Unintended Consequences of Environmental Regs

by Levi Russell

Over at the Texas Ag Law Blog, Tiffany Lashmet provides a discussion of the history and current state of the Waters of the United States (WOTUS) rule in relation to ag. Her post is very informative and I suggest you check it out. Here's a slice:

Rescinding a rule already promulgated is not as simple as it may sound.  The EPA has published a new proposed rule in the Federal Register, which essentially seeks to codify the rule as it was prior to the 2015 EPA rule being passed (and, due to the 6th Circuit stay, the approach currently in place across the US).  Specifically, the proposed rule would rescind the 2015 approach and codify an approach consistent with the Rapanos Supreme Court decision, applicable case law, and other longstanding agency practices. 

Now, notice and comment rulemaking will take place, which will allow the public to offer input on the new proposed rule.  This period is open through August 28, 2017.  After that, the EPA plans to conduct a “substantive re-evaluation” of the definition of WOTUS and conduct notice and will likely propose a new rule after property notice and comment rulemaking occurs. [Read new proposed rule and comment here.] 

Meanwhile, the 2015 rule is not in force anywhere in the United States, as the 6th Circuit stay remains in place.  Thus, currently, the definition of WOTUS is governed by the pre-2015 rule that got us the complex decision in the Rapanos case.  Unfortunately, until a new rule is promulgated, landowners are left with trying to interpret the Rapanos decision in order to know whether federal permits are required on their land.

Over the past couple of years I've been thinking about the costs associated with regulation like this. Certainly the intent of environmental regulation of agriculture is to internalize the external costs associated with the production of agricultural goods.

For example, we value the food and fiber produced by modern agricultural practices, but their production entails such things as water and air pollution, soil erosion, and other economic "bads." Environmental regulation is intended to curtail the production of those bads by ensuring that producers bear the cost of producing them. However, no policy is perfect and it is reasonable to think that some of the costs of regulation might be borne by consumers rather than producers.

To examine that question, I recently finished up a working paper examining the relationship between EPA regulation and relative food cost. You can read the whole thing here (and I'd appreciate any feedback), and here's the abstract:

Cost-benefit analysis of agri-environmental regulation is limited in the sense that it only examines the effects a single regulation will have on the public and polluters. Further, important mechanisms through which the public might bear part of the cost of regulation are not examined. This paper uses new data that allows for examination of regulation by a specific government agency on a specific industry to determine whether and to what extent relative food costs are affected by regulation of agriculture by the Environmental Protection Agency (EPA). The index allows for an examination of the overall effect of regulation, which is an important addition to the existing literature. Findings indicate that the costs of EPA regulation have not been borne solely by producers and that relative food costs would be lower now if EPA regulation had not increased over time.

Agricultural Econ Potpourri

by Levi Russell

As we move into debate over the next Farm Bill, here is a great overview of the state of the discussion.

If you're curious about China's new policy on beef imports, check out this blog post.

Farm fixed expenses are finally moving down.

As fixed expenses are moving down, land values are up yet again this year.

Can Plows Create Mountain Ranges?

by Levi Russell

According to the EPA, the Clean Water Act does not require a permit for normal agricultural practices including the following:

Normal farming, silviculture, and ranching practices. Those activities include plowing, seeding, cultivating, minor drainage, and harvesting for production of food, fiber, and forest products.

Upland soil and water conservation practices.

Agricultural stormwater discharges.

Return flows from irrigated agriculture.

Construction and maintenance of farm or stock ponds or irrigation ditches on dry land.

Maintenance of drainage ditches.

Construction or maintenance of farm, forest, and temporary mining roads.

That sounds pretty comprehensive to me, but the EPA and US Army Corps of Engineers has apparently decided to circumvent their own rule. A report released by the Majority Staff of the Senate Committee on Environmental and Public Works claims that

Landowners will not be able to rely on current statutory exemptions or the new regulatory exemptions because the agencies have narrowed the exemptions in practice and simply regulate under another name.  For example, if activity takes place on land that is wet: 
- plowing to shallow depths is not exempt when the Corps calls the soil between furrows “mini mountain ranges,” “uplands,” and “dry land;”
- discing is regulated even though it is a type of plowing;
- changing from one agricultural commodity constitutes a new use that eliminates the exemption; and 
- puddles, tire ruts, sheet flow, and standing water all can be renamed “disturbed wetlands” and regulated. 

