“Starving”Our

Farmers

Solutions for Food Security in America

Preface

When it comes to food, U.S. consumers and citizens reap the benefits of America’s highly successful family farm model of food production. Millions of farms produce low cost, high quality food that is second to none, allowing Americans to spend less than 10 percent of their disposable income on food. This system provides our country with national security, renewable wealth, a trade balance, and vibrant rural communities.

Without question, the ability of a country to feed itself is a measure of its strength and success, and we see that today.

Venezuela, once a country with a robust agricultural sector, is now forcing citizens to work in neglected fields as a way to fight their current food crisis. Decades ago, the oil-rich country put all its revenue-generating eggs in one basket – oil – and started importing food. The lack of investment in agriculture has been devastating. With the worldwide plunge in oil prices, Venezuela can no longer pay for imported food and other necessities for its citizens.

In Japan, two-thirds of farmers are 65 years old or older. The country is struggling to keep farms running as young people shun the work and foreign workers pick up the slack, many illegal, causing other problems.

The investment a country makes in agriculture is perhaps its greatest responsibility to citizens.

Just as in other countries, America needs to reinvest in agriculture and our family farm system of agriculture, which currently is the envy of the world. The intrinsic value of families, passing land and knowledge of that land from generation to generation, is immeasurable when it comes to our agricultural engine.

As the world population doubles, the United States and a few other countries will no doubt take on the lion’s share of feeding the world. We need to implement new tools and ways of thinking to ensure family farm success and longevity. We need to make farming and ranching attractive to more young people and financially rewarding for all producers, so they can carry on the tasks and responsibilities of a sustainable food production system.

We offer a few solutions here...

NDFU President

TABLE OF CONTENTS

Introduction

Hope is Not a Strategy..................................................................................1

The Business of Farming

The Farmer’s Share .................................................................................. 4

Farm Bill ......................................................................................................5

Solutions

New Farm Bill Title .......................................................................................8

Regional Processing Hubs ............................................................................9

Advanced Research ......................................................................................9

Summary

New Paradigm ............................................................................................11

December 2016

HOPE IS NOT A STRATEGYFor the world’s largest agricultural engine, hope has generally been the business strategy of U.S. farmers since plow was first put to earth. “I hope it rains. I hope the crop is good. I hope input costs come down. I hope prices at the elevator are high. I hope… I hope...”

As in any business, there are variables that can and can’t be controlled. Sound business practices incorporate the cost of producing a product (i.e. materials, labor, overhead, etc.) plus a profit margin into the price of that product.

But not so in the case of agriculture. Farmers labor long hours to produce a crop for which they have little or no control of input costs (i.e. seed, fertilizer, fuel, machinery, etc.) and absolutely no control over the price in the marketplace. Profit margins more often than not fall squarely on the shoulders of hope, which according to bestselling self-help author Rick Page is not a strategy for sustainable success.

While average net farm income skyrocketed between 2010-2014 with unprecedented high crop prices, they since have dropped to all-time lows. Net farm income for 2016 is forecast to be $54.8 billon, which is 50 percent lower than 2013 and $4.2 billion lower than 1996.

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INTRODUCTION

This scenario has unfortunately grown all too familiar as farmers ride the roller coaster tide of unpredictable crop prices. That’s because in agriculture, commodities are priced on the overproduction or oversupply of a crop versus the demand. This oversupply (a good thing for consumers) sets a lower price for all production. So it’s virtually a game of Farmer A trying to outguess what Farmer B will grow so as not to flood the market. Multiply that by the 2.1 million farmers in the U.S., not to mention the millions abroad, and it becomes a lottery.

Demand for food is also different from that of other products. When prices fall due to overproduction, consumers do not add another meal to their consumption. Prices cannot be lowered to a level where inventory is used up to build back demand. It is not as simple as giving rebates or discounts to lower inventory.

For years, farmers have been told they need to become more efficient to get ahead in the marketplace. So they, perhaps more than any other industry player, have embraced technology to increase yields and reduce input costs; all to the detriment of themselves in a kind of Catch 22. They are producing more to

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simply receive a lower price. And there is no mechanism for a farmer to pass on expenses or cost of production. Yet, farmers are expected to adapt to increased input costs, regulation, currency manipulation, unfair trade practices, uncontrollable weather, and federal budget cuts.

