling for the two sides to come back together on the Price Floor for the 1996 farm bill.  Churches also had a big meeting on the division between justice and sustainability movement sectors, which seemed to resolve it, but then certain sustainable agriculture groups submarined it.

We see, then, that, looking only at Farm Bill spending, a case is made for reforming crop (revenue) insurance.  It makes sense within that frame, but often doesn’t make sense in the bigger context of the whole farm bill, of nonspending Market Management, and then the various spending categories.

NOTES

[1] Mark Ritchie, “The ‘De-Coupled’ Approach to Agriculture:  History and Analysis of “De-Coupling” Policy Proposals,”  Institute for Agriculture and Trade Policy, September 1988, http://www.iatp.org/documents/the-de-coupled-approach-to-agriculture.

[2]  See a list of sources on this point in “For Further Reading,” below.

[3]  On this point see, Brad Wilson, “The Farm Subsidy Myth: Scientifically Invalid, Subverting Food Day,” ZSpace, 8/18/14, https://zcomm.org/zblogs/the-farm-subsidy-myth-scientifically-invalid-subverting-food-day/.

[4]  On false claims of “record high crop prices,” see Brian DeVore, “Crop Insurance:  A Safety Net Becomes a Threat, Land Stewardship Project, 4/12/12, http://landstewardshipproject.org/posts/blog/281.

[5]  Talk of “record high” farm incomes has gone viral.  Adam Warthesen in “The (Growing) High Price of an Unreformed Crop Insurance Program,” (Land Stewardship Project, 1/28/13, http://landstewardshipproject.org/posts/371) has reinforced these myths.  Warthesen points to high net farm income in 2012, based upon an early projection, calling it “the second highest in three decades, and only trumped by last year.”  The larger context is that since 1953, when Congress first lowered Price Floors, there have been only 6 years above $100 billion, (two in the 1970s,) in spite of huge yield increases, while earlier, prior to the farm program reductions and with much lower yields, farmers earned more than $100 billion for 11 years in a row (adjusted for inflation with a GDP deflator in 2013 dollars).  In contrast, there were only 3 recent years that high.  In fact, the average of 1942-1952 was greater than $123 billion, and, as it turns out, there has been only 1 recent year that high.  Meanwhile, the recently projected 10 year average through 2023 is less than $79 billion per year, or $45 billion per year less than during the 1942-52 period.  This, then, is a radically different context than that which LSP has been using.

FOR FURTHER READING

Brad Wilson, “Corporations and Crop Insurance: Rebutting LSP’s White Paper 1,” ZSpace, 1/3/15, https://zcomm.org/zblogs/corporations-and-crop-insurance-rebutting-lsps-white-paper-1/.

Brad Wilson, “The Room is Underwater: Rebutting Alan Guebert’s ‘Insuring Elephants’,” ZSpace, 1/3/15, https://zcomm.org/zblogs/the-room-is-underwater-rebutting-alan-gueberts-insuring-elephants/.

Daryll E. Ray, “Crop Insurance and Disasters,” Agricultural Policy Analysis Center, University of Tennessee, September 27, 2002, http://agpolicy.org/weekcol/112.html.

Daryll E. Ray, “The morphing of crop insurance,” Agricultural Policy Analysis Center, University of Tennessee, October 2, 2009, http://www.agpolicy.org/weekcol/479.html.

Daryll E. Ray, “ACR: Strong safety net when prices are high but snaps when prices fall,” Agricultural Policy Analysis Center, University of Tennessee, November 2, 2007, http://www.agpolicy.org/weekcol/378.html.

IATP, “Revenue-based Countercyclicals: A Poor Substitute,” Institute for Agriculture and Trade Policy, September 12, 2007, http://www.iatp.org/search/node/%22Revenue-Based%22.

Daryll E. Ray & Harwood D. Schaffer, “Purely privatized crop insurance program: What does that mean?,” Agricultural Policy Analysis Center, University of Tennessee, September 17, 2010, http://agpolicy.org/weekcol/529.html.

Daryll E. Ray & Harwood D. Schaffer, “Price and yield (and revenue) risks: Is insurance up to the task of handling them all?“ Policy Pennings #617, Agricultural Policy Analysis Center, University of Tennessee, May 25, 2012, http://agpolicy.org/weekcol/617.html.

Daryll E. Ray & Harwood D. Schaffer, Policy Pennings #616, Agricultural Policy Analysis Center, University of Tennessee, May 18, 2012, “Lucas and Peterson: Crop insurance is not a safety net when prices collapse,“ http://agpolicy.org/weekcol/616.html.

Daryll E. Ray & Harwood D. Schaffer, “No policy in place to handle multiple years of good crops and mediocre demand growth,” Policy Pennings #738, Agricultural Policy Analysis Center, University of Tennessee, 9/19/14, http://agpolicy.org/weekcol/738.html.

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