The strain on today’s farm economy is no accident; it’s the result of policies designed to enrich corporations at the expense of farmers and ranchers. If the American family farmer is to survive, farm policy needs a massive shift in direction — one that delivers fair prices to farmers that allow them to make a living.
COVID-19 RAVAGES THE FARM ECONOMY
COVID-19 completely upended our world and is impacting farmers and our food system in several ways. Our country’s entire infrastructure is based on a food system that treats food as a commodity, churning over vast amounts of mass-produced food and fiber to places all over the globe. On top of environmental and public health impacts, our increasingly consolidated food system has shuttered not only independent small and mid-sized farms, but also local processing plants, seed suppliers, grocery chains, equipment dealers and more. In short, the country’s once diverse local and regional foodsheds were systematically erased over time as corporate power in the food system accelerated, leaving us all more vulnerable to something like a pandemic.
As the need for social distancing closed restaurants, schools, processing plants, and other key markets for farmers, drops in demand and supply chain disruptions forced farmers to plow under fields of produce, dump milk and even euthanize animals.[1] For farmers growing crops for biofuels or cotton and other fibers, sharp reductions in demand for fuel and clothing tanked prices for their goods, leaving business plans in tatters.[2] Rising unemployment rates and tightening household budgets continue to constrict food consumption and the prices farmers receive. On top of these challenges are labor shortages, border closures across the globe hampering food transport, and costs of implementing safety measures to protect workers and customers from COVID-19.[3] Snapshots of impacts on farmers so far include:
- Consumers pay more, while farmers get a smaller piece of the pie: Food prices at grocery stores are up 5.6% from a year ago, the largest increase in nearly a decade, while farmgate prices have dropped by 4.8%. In some cases, the contrast is severe: beef prices are 25% higher than a year ago, even while livestock prices for farmers fell by 17%. Price fixing by a handful of major meatpackers may be driving this problem. Today, farmers receive an average 14.6 cents for every dollar consumers spend on food.[4]
- Dairy farms on the edge: Dairy farmers have been rocked by low prices over the last several years, and 2020 set them on a rollercoaster. In January, Class I milk prices were at $19.01 per hundredweight (cwt), hovering several dollars below the cost of production for most dairy farmers. By June 2020, prices plummeted by 40% to $11.42/cwt, an untenable level that shuttered hundreds of dairies for good. Today, while milk prices are back up, they are still far below the cost of production, causing dairy farmers to lose money every time they milk their cows.[5] In dairy dependent states that have lost thousands of local dairies over the last few years, many worry that this fall will bring a wave of foreclosures that permanently alters their rural communities.
- Local farmers left out: Despite rising demand for local food during the pandemic, the closure of farmers’ markets, schools and other critical outlets had dramatic impacts not only on local farmers’ income, but on their costs. One economic analysis estimated a decline of up to $688.7 million in sales across key local and regional markets from March to May 2020, leading to up to $1.32 billion in total loss to the economy from March to May 2020.[6] This particularly harms smaller, socially disadvantaged, and beginning farms and the markets they serve. Unfortunately, federal relief programs have tended to leave out these growers, delivering the lion’s share of support to the very largest farms.
- Bad news for beef and hog producers: By late August, at least 772 meatpacking and food processing plants reported cases of COVID-19, with at least 56,510 workers testing positive and hundreds dying from the illness. Several reports indicate meatpacking workers were forced to work without adequate protection, while major meatpacking companies received federal relief money from the CARES Act.[7] Due to forced closures, beef and pork processing plants slowed by 25% and 40%, respectively,[8] plummeting prices and leaving farmers stuck with animals they could not process. Hog farmers are forecast to lose $5 billion in 2020, equating to a loss of $37 per head, while the beef industry anticipates $13.6 billion in economic damage, with ranchers losing well over $100 per head.[9][10]
An April 2020 report predicts that COVID-19 will cost farmers $20 billion in net farm income this year,[11] while a survey conducted in May 2020 estimated that nearly a third of small, independent farms would close down by the end of the year.[12] But without an end to the pandemic in sight, it is still too early to capture its full damage to the farm economy.
EVEN BEFORE COVID-19, FARM FAMILIES HAD NEGATIVE FARM INCOME
Things have been bad in farm country for a while. Between 2013 and 2018, farmers experienced a nearly 50% drop in net farm income as the prices for corn, wheat, dairy, beef and other farm products crashed. While net farm income rose by 3% in 2019, government payments accounted for all of that increase (namely, via the trade bailout program). Without it, 2019 delivered farmers their second lowest income since 2013.[13]
As for 2020, while the U.S. Department of Agriculture (USDA) is forecasting a $19 billion (or 22.7%) increase in net farm income this year, government payments like trade bailouts and federal COVID-19 relief programs account for 36% of net farm income — the highest share since 2001 and the eighth highest share since The Great Depression.[14] Without the $22.4 billion provided in government payments, net farm income in 2020 would be well below the sector’s average from 2000 to 2019.[15] What’s more, the vast majority of payments flowed to the very largest farms. CNBC reports that the top 5% of trade bailout recipients received nearly half of all $28 billion paid in 2018 and 2019.[16]
Perhaps more troubling is USDA’s pre-pandemic data. In February, USDA forecast 2020 median farm household income at -$1,840 — meaning that farm households would lose money from the farm.[17] More recent USDA data suggests a slightly better median income level,[18] presumably from high levels of government payments. But even these sector-wide income numbers likely mask severe distress in many parts of farm country, as many farmers who have been squeezed by years of low income did not benefit from federal payments. Most farmers rely on off-farm jobs to feed their families, secure health insurance, and keep their farms afloat. Given the pandemic’s broader economic impacts, which arrived after farmers have had to dig into their savings for the better part of the last decade, droves of farms are at risk of going under in the next year.