This expansion of jurisdiction is apparently not what the EPA previously claimed it would be. If farmers are required to get permits to cultivate the soil, I'd bet on a couple of things:
1) the average farm size will grow dramatically as smaller farmers go out of business very quickly;
2) food prices will rise, or will fall more slowly than they otherwise would.

I doubt the average person looking at this situation would call those outcomes "good" but they're highly likely in my opinion. As Public Choice theory indicates, the EPA is not a residual claimant with regard to its policies, so its incentives are not as well-aligned as are the owner of the typical non-monopoly firm. Further, the EPA has plenty of incentive to increase the quantity of work for its employees and lawyers. This question remains: Will the farm lobby be able to keep their exemptions?

Farmers as Environmentalists

by Levi Russell

This morning in my daily ag reading I came across an article entitled "Greens Make Green." The author lays out the case for the farmer-as-environmentalist better than I've ever seen, so I thought I'd share it here. The underlying economic argument here is that there is great incentive compatibility between farmers (who are interested in long-term profits) and environmental sustainability. Do you find it compelling? Let me know in the comments.

In truth, farmers and environmentalists should be allies. The environmental and agricultural communities have more in common than conventional wisdom might suggest. Both desire to preserve our planet and its resources for future generations. I am not shy about saying farmers are the original environmentalists.

To a person, every farmer I have ever met is driven by an ethical obligation to protect the environment. They view themselves as stewards of the land. And for good reason: Nearly all want their children and grandchildren to carry on the tradition. Cousins Scott and Tom Deardorff II reflect the common theme of sustainability that connects the past to the present and future. Founded in 1937 by patriarch and great-grandfather W. H. Deardorff, Southern California-based Deardorff Family Farms has dedicated four generations to refining its environmental craft. For nearly eight decades, the Deardorff family has been driven by the relentless pursuit of improvement, pioneering many farming practices aimed at increasing productivity while reducing their reliance on natural resources.

Today, Scott and Tom have not only embraced but expanded the family legacy of stewardship. For example, they have invested heavily in the latest water-saving technologies, including drip irrigation and state-of-the-art weather stations and soil moisture monitors. The cousins have also curtailed the use of fertilizer and pesticides on their organic vegetable farms through innovative soil fertility programs and integrated pest management systems. And they recently completed construction on a cooling and packing facility that meets the highest green building standards in the country.

Multigenerational farms like theirs are the heart and soul of agriculture in the West and across the country. They are the very embodiment of sustainability. We should be so lucky as to entrust all our natural resources to the collective care of such thoughtful stewards.

If you can't bring yourself to buy the moral argument, at least consider renting the financial one. Farmers are business owners. They are motivated by sustainable profit. Their businesses are dependent on healthy soil and clean water, both of which lead to stronger yields and higher quality products. The math is quite simple: An environmentally healthy farm can deliver sustainable profits, while land that has been abused will one day cease to produce anything. Furthermore, inputs like fertilizer and pesticides are expensive; a business that doesn't minimize operating costs won't stay in business very long. Clean air, soil, and water are all outcomes supported by environmentalists. So why do so many continue to paint farmers as the enemy?

In his farewell address, President Eisenhower famously warned the nation against "unwarranted influence .  .  . by the military-industrial complex." Today we see the maturation of an environmental-industrial complex, defined by multimillion-dollar global enterprises closely integrated with academia and government regulators implementing environmental programs.

Like a storyline out of Mad Men, environmental activists have channeled their inner Don Drapers, fomenting fear of business and industry, and of human activity generally, in order to build a database of committed donors. It is an ingenious business model, used by corporate America since the early 1920s, when Gerard Lambert stigmatized halitosis to sell Listerine. Marketers have long understood that fear is a powerful motivating tool.