Truth be told, there are too many economic variables beyond the farmer’s control that leaves them with little choice but to overproduce to pay bills. Even with bumper crops this year, many farmers in North Dakota won’t be able to recoup what it cost to put their crop in the ground.

The hope that springs eternal within every farmer – that next year will be better – doesn’t generate income, pay bills or feed their family. It’s hard to understand how farmers, who grow new wealth from the ground year after year, could be starving.

We believe it is time for a paradigm shift in addressing this age old problem. New tools are needed for the financial success and longevity of family farm agriculture. More importantly, we need tools to guarantee food security for our nation. Our intent with this publication is to offer new concepts for consideration.

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THE FARMER’S SHAREThere will always be a demand for farmers and ranchers to provide food, feed, fiber and fuel. Unfortunately, the cost to produce raw products has never been proportionate to what producers actually earn, especially when it comes to the consumer’s food dollar.

American farmers and ranchers receive only 17 cents of every dollar that consumers spend on food at home or away from home. Non-farm costs – marketing, processing, wholesaling, distribution and retailing – account for 83 cents of every food dollar spent in the United States. And that share has been shrinking for decades.

In 1952, farmers earned 47 cents of every dollar spent on food. Today, their share of a box of corn flakes (18 oz.) that retails for $4.69 is 5 cents, and 11 cents on a 2-lb. loaf of bread that retails for $2.79, according to USDA.

If parity were implemented, farmers would be earning $13 for a bushel of corn compared to the current cash price of $2.76, and $18.10 for a bushel of wheat compared to $4.34. (Parity is the

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THE BUSINESS OF FARMING

Farmer’s Share17¢ 83¢

Marketing, Processing, Wholesaling, Distribution & Retailing Share

price farmers would receive if farm gate prices were on par with the cost of production, last occurring in 1910-1914.)

FARM BILLAmerica’s abundance and ability to be self-reliant in food production through a system of family farm agriculture is the envy of the world. The ability of a country to feed itself is a matter of national security. One doesn’t have to look far to see the cost of reliance on other countries for energy and the instability it creates in the world to control and secure crude oil.

In the past, our nation has seen the importance of legislating a farm bill to provide a safety net for farmers in the volatile world of agriculture. It serves to ensure abundant food at inexpensive prices, and has served our nation well as Americans now spend less than 10 percent of their disposable income on food. However, it is far from perfect, encompassing a wide range of titles, everything from conservation to nutrition.

Every five years, Congress reopens the farm bill at which time farm programs are scrutinized. It is fair to say that budget constraints generally drive program decisions, rather than a safety

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net, consumer, or national food security priorities.

A wide variety of farm program concepts have been implemented over the decades to address market challenges and provide a safety net for producers; everything from paying farmers to idle land and produce no crop, to letting the free market reign.

In the past 20 years, crop insurance has been the primary safety net for family farmers. While it has been very helpful in covering crop losses from weather disasters, it only covers a portion of the loss, never 100 percent. And producers are still

left without a crop to market and a future revenue stream.

The Revenue Assurance program, first piloted in 1997, was created under the crop insurance title of the farm bill to protect producers against loss of revenue caused by low prices, low yields or a combination of both. But because the program ties crop coverage to market prices, producers aren’t able to buy enough coverage when prices are low to cover the cost of production. So currently, the program has very limited success. Producers again are left on their own.

Even with good intentions, it is clear that Congress must examine the support and sustainability of our commodity production system.

For years, we have relied on farmers to use technology and efficiency to produce food for this country. At the same time, we have asked them to be sustainable, environmentally sound, and to educate the next generation of farmers. But if farm programs are only going to be written based on available budget dollars, we will continue to lose farmers every time the market fails to cover

the cost of production. Market timing, market concentration, weather, high input costs, and other uncontrollable variables and forces are beyond any farmer’s control.

The question we need to ask ourselves in underfunding food production in this country for so long is whether we value our system of family farm agriculture or are we willing to turn it over to a few food conglomerates and foreign nations? Are we willing to risk our national security?

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SOLUTIONS

NEW FARM BILL TITLECongress passed the first farm bill back in 1933. Since that time, many titles have been added to the farm bill and hundreds of farm programs have been implemented in an effort to aid farmers... most with the life span of just five years. Much like throwing darts at a board to see what sticks, farm bills have generally missed the mark when it comes to compensating farmers directly for food security.

