Parity Pricing, Supply Management and Fair Income for Family Farms: A note from the United States

As peasants, small food producers and family farmers across the continents mobilize to demand better regulation of agricultural trade, fair wages and a fair price for their produce, La Via Campesina has also begun a process of studying historical examples of price support programs and supply management policies in different countries. In this context, the U.S. experience makes it abundantly clear that “supply management” is unworkable without a guaranteed minimum price adjusted for inflation. In his note below, George Naylor of Family Farm Defenders argues why.

Violent protests regarding commodity prices occurred in North America even before the colonies became states in the United States of America. In more modern times, the Populists of the 1880s and 1890s organized a movement in many farm states and demanded that the federal government establish licensed warehouses so they could use their crops for collateral for loans in hope this would help alleviate the low prices that always plagued them at harvest.

A farm depression began right after World War I in 1920, so farmers were losing their farms and going into poverty in what was called the ‘Roaring Twenties’. Ironically, lose lending and speculation created prosperity and wild times in the cities. This farm depression intensified with the beginning of the Great Depression in 1929. The conservative President Hoover staunchly supported the free market – that is no government involvement in the economy. In response, farm protests grew until President Franklin Delano Roosevelt began addressing farmers’ problems in a serious manner in 1933. The Roosevelt era and collection of government programs was referred to as the New Deal—social security was established and workers were given the right to organize unions. Early New Deal farm economy intervention involved attempts to diminish supply, but farmers or government agencies were still not able to achieve reliable price improvements. A lot of the early attempts were clearly experimental and good intentions were sacrificed at the altar of political expediency. As the 1930s progressed, it became the goal of New Deal farm programs to achieve parity prices.

Thus, from 1941 through 1952, farmers on average received prices at or above “parity.” Parity meant that the buying power of farm commodities reached the buying power of the 1910-1914 period, and were also logically adjusted upward with inflation over those parity years. Despite legislative compromises and opposition from the food processing industry, the basic tools proved successful and can give us a template for achieving parity and constructive supply management for small-scale farmers around the world.

The first essential element is the price support. A price support is a minimum price that the buyer must pay to obtain the commodity. This is in contrast to an “income support” which has no effect on market prices, but relies on government payments to farmers to prevent a collapse in the farm economy.

In other words, income supports (which were the basis of farm policy after the destruction of the New Deal programs in 1953) allowed the food processors to buy commodities cheaply, with the illusion that the government was helping farmers with taxpayer dollars. In reality, the resulting cheap grain benefited food processors and the cheap grain also led to low livestock prices—an essential product of diversified family farms where hay, pasture, and small grains offered better crop rotations and use of manure. Today, since livestock is now owned by big corporations, farmers have no choice but to raise Roundup Ready corn and soybeans all across the continent. This supplies cheap feed for livestock owned by companies like Smithfield and JBS here in the US and around the world.

Storable commodities, as opposed to perishable fruits and vegetables, are quite easily addressed in terms of price supports. This is how it worked. Parity prices were calculated by the US Department of Agriculture through a ratio of the “prices received index” to the “prices paid index.”

Let’s say the parity price for corn was $1/bushel. When the farmer harvested the corn and demonstrated that the corn was stored in good condition, the farmer was eligible to borrow $1 for each bushel stored from the government at the rate of 90% of the parity price so she/he could pay bills and support the family without begging a banker for a loan. The parity price support loan was a “non-recourse” loan¹, meaning that if the farmers couldn’t sell the crop at a price that would allow repaying the loan with interest, the government would take possession of the crop to put it into a food security reserve, and the farmer could keep the loan proceeds without any other obligation. Thus, no farmer would sell their crop for less than 90% of parity, and often, the farmer sold the crop later in the year near the parity price so the loan could be paid back with interest. The higher grain prices also tended to support livestock prices, since farmers weren’t as likely to raise more livestock to use up cheap grain.

Setting the goal of parity prices and offering the non-recourse loan is the foundation of a price support and supply management for storable commodities. This should be the obligation of any democratic government.

When there were bumper crops, some grain would be forfeited to the government for the food security reserve, and the government would store it in good condition to be brought back onto the market when a crop failure drove prices above 120% of the parity price. This created societal food security and avoided the boom and bust nature of agricultural markets. It also prevented food processors and retailers from cheating the public in a “food crisis.”

The destruction of parity programs began in 1953, when price supports were lowered year after year under both Democratic and Republican administrations.

With lower price supports, supply management schemes were only used to keep the government from accumulating huge reserves. The promise of parity prices was broken. Secretary of Agriculture Earl Butz in the early 1970s sold the government storage structures so any grain stored by the government required huge expenditures to grain marketing companies. At the end of the 1970’s, under a different administration, farmers were paid to store reserve grain on their farms—a farmer-owned reserve. Supply management during this period relied on taking land out of production, but created no price certainty and shifts in weather made supply management very imprecise.

It can be argued that the most reliable method of supply management is by using quotas. A quota gives the farmer a precise share of national production and gives the farmer options on how to meet the quota. The thinking of the farmer will be just the opposite from today’s mania of aiming for higher and higher yields on every acre. With a quota, the farmer will aim to meet the quota with the least amount of outside expense—like chemicals and fertilizers. Land that is no longer needed to produce the storable commodities can be used for hay or pasture or restoration of native wildlife habitat. Once a farmer is assured a fair price, the government can incentivize all kinds of agroecological practices, production for local markets, and beginning-farmer programs.

All these features can be implemented globally to stop the predatory export policies of the US, Brazil, Canada, the EU, etc. The exporting countries are actually exporting their natural wealth, all for the benefit of global food companies. Once the current crazy system is replaced by parity prices, supply management, and reserves (they all must go together), importing cheap commodities will no longer forced by WTO rules. Many countries can strive for more self-sufficiency and agroecological and traditional food systems— achieving food sovereignty.

1. In contrast, if it were a“recourse loan” then in a situation wherein the proceeds of the sale of the crop didn’t allow the farmer to pay back the loan in full, the bank could force sale of other assets like machinery, livestock, or land to make up the difference. ↩︎

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