FARM CREDIT CONDITIONS WEAKEN
Farmers rely heavily on credit to buy the seeds, fertilizer, machinery, livestock and other inputs that keep their farms running. Because most farmers require operating loans at the start of each season, a critical aspect of a farm’s financial health relates to its ability to make loan payments on time. Economists utilize various solvency measures to measure this, including the debt-to-asset ratio, debt-to-equity ratio and equity-to-asset ratio. All of these measured weakened for the eighth consecutive year in 2020. As farm debt continues to rise, the sector’s risk of insolvency in 2020 is at its highest level since 2002.[19] The following trends reveal weakening credit conditions for farmers and ranchers in today’s strained economy:
- Farmers struggle to make loan payments. Farm loan delinquency rates are rising. The Federal Reserve Bank of Kansas City, which covers Colorado, Kansas, Missouri, Nebraska, New Mexico, Oklahoma and Wyoming, reports that the volume of delinquent farm real estate and operating loans increased by about 17% and 13%, respectively, over the past year.[20] Meanwhile, the Federal Reserve Bank of Chicago, covering Illinois, Indiana, Iowa, Michigan and Wisconsin, reports the share of farm loans with “major” or “severe” repayment problems is now at 8.3% — a level not seen since 1988.[21]
- The 1980s all over again? Pre-COVID-19, total farm debt was estimated to hit a record $425 billion, just shy of the 1981 peak of $440 billion.[22] Since 2014, real estate debt has been rising to historic levels, potentially indicating not just rising land values, but farmers refinancing higher-interest loans or other debt into farm real estate. In a time of persistently low farm income where farmers are defaulting on loans, this trend places a lot of farmland at risk of liquidation.[23]
- Growing demand for credit: If farmers can’t secure affordable and timely credit, they face an economic uncertainty that threatens the survival of their farms. Several bankers are reporting growing demand for loans, yet significant decreases in both the number and the size of agricultural loans in their portfolios.[24]
While economists and lenders note that federal relief has helped farmers navigate these conditions, many remain concerned that without more intervention, a wave of foreclosures will strike farm country. These conditions are challenging for all farmers, but beginning farmers, smaller and midsized farmers, as well as other disadvantaged farmers in particular continue to struggle.
BANKRUPTCIES TICK UP IN KEY SECTORS
Faced with multiple years of losses that have whittled away equity, many farmers are making hard choices. Many are selling off land, livestock or equipment in an effort to hold on. Others are finding off-farm jobs to supplement farm income, only to see those jobs go away. Some farmers are choosing to retire early, while others are declaring bankruptcy in an effort to keep their farm. These tough choices are raising concerns that we are on the cusp of a slow but huge wave of farm losses not seen since the 1980s.
Chapter 12 bankruptcy was created during the 1980s Farm Crisis specifically for family farmers and fisherman and offers one indicator of extreme stress in the farm sector. Because most farmers who are in crisis do not end up filing a Chapter 12, bankruptcy data is really just the tip of the iceberg that contains much larger number of farms in crisis.
By June 2020, Chapter 12 bankruptcy filings totaled 580, representing an 8% rise from June 2019 levels.[25] The largest increases in bankruptcies came from the Midwest (23%), Northwest (70%) and Southeast (22%), with more than half of filings occurring in the Midwest alone over the last year. Wisconsin, the country’s second largest dairy state, had the country’s highest number of Chapter 12 filings (69) between July 2019 and June 2020, followed by Nebraska (38), Georgia (36), Minnesota (36), Iowa (33) and Kansas (32). In total, 23 states saw bankruptcy filings rise over the last 12 months, with the biggest increases occurring in Wisconsin, Oregon and Iowa.[26]
RISING STRESS IN RURAL AMERICA
America’s farmers and ranchers are pillars of their communities and the foundation of their local economies. When farmers do better, we all do better — and the opposite is also true. The farm economy has a disproportionate effect on farming-dependent counties, which accounted for nearly 20% of all rural counties and 6% of the rural population in 2017.[27] As farmers are forced into bankruptcy or foreclosure, a ripple effect on equipment dealers, input manufacturers and local purchasers and processors further taxes rural economies. In 2019, the combination of depressed farm prices and punishing weather conditions left many farmers unable to plant and caused a documented strain on Midwestern farm economies, particularly those dependent on corn and soybean production.[28] Today’s pandemic provides farmers with little ability to bounce back from a challenging set of years, and is pushing many farm businesses past the point of no return.
