A CAC White Paper on the Farm Crisis in Indiana

WHAT INDIANA CAN DO
A CAC White Paper on the Farm Crisis in Indiana
January 1999

Acknowledgments

This brief paper is part of an effort by family farmers and other citizens to bring attention to needed public policy changes in Indiana regarding family farming. What Indiana Can Do: A CAC White Paper on the Farm Crisis in Indiana is a product of the Citizens Action Coalition’s Indiana Campaign for Economic Justice.

The Campaign for Economic Justice was established in 1997 by the Farm Policy Committee of the CAC State Board of Directors. That committee consists of its chairperson, Nancy Griffin, the director of the Indianapolis Resource Center for Independent Living; Francis Bradley, a grain and livestock farmer from Montgomery; Al Tolbert, the executive director of the Southern Indiana Center for Independent Living and a livestock farmer from Mitchell; and a CAC member who is not on the organization’s board, Robert Webster, a grain farmer and independent businessman from Clayton. These committee members provide oversight of the work conducted on farm policy issues by the staff of the Citizens Action Coalition.

The Indiana Campaign for Economic Justice represents a reorganization of CAC’s work on rural economic and social justice issues. That work first began in 1983 and played a significant role in the establishment of state’s Farm Counseling and Debt Mediation Act in 1988 and the Organic Certification statute in 1993. The reorganization of CAC’s overall rural work in 1997 was primarily the inspiration of Francis Bradley. The reorganization was effected in order to better utilize organizational resources, and to establish closer working ties between family farmers and other constituencies in Indiana that are experiencing significant economic duress.

Appropriately, the policy work of the Indiana Campaign for Economic Justice has been approved by the full membership of the CAC state board and through resolutions adopted by the organization’s membership at the CAC state conventions held in the fall of 1996, 1997 and 1998.

CAC staff members that work directly on the Indiana Campaign for Economic Justice include Jim Hoyer, the CAC regional organizer in New Albany; Grant Smith, the CAC environmental policy coordinator; and John Cardwell, CAC’s legislative and program director. Mr. Cardwell is the immediate author of this paper.

The resources utilized in the preparation of this paper include information and publications from the National Family Farm Coalition in Washington, D.C. and the Center for Rural Affairs in Walthill, Nebraska. CAC is a member of both organizations. Additional information came from the United States Department of Agriculture; Farm Aid; The Farmer’s Exchange published in New Paris, Indiana; and the Indianapolis Star. The interpretive assistance of USDA data provided by Ralph Gann, the State Statistician with the Indiana Agricultural Statistics Service at Purdue University, was most helpful.

Finally, special thanks must go to Nancy Griffin for her invaluable support, and to Susan Bright, a Centerville farmer and former CAC farm policy coordinator, for her insightful suggestions regarding this paper’s policy recommendations.

Persons wanting to contact the Citizens Action Coalition regarding its work on farm policy and other public issues may do so at the organization’s address in Indianapolis: Citizens Action Coalition, 5420 N. College Avenue, first floor, Indianapolis, IN 46220. CAC’s telephone number is (317) 205-3535, and the fax number is (317) 205-3599. E-mail may be sent to: staff@citact.org

Introduction

Once again, family farmers in Indiana and throughout much of the United States are facing an economic crisis. This latest "farm crisis" is all too real, but it is not new. The economic discord that is striking many Hoosier farmers this winter has its immediate roots in the current convergence of low grain commodity prices, extremely low hog prices, and bad weather in many parts of the state during the 1998 growing season.

But the real roots of the crisis go back to unresolved capitalization and marketing issues in the U.S. farm economy that were last dramatically demonstrated in the brutal farm crisis that ran from 1979 through much of the 1980s, in the virtually unrestricted consolidation of agriculturally based industries in this country since the late 1960s, and in the 1996 Freedom to Farm Act. These factors continue to place family farmers at high financial risk; a risk made manifest by their inability to counteract the market consolidation, pricing dynamics, and political decisions that drive the U.S. farm economy.1

As a result of the aforementioned factors, farm families throughout the nation have been forced to earn most of their household sustaining wages from off farm employment. Without non farm income most American farmers could not afford to stay in farming and maintain their families at the same time. According to the United States Department of Agriculture, in 1997 88.6 percent of the average farm family’s household income (meaning, income not associated with maintaining a farming operation) came from off the farm.

