The high cost of producing cheap food

Anyone who wants to better understand the costly economic and political externalities that come with cheap food should spend some time in America’s Midwestern farm country. I did last week, driving from Wisconsin to Missouri through hundreds of miles of corn and soyabeans, the vast majority of which is grown not as food but as feed for cattle.

It was easy to find fast food and red meat in the small towns I passed, but it was often tough to find a decent supermarket with fresh fruits and vegetables. What a terrible irony that some of the richest farmland in America is often where you are most likely to find a “food desert”, or a place where it is challenging to source the components of a healthy diet.

Nearly a century on from the Great Depression, we still farm as we did then, trying to produce cheap calories for growing numbers of hungry people — and using huge amounts of fossil fuels — rather than providing better nutrition for an overfed yet undernourished population in ways that might support the planet and local communities.

Consumers have become used to cheap food. But it’s a model that makes little sense environmentally, and has led to tremendous consolidation on the production side.

Consider that in the middle of the biggest commodity price spike since the 1970s, some farmers are still struggling to stay in the black. Texas A&M University research shows that two out of three rice farmers will lose money this year, since input costs including fuel and fertiliser are rising even faster than commodity prices. Corn and soyabean producers will make money, but not as much as you’d think.

As Joe Outlaw, a professor at Texas A&M, put it in his testimony on the topic to the House Agricultural Subcommittee, consumer inflation may be 8.5 per cent but farmers have been hit with price increases at double that rate on seed. For other inputs, inflation is even higher. Herbicide is up 64 per cent from 2021 to 2022, and nitrogen fertiliser, perhaps the most important input of all, is up a whopping 133 per cent. Corn, meanwhile, is up only 4.84 per cent per bushel, and soyabeans are up a little over 7 per cent year on year.

Farmers have tried to hedge and hoard to account for these spikes, but they are outgunned by large, highly concentrated companies that control much of the agriculture supply chain. As Outlaw explained: “Simply put, the input suppliers would not lock in a price until the producers [meaning farmers] agreed to take delivery.” 

The result is that many farmers, particularly small and medium-sized ones, will scale back on inputs this planting season, which will in turn hurt their future harvest. Grain trading giants such as Cargill are getting rich, as are many multinational energy companies. But growers themselves are barely in the black.

All of this speaks to a model that no longer works. Farming in America has been about cheap food for nearly a century. The New Deal encouraged the production of massive amounts of subsidised cereal grains to feed an influx of urban dwellers. The Reagan revolution encouraged further consolidation — as an illustration, consider that four companies control up to 85 per cent of the meat market.

Democratic President Bill Clinton then passed the “Freedom to Farm” act, which eliminated any government management of supply and demand. This is one reason farmers were dumping milk after the pandemic; overproduction encourages boom and bust cycles. It also makes it difficult to get food inflation under control now. While the US has strategic petroleum reserves, it has no grain reserves for domestic buyers despite being one of the world’s largest producers.

The “pile it high, sell it cheap” paradigm assumes that simply driving down prices will create a healthy market. But it comes with obvious costs for the planet, our health, and in some parts of the country, for politics. One would think that a state like Missouri, for example, would be fertile ground for Democrats campaigning on a message of corporate greed. In fact, the state voted for Donald Trump in the last election — in part because the failed industrial farming model hasn’t been replaced by much else, creating a disenchanted population that’s ripe for the former president’s dog whistles and his brand of populism, with its empty promises of help for the white working class.

Plenty of neoliberal economists might shrug at all this and note that farmers make up less than 2 per cent of the labour force (the agricultural sector as a whole is slightly over 10 per cent). They might even shrug at the fate of a state like Missouri, since they tend to think about overall numbers, not individual people in so-called flyover states. But in America’s electoral college system, states like this still matter — a lot. Taken together, they can make the difference between winning or losing.

So, what’s to be done? The Biden administration is correct to go after concentration in agriculture and energy, as in other industries. Indeed, the discrepancy between input costs and raw commodity prices makes me think that the White House has a point about corporate price gouging. If the commerce department gets its way, more rural broadband would help too. But ultimately, we are going to have to rethink the entire way we farm in America. Like so much of our economic system, it was built for a different era.

rana.foroohar@ft.com