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What a New 'New Deal' Should and Should not Include for Agriculture and Rural America

In building 'green' infrastructure, Obama should abandon the misguided federal mandates and subsidies for ethanol and focus on infrastructure for renewable energy sources.
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Many economists and others are calling for the Obama Administration to launch a new 'New Deal', both to bring about economic recovery and to lay the groundwork for a more productive and egalitarian economy in the years ahead ("The End of Unregulated 'Free Market' Economics and the Resurrection of Keynes?"). Such an economic recovery program is imperative at this time, and it must include rural America. This will require some initiatives that are similar to those of the Roosevelt Administration in the 1930s, but designed to meet the infrastructure, environmental, and social conditions of the 21st Century. It should also involve fundamental reforms in some original New Deal programs that were valuable in their day, but have since become dysfunctional. Moreover, some distortions created by bad policies over the last couple decades must be reckoned with.

Franklin Roosevelt's 'New Deal' included policies to stabilize and support farm incomes, halt soil erosion resulting from bad farming practices and Dust Bowl weather conditions, and create productive infrastructure and put people back to work in rural areas. Many of the programs created in the 1930s to support farmers and rural people continue in modified forms to the present day. Farm price and income supports have changed form many times over the last 70 years, but farm subsidies continue. Soil conservation programs remain, but starting in the mid-1980s, a much broader set of agri-environmental programs also began to evolve. The rural electrification program begun in the 1930s has long since transformed the countryside, and Federal government assistance has helped spread water systems and other forms of rural physical infrastructure over the decades since the 1930s.

The original New Deal rural program that is most overdue for fundamental reform is the Federal 'farm program'. Over time, the system of farm 'commodity subsidies'--predominately for wheat, corn, soybeans, cotton, and rice -- has come to primarily serve the interests of farmland owners and agribusinesses. Price and income subsidies get capitalized into land values, and the artificially cheap commodities serve the interests of livestock feeders, grain and oilseed processors, and exporters. At the same time, the chemical-intensive production systems that are effectively encouraged by these subsidies lack biodiversity and contribute to global warming and a host of other environmental externalities. Moreover, subsidy payments, because they are generally tied directly or indirectly to land, are concentrated on the largest farms.

Despite proposals for fundamental reform coming from both free marketers and sustainable agriculture/healthy food groups ("Competing Visions of U.S. Agriculture: Can We Have Our Cake and Eat It Too in Reforming Federal Farm Policy?"), the new 5-year farm bill (The Food, Conservation and Energy Act of 2008) that was passed and signed into law this summer falls far short of reformers' hopes ("Farm Bill Politics: How the Farm Bill Does and Doesn't Get More Sustainable"). The commodity subsidy programs were left in place, and some new ones even were added.

Some agri-environmental programs were added or strengthened, as were some programs aimed at giving school children and others greater access to fresh fruits and vegetables and other healthy foods. The 2008 farm bill created a new program to provide cost-share assistance for farmers converting to organic agriculture, and reshaped a key agri-environmental program that encourages better stewardship on farmland (now called the Conservation Stewardship Program).

In spite of these gains, the Federal farm bill continues to be primarily a program to support and maintain industrial agriculture. The bill also contains additional support for fuel ethanol production, which has been a rapidly growing segment of the agriculture industry.

So, what should be done now as part of the U.S. economic recovery effort? I would be extremely surprised if the Obama Administration were to undertake a wholesale rewrite of the Federal farm bill over the next two or three years. Realistically, this would be a task for a second term, if President-elect Obama were to be reelected. But here are some critical considerations in launching a new New Deal in America's rural areas.

1. Do not try to arrest falling farmland prices if that should come about over the next few years. According to Department of Agriculture data, U.S. cropland values more than doubled between 1999 ($1,400/acre) and 2008 ($2,970/acre). The farm profits that helped drive land values were supported in part by commodity subsidies in the early part of that period and by ethanol-driven demand for corn in the latter part. And the ethanol demand, in turn, has been largely the creation of U.S. energy and agricultural policies. Now, with the ethanol industry facing severe economic difficulties and the world economy in free-fall, corn and other farm commodity prices have fallen dramatically over the past several months. However, prices remain higher than just a few years ago, and there are various safety nets in the farm bill to cushion the effects on farmers of falling crop prices. The extremely high land prices of recent years are no healthier for the agricultural economy than are astronomically high house prices for consumers. Both are barriers to new entrants (farmers in one case, home owners in the other).

2. In building 'green' infrastructure, abandon the misguided Federal mandates and subsidies for ethanol. Instead, focus on infrastructure for renewable energy sources that show greater promise. Ethanol has become a sacred cow in States with large areas under corn production. Various analytic reports ("Summaries of Analyses in 2008 of Biofuels Policies by International and European Technical Agencies") over the past year or so have raised serious questions about the effectiveness of biofuels in meeting energy needs and reducing greenhouse gases. Moreover, ethanol plants are very capital-intensive operations, not generating a lot of employment. Architects of a new New Deal must resist State and regional political pressures to support infrastructure that is already in place, whether or not the particular infrastructure makes economic sense for the country as a whole. There is no shortage of truly worthwhile potential infrastructure projects in every region of the country.

3. In the political struggles ahead for annual allocations of Federal farm bill dollars, adequately fund those programs that meet basic human needs, promote human health, generate as many good jobs as possible, and relieve pressures on the environment. This means giving priority to the Supplemental Nutrition Assistance Program (formerly the Food Stamp Program), agri-environmental programs like the Conservation Stewardship Program, healthy food programs such as the Fresh Fruit and Vegetable Program, rural development programs (including ones for health care systems), programs to encourage local and regional food systems, and assistance for beginning farmers -- rather than priority to commodity subsidy programs, especially the subsidies going to very large farms. The Department of Agriculture's Economic Research Service projects that all forms of commodity subsidies (including those for milk, emergency programs, etc.) will come to about $9.7 billion in 2008, down from $21.6 billion in 2005. However, given the new Average Crop Revenue Election Program and other provisions of the farm bill, commodity subsidies could swell again during the next few years if crop prices are low. It is critical that rising commodity subsidies not crowd out valuable food, nutrition, agri-environmental, and rural development programs. There is very little rural development funding in the Federal farm bill in the first place, however, so most rural infrastructure funding in a new New Deal will need to come from other Federal budgetary sources.

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