How subsidies are ploughing the family farm under

Lawrence Solomon
National Post
March 22, 2001

Government intervention has reversed the economics of farming, making large-scale monoculture operations more secure than the family farm, says Urban Renaissance Institute’s Lawrence Solomon.

The family farm is inherently economic. Large-scale farming is not. The opposite appears to be the case only because governments reversed the economics of farm production through subsidies, particularly subsidies that reduced the risks that farmers face. Had governments not done so, the fate of the family farm would today be secure while large corporate farms and monoculture operations would be few and far between.

Unlike most industries, which face relatively few catastrophic risks, farms bring with them the risk of widespread damage from droughts, excess rain, pests and a complex of other perils, making them uninsurable by the private sector. “That’s why the government stepped in back in the 1960s,” explained George Pikor, the chief of the Forecasting and Actuarial Unit at Agriculture Canada. “The private sector didn’t make insurance available at any price. There is not one example in the world of an unsubsidized multi-peril crop insurance program that covers any significant number of producers.”

Traditionally, because comprehensive insurance was not available, and because few farmers would want to expose themselves to ruin by planting a single crop that might not materialize, farmers took steps that efficiently managed their risk. Instead of planting one crop, which too much rain at the wrong time could devastate, farmers planted five, 10 or 15, and added some livestock for good measure. The rain that might then come at the wrong time would harm but one of many crops, and perhaps might help several others. The damaged crop — though unfit for human consumption — might still be excellent fodder for their animals.

Farmers in this way self-insured, in North America and throughout the world. With few exceptions — chiefly the Soviet Union’s large-scale collectives and state farms — the farm economy operated in a manner that was both environmentally and economically sound.

Farmers could still count on government help in exceptional circumstances — farmers have always been adept at demanding relief when the elements don’t cooperate — but the level of help was unpredictable and slow in coming, giving farmers an incentive to avoid large risks. Then governments relieved farmers of the inherent risks in farming by providing them with the ultimate safety net — crop insurance — the instrument that became the family farmer’s downfall.

With taxpayers paying two-thirds of the insurance premiums, farmers were no longer subject to the natural limits that the free market had traditionally imposed. Now farmers could turn to monocultures and bet the farm on each and every harvest, and they could double and treble their bets by acquiring larger and larger farms. When the weather behaved, they earned a fist full of dollars. When the weather didn’t, the insurance gave them most of the money — typically 70% to 80%, and in Ontario and Quebec, 80% to 90% — that the monoculture crop would have fetched in the marketplace.

Yet even with the government covering most of the cost, crop insurance doesn’t pay for many farmers. Two-thirds of farmers producing fruits and vegetables for grocery stores, restaurants and other purchasers who desire fresh produce give crop insurance a pass. These predominantly small-acreage farmers can self-insure at lower cost, for example by planting crops that will mature at different times, avoiding catastrophe should bad weather come at a bad time.

In contrast, large scale industrial farming operations — producing tomatoes for ketchup bottles, or green peas for the frozen food section of the supermarket — overwhelmingly rely on insurance. These so-called “processing sectors” depend on large tracts of farmland producing a uniform product that will ripen at precisely the same time to allow for a machine harvest. Because these all-or-nothing operations cannot afford to have anything go seriously wrong — they not only must justify the expense of mammoth machinery that sits idle most of the time, but also the costs of irrigation and chemical sprays that control ripening — up to 90% of them acquire insurance.

Across Canada, governments have set up some 300 to 400 individual crop insurance programs covering more than 100 crops. Some — like Nova Scotia’s — subsidize high-risk areas at the expense of prime, low-risk farms. Other provinces try to spread the subsidies evenly.

But on the whole, explains Mr. Pikor, crop insurance benefits mechanized monoculture operations, inexperienced farmers and farmers who cultivate marginal lands whose crops are likely to fail. Crop insurance has relatively little value for smaller, diversified farm operations, or for savvy farmers generally, who know how to improvise to avoid catastrophe.

Crop insurance is the single most important subsidy tilting farming operations toward large scale, but it is by no means the only one. Governments also provide cheap credit to allow farmers to purchase mechanized equipment and the large fields needed to put the equipment to work; governments remove some or all of the tax on farm fuels for mechanized equipment; and governments subsidize herbicides and other inputs that especially benefit large operations.

The government bias to large-scale agriculture also distorts innovation. To qualify for most government R&D funds, researchers must first get the support of a non-government funder — typically a player in the farm industry. “Almost 80% of my research projects have industry funds,” says Rene Van Acker, a crop scientist at the University of Manitoba, who explains that corporate-backed research is overwhelmingly geared to boosting sales of farm chemicals. “Companies selling farm inputs have no interest in seeing farms develop in ways that capture niche markets that don’t need their products. Monoculture, on the other hand, is biologically fragile and susceptible to pest attack and epidemic.”

Monoculture is also vulnerable to subsidy withdrawal. Should governments ever discontinue farm subsidies, large-scale farming would contract dramatically. Not so small-scale farming. Unlike bulk commodities that compete on price in export markets, and lose bushels of money in the process, small-scale farming largely serves fast-growing local markets in which freshness and quality count, and in which foreign suppliers tend to be at a great disadvantage.

Without subsidies, inexperienced farmers, and those without much savvy, would leave for other occupations, and marginal lands that don’t belong in farming would become forested or return to wilderness. But savvy farmers, who must now often subsidize those who don’t belong in farming, would prosper in their family farms, and more than ever.

This entry was posted in Agriculture (Rural). Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s