As the farm economy continues to falter, signs of stress are rising among farmers. So far in 2020, Farm Aid has seen a 27% increase in contacts to our farmer hotline, a majority from farmers in crisis who exhibit acute signs of stress. Farm Aid has worked to bring awareness to the issue of farm stress and advocated for increased federal resources to address the challenge of caring for the mental health of rural residents, farmers and those working in agriculture. Farm Aid is working to show farmers they are not alone, and there is help. In fact, managing farm stress is just as important as managing the farm.
Conditions today are different than in the 1980s Farm Crisis that led to foreclosures rapidly spreading nationwide. This crisis is happening slowly, negative income year by negative income year. But the outcome will be the same: extensive loss of family farms and a growing threat to rural wellbeing and prosperity. Without strident emergency measures paired with visionary farm policies that set us on a better course, America faces the extinction of the family farm and the social and economic gutting of rural communities.
FARM POLICY SOLUTIONS
All too often, food is treated like any other commodity and farming like any other profession. This could not be further from reality. While many blame the current economic downturn on the oversupply of major commodities, the real root cause is failed policy. If we’re going to save the family farm, we need policies that support the success of small and midsized farmers and the communities they call home — not the profits of multinational companies.
In short, without sound policies, it is nearly impossible for farmers to consistently make a good living from the land.
FAIR PRICES AND PARITY
Agriculture doesn’t fit neatly into conventional economic models. As a sector, farming is relatively inelastic, with farmers and eaters both unable to alter their consumption or production dramatically in any given year. People must eat, and what they eat only shifts marginally in a given period of time, no matter how much farmers produce. Farmers, meanwhile, almost always have an incentive to produce as much as possible to squeeze a profit from their land and build a cushion for the tough times that will inevitably come. The greater the supply of a particular crop on the market, the lower the price drops. Since consumers buy more or less the same amount of food from week to week, a farmer can actually make less money when production is high.
There are many ways we can secure fair farm prices. Historically this has been achieved through a combination of supply management programs like grain reserves, and by setting floor prices — comparable to the minimum wage for other jobs. These programs ensure that the people who grow our food can at least recover their cost of production for the goods they produce. Many have advocated for parity pricing for farmers, which helps them recover their cost of production plus a little more — so they don’t just break even, but actually make a profit. The idea of parity pricing is comparable to the concept of living wages.
FARMERS NEED EQUITABLE ACCESS TO CREDIT AND FAIR TRADE
Affordable credit is essential for farmers, who have to spend money to plant their crops and care for their animals months before they reap a financial benefit. While there have been many important improvements in farm credit policy at the federal level, there is still much work needed to ensure that farmers of all kinds can secure the credit they need to thrive on the land.
Historically, there have been inequities in who can access agricultural financing. Beginning farmers, organic farmers or those engaged in diversified production or more local and regional markets have often struggled to secure credit or find loan packages that make sense for their farms. In addition, there is a long history of racial discrimination at USDA Farm Service Agency offices (something the last Administration took strides to rectify), where Black, Latino, Native American and other socially disadvantaged farmers were denied the loans needed for their farms, ultimately leading to dispossession of their land.
Farm Aid also supports food sovereignty, the right of communities and nations to determine their own food and agriculture policies and the broader democratization of food and farming systems. Opening up trade through free trade agreements, especially when large corporations write the rules, often leads to weakening hard-fought environmental protections, worker protections, food safety standards and financial regulations. Far too often, our rural communities are hit hard as trade deals undermine supply control and price support policies that intend to keep prices stable for family farmers.
Trade deals should not undermine the food sovereignty of farmers and eaters here and abroad. Instead, trade with foreign nations should strengthen our economy and create jobs, while preserving the environmental, labor, health and safety standards that Americans depend upon.
REINING IN CORPORATE CONTROL
A handful of corporations control our food from farm to fork. Their unbridled power grants them increasing political influence over the rules that govern our food system and allows them to manipulate the marketplace, pushing down the prices paid to family farmers and driving them out of business. Below are some of the policies Farm Aid advocates for to rein in corporate power in our food system:
- Enforce America’s antitrust laws, including the Sherman Antitrust Act, Clayton Antitrust Act and Packers and Stockyards Act.
- Stop mega mergers occurring throughout the food and agricultural sector.
- Enact comprehensive pricing reform in the dairy industry and expose corporate price manipulation. Institute supply management programs to stop the overproduction of milk.
- Reissue and finalize the USDA Farmer Fair Practice Rules to increase market transparency, establish fair contracts and protect the First Amendment rights of livestock and poultry growers.
- Reform federal checkoff programs that tax cattle ranchers, hog producers, dairy farmers and other farmers on their goods in order to fund marketing campaigns that benefit corporations.
- Reinstate Country of Origin Labeling (COOL) and other programs that increase transparency in the food system and allow eaters to support American farmers and ranchers.
- Preserve local control laws and defend the rights of local communities to stop the creation or expansion of factory farms that threaten their air, water, soil and quality of life.
- Advance food sovereignty and limit the role corporations can play in writing our trade deals.