The role of non farm income is mentioned here because it has served to mask the severity of the farm crisis in our state. Without non farm income family farmers in Indiana and elsewhere would be living in a self-apparent depression economy. However, because of the limited ability of contemporary agriculture to generate livable household earnings for most farmers the recent convergence of bad weather, bad grain prices, and very bad hog prices has put an unusual number of Hoosier farm families at financial risk this winter; especially those that are still earning most of their household income from farming.

In this paper, we will briefly examine income generating factors that are presently affecting family farmers in Indiana, and then suggest solutions of varying merit that policy makers can act upon. It is our hope that Governor Frank O’Bannon and members of the General Assembly will expeditiously act on at least some of the ideas presented in this paper.

The Arithmetic of the Farm Crisis in Indiana

Low prices for the crops and livestock raised and sold by family farmers define the reality and the severity of the latest farm crisis nationally and in Indiana

According to data from the United States Department of Agriculture (USDA), net farm income across the country peaked at $53.4 billion in 1996, dropped to $49.8 billion in 1997, and is estimated to have fallen to $45.7 billion in 1998. USDA data also shows there has been various peaks and valleys in the overall net and gross farm income generated in the United States in the years since the farm crisis days of the early and mid 1980s.

For example, from $160.8 billion in 1989 gross farm income rose steadily until it reached $208.7 billion in 1997. Then it dropped dramatically in 1998 to $198.2 billion. However, even though gross farm income grew throughout the past decade until last year, net farm income was generally stagnant. In 1989, net farm income was $45.3 billion, but in 1997 (when the gross soared well over 200 billion dollars) net farm income was still only $49.8 billion, and last year it was only $45.7 billion.

In Indiana, the 1998 farm income losses were severe because of the three factors that were cited in the introduction to this paper: bad weather, low prices on grain, and very low prices on hogs. According to Ralph Gann, State Statistician for the Indiana Agricultural Statistics Service at Purdue University, Indiana farms saw weather related crop losses in 1998 at an estimated $500 million and total losses of $1 billion from the profit generating portions of agriculture (hogs included). These losses occurred in a state that generates about $6 billion a year in agricultural production.

As cited above, over 88 percent of the average farm family’s household income comes from non farm sources. This strongly suggests that the recent severe losses in farm generated income in Indiana must translate into many farms being technically insolvent and only sustainable by revenues generated by off farm employment and investments. In fact, USDA surveys have long indicated 40 percent of all farm operators work over 200 days a year off the farm, and this statistic does not include the farmer’s spouse. It therefore appears that many adults that live and work on a family farm are working two or more jobs while their kids are often pressed into farm work with little or no direct compensation.

The hog price situation is particularly threatening for larger farms that have heretofore sustained farm households without off farm employment. For example, most people are not aware that only 13,000 of Indiana’s 62,000 farms have gross sales of $100,000 or more a year. But those farms account for 60 percent of the cultivated land in the state and average 750 acres in size. Many of these farms do raise hogs and use a portion of the grain they raise as hog feed. Consequently, the current low hog prices are immediately threatening to these operations. In the January 10th edition of the Indianapolis Star the newspaper ran a story of a Clinton County hog farmer who utilized much of his 1,000 acre farm for raising corn to feed his hogs. The farmer sold 200 hogs at a loss of $6,500. The paper quoted the 51 year old farmer as saying: "I often thought of doing something else beside farming, but I always thought it would be my choice."

The hog prices that are threatening farmers in Clinton County and elsewhere across Indiana were at unimaginable low levels in December 1998. At one point during that time Indiana hogs sold for less than $10 per hundred weight although the price, as of mid-January, had recovered to the mid to upper twenties. For most family farmers break even prices should be at $35 per hundred weight or higher, and decent prices in the $45 to $60 range. If a typical market weight hog is 250 pounds that animal needs to return to the farmer a price of $87 to $110 per hundred weight at the point of sale in order to generate a profit.

Historically, many family farmers who raise grain crops in our state and across the Midwest have survived by having income from hogs and other livestock on which to fall back. With the terrible livestock prices that have accompanied low commodity price this winter, that is no longer the case. So what is the scope of the price problem that is now facing grain farmers?

The price situation for cash crops in 1998 can be highlighted by looking at the average price generated by three basic crops: corn, wheat and soybeans. Corn averaged $2.15 per bushel nationwide but the cost of producing each bushel was estimated to be $3.50. Wheat averaged $2.90 per bushel but the cost of production was $4.15 per bushel. Soybeans averaged $5.35 a bushel but the production costs were estimated to be $6.56 per bushel according to data from the National Family Farm Coalition (NFFC) in Washington, D.C. Unfortunately, according to Jim Potts, the Program Director for NFFC, the present commodity price situation cannot be counted on to change in the near future: "Abysmally low grain prices, which fuel the corporate take over of the dairy, hog, beef, and poultry industries, are set to continue for the next few years."