Every cause needs a bad guy, a threat that must be put down. For Listerine, it was bad breath. For too many environmental organizations, farmers—cast as the pillagers of Mother Earth—have served as compelling bogeymen (typically referred to as "corporate agriculture," "industrial agriculture," or the like) to alarm the 98 percent of Americans who aren't farmers.

We are all motivated to some degree by self-interest. Farmers are motivated by the love of farming and social good that comes from providing healthy food, and they are also motivated by the desire to succeed financially. Environmental activists working in big organizations aren't all that different. There is no doubt that most choose a career based on a commitment to environmental values and a desire to do good. And there is also no doubt that another motivation, and one that is entirely defensible, is the financial reward and career security that these organizations can provide.

Unfortunately, in the public debate, it is perfectly acceptable to point to farmers' financial motivations and equally unacceptable to acknowledge the financial motivations of environmental advocates. Those in private enterprise who are targeted by the policy and political initiatives of the environmental lobby ought to be more vocal about that.

If one can acknowledge the reality that the environmental lobby is motivated not only by the values of environmentalism, but also by the financial rewards of growing a motivated donor base, one might ask whether it would benefit these organizations to ever declare a problem solved. After all, while committed donors might feel good upon hearing such an announcement, they would also have one less reason to contribute.

Nowhere was this more in evidence than during the opposition waged against Senator Dianne Feinstein's compromise California drought legislation in 2014, which culminated in a joint-letter from multiple organizations slamming her bill.

Not one to seek the ire of environmentalists, the senator candidly responded—as quoted in the San Francisco Chronicle—that they "have never been helpful to me in producing good water policy." She went on to lament, "I have not had a single constructive view from environmentalists of how to provide water when there is no snowpack."

The practice of environmental protection and the business of environmentalism are two sides of a scale. Our nation's natural resources have benefited from much that has come from the former, but today the scale is weighted too much to the latter. It is the business side of environmentalism that produces the political targeting of agriculture.

It should stop. We share a common aim: to safeguard the planet for its people, animals, and plants. Imagine how much good could be accomplished if all farmers, regardless of size, whether conventional or organic, were accepted and embraced as partners for environmental protection. Now that is a narrative I know Don Draper could sell.

Tom Nassif is president and CEO of the Western Growers Association.

Political Economy of Crop Insurance

by Levi Russell

Last week my (co-authored) article on the political economy of crop insurance in the next farm bill (coauthored with Art Barnaby of Kansas State University) was published in Choices Magazine. I thought I'd reproduce the theme overview here and link to all 4 articles for those who are interested.

The Farm Bill, passed every four or five years, is a large piece of legislation which includes agricultural, food, conservation, and rural development programs. The most recent bill, passed in 2014, made significant cuts to commodity programs and increased budgeted spending on crop insurance. This change shifts the focus of farm risk management toward crop insurance, making it an even more important part of a producer’s toolkit. Looking ahead to the next farm bill in 2018/2019, this focus on crop insurance will likely continue.

The articles in this issue anticipate three discussions surrounding crop insurance’s role in the next farm bill: the political economy of crop insurance by Barnaby and Russell, economic evaluation of crop insurance’s role in the safety net by Zacharias and Paggi, and crop insurance’s role in specialty crop agriculture by Paggi.

Barnaby and Russell examine three crop insurance alternatives which are likely to be proposed in the debate over the next farm bill:

 1. Replacing crop insurance with a free, area-based disaster program,
 2. Making modifications to existing policy which would significantly reduce support to  farmers and jeopardize the private delivery system, and
 3. Complete elimination of the safety net.

The article summarizes the political factors and their interaction with the economic effects of these proposals.

Zacharias and Paggi identify the key considerations for improving crop insurance’s role in the farm safety net. Among these are regional and commodity-specific considerations, government budget constraints, and interactions between crop insurance and other titles in the farm bill. They emphasize the importance of developing appropriate metrics for evaluating the simultaneous performance of crop insurance and commodity programs and conclude with a research agenda for examining these issues.

Paggi discusses the broader role of crop insurance as a risk management tool for specialty crop producers. Specialty crops are of interest due to the increase in specialty crops’ share of the total crop insurance liability over the last 15 years. Paggi details the connection between crop insurance and specialty crops and provides a discussion of factors affecting the future of this connection.

