RURAL ROUTES
The Changing Structure of Agriculture

Cattle producer's perspective

By THOMAS F. "FRED" STOKES

Special to The Progressive Populist

When I was a kid, (50 years ago) there were 40- and 80-acre farms that supported families. Back then it was possible to borrow money to buy land and then pay off the note from production profits.

Not any more!

Even the large family farms are in trouble today. A common sight is a house trailer sitting in the shadow of a once stately farmhouse that is uninhabited and decaying. This scene is a telling reminder that farmers and ranchers are not sharing in the prosperity of our society. The "Dow" may be doing great but production agriculture is in the dumps.

The latest Census Bureau statistics reveal that if off-farm income were not included, over 90 percent of the farm families would be living below the poverty level.

Who gets the gold mine and who gets the shaft?

Returns to agricultural producers were never great, but they have been in a steady state of decline for the past 50 years. In 1951 the cattle producer's share of the beef dollar was 71 percent and the retailer's share was 19 percent. In 1996 the producer's share was 45 percent and the retailer's share was 46 percent.

I do not have good data on other commodities but I suspect the situation would be similar. Over time the pie grows bigger, the producer's slice gets smaller, but the portion for the packer and retailer gets larger and larger.

Producers usually operate at a loss, the packer sometimes operates at a loss, but the retailer never operates at a loss! In 1996 the average retail price on beef is reported by USDA to have been $2.774 and the wholesale price to have been $1.505 per pound.

If you care to run these numbers they reveal an 84.3 percent mark-up and a gross profit of $635 per carcass equivalent (assumes 1200-pound live animal, 500-pound retail cuts). Remember that this was when calves were bringing $250!

The usual line is that these margins are due too inflation and the extra services for the consumer. Let it be understood that inflation affects everyone. How many calves does it take today to buy a tractor or send your kid to college compared to times past?

Additionally, retailers now get their beef as sub-primal cuts rather than whole carcasses or sides. The amount and cost of processing at the store is significantly reduced. Rather than going through the humbling exercise of borrowing operating funds (like most producers), the retailer gets beef on an invoice that is due well after it is sold. He gets to float the money. He is the party in the structure that contributes the least but gets the most.

Maybe we are a bit slow!

How many times have you heard, "I don't have time to worry about the market situation, I have to try to make a living."? The producer just works a little harder to dig himself into a deeper hole. It is said that the first rule of holes is to quit digging! Perhaps we need to slow down, scratch our heads (or elsewhere) and sort things out.

Have you ever noticed that political leaders seem to always brag on the American Farmer's productivity and never mention his lack of profitability? Producers have become more productive and efficient but less profitable. The marketplace summarily confiscates gains in efficiency and productivity by the producer.

For years we have been told to ignore the profits made at the other tiers of the system and become profitable by being "low-cost providers". This is the moral equivalent of saying, "let them eat cake", but it has worked!

Many producers blame themselves for their lack of profitability and believe that somehow they are not doing it right. To tell trusting, unprofitable producers that they should become more efficient in order to become profitable is absurd.

It is like telling someone who lost in a crooked game he has to become a better poker player in order to win. One can not overcome a crooked game by playing better and there is not enough unrealized efficiency in cattle production to bridge the gap between production costs and profitable prices.

We have come to accept 20 percent returns by the large food companies and 1 to 2 percent returns by producers as the natural order of things. Certainly there is room for improvement in production efficiency and the quality of farm products. The best way to bring about this improvement is to give reason to expect fair compensation.

Stacked deck

Years ago (1921) while testifying in favor of the pending Packers and Stockyards Act, Senator John Kindrick of Wyoming said "cattlemen are good sports and will take their chances, but they do not want to go against stacked cards".

He recognized that the deck was stacked against the producer. Well, the Packers and Stockyards Act of 1921 has ceased to be enforced in recent years and the deck is stacked again.