While “security” may be in the name given various farm bills, such as the Food Security Act of 1985, the prevailing thought in Congress has been to equate a compilation of farm programs as food security. “We have farm programs, therefore we have food security.” Unfortunately, no. The reality is that many well-intentioned farm programs work great in theory, but less on the ground.

North Dakota Farmers Union believes a new and additional Food Security title of the farm bill should be developed for consumers and national security that would be fully funded as a national priority, exempt from the farm bill budgetary process or the reduction of current farm program title dollars. Producers would earn a payment that is tied to the abundant production of high quality food and quantity of food in order to maintain the low amount of disposable income consumers currently spend on food. Payments would also be tied to land stewardship, sound environmental practices, family farm generational ownership, and education of beginning farmers.

Much like insurance companies mitigate loss through training, safety exercises and better building construction, the Food

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Security title would guarantee consumers of food abundance, while strengthening America’s commitment to our family farm model of food production. One idea for funding such a title can be found across the pond in parts of Europe, where a percentage of the Euro is dedicated to food production support. Many other countries find avenues to fund mitigation tactics, both to ensure food production and to target healthy food usage. It is time our country recognized the value of our family farm production system and the role it plays in national security.

REGIONAL PROCESSING HUBSThe establishment of regional processing hubs would be another tool to ensure food security and mitigate risk. The distance by which farmers transport their crops to market is costly, especially for producers in North Dakota who are generally far removed from end-use facilities. If plants were established closer to crop sources, transportation costs would come down significantly.

For the most part, Americans could feed themselves in a regional way, through co-op hubs, rather than traditional coast-to-coast shipping channels. This would create new manufacturing jobs, and significant savings from transportation costs that could be passed on to farmers and consumers. ADVANCED RESEARCHIn 2003, the field of medicine became much more specialized when scientists finished mapping the human genome. Now with the availability of genetic testing, physicians are better able to prescribe medicine and treatments that react more effectively based on an individual’s genetic sequence.

It is reasonable to believe that super foods or functional foods will be created to do the same thing. Take the case of selenium-enriched wheat that is grown in many areas of North Dakota. As an essential micronutrient that is thought to reduce the risk of cancer, especially prostate cancer, growing food that has specific health benefits is an

opportunity for farmers to add value to their crops and livestock.Imagine grocery stores of the future, where consumers choose products based on specific health needs or disease risks. Rather than the bread or meat aisle, consumers will look for the cancer-fighting or diabetes prevention aisle. It is an entirely new paradigm shift. Family farmers and ranchers will most certainly be a player in making these emerging niche markets a reality. A mitigation tactic to advance much needed medical and food research would be important for all Americans.

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NEW PARADIGMOperating in a constant feast or famine economic environment is damaging to family farmers and ranchers, rural communities and states, and national food security.

For years, we have relied on farmers to use technology and efficiency to produce food for America. For years, we have tried to implement farm programs that provide stability in the face of volatile market prices and input costs. And every five years, without much forward thinking, we start the process of writing a farm bill using a cookie cutter outline from year’s past and an underfunded budget.

America must make a conscious decision on who we want to provide our food, feed, fiber and fuel. Is it our current system of family farm agriculture or a handful of food conglomerates and foreign nations?

North Dakota Farmers Union believes that in the interest of national security, renewable wealth for our nation, and vibrant rural communities, we must implement new tools and ways of thinking to ensure family farm and ranch success and longevity. Whether that paradigm shift is in the form of a new farm bill title, formation of regional processing hubs or investment in advanced research remains to be seen. But we must start now to examine the sustainability of our commodity production system and arrive at new solutions.

SUMMARY

NDFU is the state’s largest general farm organization with more than 45,500 member families. We work through the political process to develop economic and social policies, provide services to start and sustain cooperatives, offer insurance products, and engage members and the public in educational programming that benefits family farm agriculture, youth and rural communities.

Throughout our organization’s 90-year existence, our most valuable asset has been an active and engaged membership. Learn more at ndfu.org or follow us on Facebook and Twitter.

North Dakota Farmers Union800.366.8331 • 701.252.2341

1415 12th Ave. SE • PO Box 2136Jamestown, ND 58401

ndfu.org