Francis Bradley, a family farmer from Montgomery in southwestern Indiana, states: "The situation is becoming very desperate. Farmers are now being forced to survive by drawing on their accumulated equity. The consumption of equity, over time, will mean they won’t survive, nor will they have anything to pass on to a future generation of family farmers."

Obviously, when all the numbers come in hog and grain farmers throughout Indiana and the nation will show dramatic losses in 1998, and well into 1999. Unfortunately, many Indiana farmers will not be around to benefit from any future market rebound, if one occurs, unless action is taken soon.

What Indiana Can Do

The bad news is that the farm crisis in Indiana is linked to the ongoing farm crisis throughout the nation. That crisis is a product of decades of cheap grain policies that have been designed to produce stagnant prices for farmers, huge profits for the food buying, processing and marketing industry, and only modest benefits for consumers. The general parameters of this crisis have already been described in this paper.

The good news is the ability of the state of Indiana to actually take actions that can economically help family farmers in the near term and in the long term.

This paper has already demonstrated that farmers throughout the nation have long responded to low crop and livestock prices by seeking off farm income to supplement their full time farming and to maintain a viable standard of living. However, people can only do so much work and maintain their humanity. Consequently, actions that can be undertaken by the state to generate real income for Indiana’s family farmers are steps that will improve their chances for economic survival while helping to relieve the burdens on their families.

Apart from any actions by the federal government2, CAC believes Indiana can, and should, take the following steps to help its family farmers:

Dramatically reduce or eliminate property taxes on farm real estate that is producing an active crop, or which qualifies as a set aside on environmentally fragile land, for individual owner-operators who have gross receipts of $250,000 or less per year on their combined farming activities and for whom those activities constitute their livelihood. Or, institute a one (1) year property tax forgiveness program for hog farmers who have gross receipts on their farming operations that do not exceed $250,000 per year.3
Re-establish the direct, low interest operating loan program for family farmers that was operated by the State Treasurer’s office for two years in the late 1980s. This highly successful program had a very high rate of good loans because it provided farmers with capital at affordable interest rates. A secondary benefit of the program would be to increase the attractiveness of farmers as customers to commercial banks for longer term credit and to put downward pressure on banks relative to the interest rates they charge to farmers.
State chartered and invested cooperatives with enrollment and membership requirements to insure that only real family farmers are the members.
Expansion of the Farm Counseling Project, which provides financial and related legal counseling services for family farmers, so the project can serve more individual farmers and do more training programs for farmers, lenders, and farm attorneys. This program has proven time and time again its effectiveness in preventing problems between farmers and lenders. By expanding its services we can make farmers smarter borrowers and farmers and lenders more competent at establishing mutually beneficial investments.
State invested, licensed and established marketing outlets for family farmers. These should include markets for direct sales to consumers, marketing terminals where farmers can sell their commodities and livestock, and publicly owned processing plants. The latter could eventually be sold back to publicly chartered farm cooperatives, and used to re-establish food processing and meat packing industries that were once numerous in this state.
State operated, or sponsored, direct marketing programs for overseas sales of farm products produced by farmers with gross receipts on their farming activities that do not exceed $250,000 per year. (See endnote number three.)
Directing Purdue University, Indiana’s only land grant university, to conduct viable research and outreach services for small and medium sized farms on a scale that matches what the university is doing for corporate agricultural interests.
Directing Purdue University to do viable research and outreach assistance on organic and sustainable agriculture alternatives as a means for developing new crop and livestock income opportunities for family farmers as well as environmental benefits for the state as a whole.
State action to aggressively oppose the establishment of factory hog farms and other forms of corporate agriculture in Indiana. South Dakota, Iowa, Nebraska and even North Carolina have recently passed a variety of laws designed to protect family farmers from monopolistic corporate farming practices, and to protect farmlands and the environment.
Legal action by the state to enforce federal anti-trust laws, and lobbying by the state for Congressional action on behalf of Indiana’s family farmers and consumers. For example, the dramatic drop in hog prices for farmers has not been accompanied by dramatic drops in the prices paid by consumers for pork products. The actions could take three forms: anti-trust suits by the Attorney General with the tobacco industry as an example to follow; state pressure to force federal regulatory agencies to enforce anti-trust and interstate commerce laws; and lobbying pressure from the state on Congress for action to help family farmers.