For years we have been told (and believed) that our cattle were cheap because of market forces (oversupply, slack demand, and competition from other meats). I would suggest that when a near-record supply of beef is sold at near-record prices, there is no oversupply; and demand is fine.

It is fundamental that consumer prices for the end product are the true reflection of the overall supply and demand situation. Why is it then that cattle prices are low when retail beef prices high? The only plausible answer that I can find is: "so that retail margins and profits on beef can reach new highs"

Who's on our side?

On Organizations: With age comes a certain awareness of truisms. One of these has to do with organizations. They come into existence in response to some cause. Almost without fail, the organization itself becomes the cause and the agenda becomes self-perpetuation. They measure their success with glitzy charts and numbers that have little to do with the gut issues.

Major agricultural organizations have mostly followed this pattern. They need to live up to their calling to be the voice and staunch advocates for producers. These days farmers and ranchers are the most endangered species around.

On Government: I believe in low taxes and small government. I believe in capitalism. I also believe in basic fairness and obeying the law. Were it not for the Sherman Antitrust Act of 1890, we would all be domestic help for the Rockefellers today.

Regulating business to maintain competition and free markets is a vital function of government. We have abandoned our antitrust laws and encouraged monopolies and oligopolies "to be competitive in the global marketplace".

We laud free trade and then say we need to cheat to promote our national interest; that we need to create only one major airframe manufacturer through merger (Boeing and McDonnell Douglas) to compete successfully against Airbus.

The urge to merge has become a mania. It was many small businesses, competing, innovating and becoming more and more efficient that built the greatest economy in history. It is corporate greed that threatens to destroy it.

The large transnational corporations justify their existence in the name of efficiency while they systematically destroy markets, consolidate their control and accumulate obscene profits. This intense concentration of market power must be reversed. The Packers and Stockyards Act of 1921 and our entire body of antitrust law must be enforced.

Where are we going?

The trends are obvious and ominous for the farmer and rancher. We are ushering in an era of corporate feudalism. Concentration, industrialization and globalization of agriculture appear almost inevitable. The family farm and ranch seem destined to join the buffalo hunter as a romantic part of our history.

The very large transnational corporations; ConAgra, ADM, Cargill and several others, are in the process of displacing private producers. They don't want to own production; they just want to control it!

(Why should a corporation that is making 20 percent return get into a business that has historically returned less than 1 percent?) Markets are systematically destroyed and desperation becomes the motivation for consummating unholy alliances (cartels?).

Smell the coffee!

This bear is going to eat us before we acknowledge that he is there. We need to wake up and discuss this critical issue. Farm organizations need to provide a forum for a full-blown dialog.

Let's hear from those who contend that everything is working fine and producers are just sore losers, looking for someone to blame. Then let those of us who are proponents of the "stacked deck theory" have their say. We need to raise the level of awareness to the point that when someone brings up the issue at a meeting, he won't be considered a smart aleck.

I have no doubt that people understand the importance of private agriculture and will denounce this monster (total corporate control) if they are told the truth. The transnational corporations are driven by greed and are rapidly consolidating their total control of agriculture! They commit high crimes and pay $100M fines, yet successfully represent themselves as "supermarket to the world"!

Can we trust them with control of the world food supply? Are we going to wake up and smell the coffee -- or become slaves on the global plantation?

I have discussed this situation with eminent economists and business people. Almost all agree that we are in the process of discarding private agriculture and installing corporate control -- on a global basis. Some think this trend is irreversible.

I believe we still have some time. People in this country understand that our family ranch and farm have served us well and be allowed to coexist with corporate agriculture. They need to be told of the real implications of this "new world order".

Will you help me promote a full airing on this issue?

Thomas F. "Fred" Stokes, is a military retiree turned Mississippi cattle producer who decided the game was crooked after losing lots of money. He can be contacted at Route 1, Box 171, Porterville, Mississippi 39352 (601) 476-5568 e-mail: STOKESFARM@worldnet.att.net

RURAL ROUTES The Changing Structure of Agriculture