Conclusions

CAC hopes this brief paper succeeds in selling at least two messages to policy makers in Indiana: (1) the farm crisis is real, and (2) the state can take meaningful steps to address it.

When a handful of state attorneys general took on corporate tobacco interests a few years ago those efforts were widely criticized as political grandstanding. Today, those efforts stand to net Indiana hundreds of millions of dollars and they have goaded the federal government into action to stop tobacco use among teenagers and children. Today, family farmers need state leaders to take equally courageous stands against the abuses of concentrated corporate power in the food industry. However, all citizens stand to benefit from public policies that are designed to help family farmers. In this paper, CAC is asking our political leaders to step forward to help Indiana’s family farmers while those farmers are still in business. The time to act is now.

ENDNOTES

The major contributing factors in this dramatic drop in farm income have been public policy decisions and the behavior of large corporate enterprises that have been positioned to take advantage of public policy decisions by Congress, federal agencies, the courts, and the states over a period of many years.

Significant public policy decisions that have been made that have been harmful to small to medium size American family farms include the 1996 federal Freedom to Farm Act; the continental North American Free Trade Agreement (NAFTA); the global General Agreement on Tariffs and Trade (GATT); and the failure to enforce anti trust laws in the United States by regulatory agencies and the courts which has resulted in fewer market options for farmers.

The corporate behavior that has hurt family farmers has been the unabated consolidation of the meat packing, cereal grain processing, and food marketing industries in this country, and accompanying loss of market options and viable prices for farm commodities and livestock. For example, on January 8, 1999 The Farmer’s Exchange reported that the 1998 fourth quarter profits of IBP, Inc., one of the giants of the pork processing industry, were four times more than they were in the last quarter of 1997. The report prompted the President of the National Farmers Union, Leland Swenson, to state: "It does not make sense that IBP is banking record high profits while hog producers are being paid Great Depression-era prices. These prices are driving thousands of producers into bankruptcy."

The Farmer’s Exchange went on to write: "Concentration in the livestock industry is a major contributor to low prices and the oversupply of hogs, Swenson said. Currently four packers control roughly 87 percent of the cattle slaughter business and five firms control more than 60 percent of the pork packing industry. The lack of competition means that producers have few buyers for their product, hampering their ability to negotiate a fair price, Swenson said. In addition, packers continue to increase ownership and contract production of supplies needed for slaughter."

In fact, the pressure from large corporate organizations on family farmers has included a dramatic increase in the number of factory hog farms throughout the United States. This increase in factory hog operations, and increased use by corporate organizations of forward contracting and specified animal types for slaughter houses, has dramatically reduce the open market opportunities that existed in the hog business for family farmers just a few years ago. This process parallels what has already occurred in the poultry industry and is a major contributor to the unbelievably low prices that hog farmers are now receiving for their livestock.

These corporate practices, when combined with the Freedom to Farm Act, NAFTA and GATT, which were all designed by American based international food conglomerates to accelerate the adoption of cheap food policies by all nations, mean that prices for farm commodities and livestock can only go down relative to the aggregate value of the products produced by U.S. farmers.

Congressional actions that could have dramatic benefits for all farmers include establishing target loan rates and supply management programs; affordable, available and accessible federal agricultural credit targeted on small to medium size farms; repeal of the onerous, anti-family farmer provisions of the 1996 Freedom to Farm Act; establishing USDA programs to provide support services for small and medium size farms; establishing viable USDA programs to provide support for the development of organic and sustainable agriculture alternatives for small and medium sized farms; the enforcement of federal anti-trust laws relative to the actions of the meat packing and food processing industries; and action to reform and revise the anti-family farmer provisions in international trade and treaty agreements (such as the North American Free Trade Agreement and the General Agreement on Tariffs and Trade).

The USDA’s National Commission on Small Farms used a standard of $250,000 or less per year in gross receipts to define small and medium size farms in its report of January 1998. The commission used this number because it was seeking to establish a defined size for farming operations in terms of their ability to sustain individual farm families with a viable standard of living. For example, USDA data suggests that 20 percent of the gross income generated by a farm will typically be available to the farm family as net income. Consequently, a farm with $100,000 in gross receipts might only generate a living wage for the family of $20,000. This same standard of $250,000 or less per year was used by Governor O’Bannon’s Citizens Commission on Taxes to define the class of farms and farm operators in Indiana that should be considered for property tax reductions and/or relief.

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