Finally, Woodard addresses the elasticity of demand for crop insurance issues.  This key value will determine the maximum achievable size of any cuts in USDA’s share of the crop insurance premium and still maintain a politically acceptable level of farmer participation in crop insurance needed to prevent any future ad hoc disaster program.  It is critical for policy makers to understand the impact of elasticity of demand to prevent unintended consequences by making Federal budget cuts to crop insurance.  All budget cuts are not equal so how those cuts, if any, are made is extremely important.

Given the important role of crop insurance in the future of the farm safety net, political and economic factors affecting policy decisions are particularly of interest. This issue provides a first look at the conversations policy makers, industry representatives, and academic economists will have leading up to the next farm bill.

Beef Trade and the TPP

by Levi Russell

As one of my colleagues recently pointed out at an Extension meeting, both major-party candidates are (at least claiming to be) anti-international-trade. It's true that trade restrictions would be harmful to many segments of the U.S. agriculture sector, including beef. I ran across a great article in Beef Magazine last month that shows the U.S.' top trade partners. The chart below is lifted from the article.

As you can see, Australia is responsible for a substantial proportion of beef (not cattle) imports into the U.S. Our exports go primarily to Asian markets and our geographical neighbors. The article goes into some detail about the recent change in fresh beef imports from Brazil. The new policy is a tariff-rate-quota; details are available in the article and in this video.

Since I strive to tell the other side of the story as fairly as possible, I thought I'd link to what I believe is the most sophisticated argument against the Trans Pacific Partnership I've read. I recommend reading it, even if you are pro-TPP.

Yes, Virginia, Plowing is Pollution

by Levi Russell

Obviously the title is meant to be facetious. I'm just in shock about this ruling and am concerned about the ramifications it will have for producers in the future.

Below I reproduce a short Farm Futures article that summarizes a recent court decision in California regarding the Clean Water Act. As cynical as I am, this decision did surprise me.

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Judge Kimberly Mueller on June 10, 2016 in the U.S. Eastern District Court of California found that John Duarte, a nursery operator and wheat farmer, plowed wetlands, four to six inches deep, and therefore violated the Clean Water Act (CWA).

The Judge found Mr. Duarte, by chiseling a pasture, discharged fill material into a water (vernal pool) of the United States. Get this! The Court wrote “In sum, soil is a pollutant. And here, plaintiffs instructed [a contractor] to till and loosen soil on the property.”

This plowing, according to the Court, caused “…the material in this case soil, to move horizontally, creating furrows and ridges.” You will not believe this. 

The Court wrote, “This movement of the soil resulted in its being redeposited into waters of the United States at least in areas of the wetlands as delineated...” In sum, the Judge found that chiseling no more than a few inches of soil constituted an addition of a pollutant to a wetland.

Stunning!

The Court also evaluated whether the tractor and soil chisel plow were point sources under the CWA. The Court cited cases which found that bulldozers, backhoes, graders, tractors pulling discs and rippers can be point sources under the CWA.

The Court describes Mr. Duarte’s equipment as having 7 shanks with 24-inch spacing and each shank was 36 inches long. The Court wrote, “The equipment loosened and moved the soil horizontally, pulling the dirt out of the wetlands [vernal pools] and redepositing it there as well.” 

Vernal pools are described as meeting all three wetland parameters. They are dry the majority of time. As a result, the Court found that the equipment used to aerate the soil was a point source under the CWA.

Under the CWA there must be a discharge of a pollutant to navigable waters from a point source. Again, it is believed that to have a discharge of a pollutant, there must be an addition of the pollutant to the navigable waters. It is also believed that farming operations allegedly have an exemption under the CWA which exempts certain activities of farming and ranching from CWA permitting requirements. (The Court seems unaware that farming is considered a nonpoint source covered by section 319 of the CWA)

The CWA regulations defines farming and declares “Normal farming…activities such as plowing, seeding, cultivating, minor drainage and harvesting for the production of food, fiber and forest products,…” are not activities which are prohibited or regulated under the CWA. Plowing is also defined by EPA as meaning “…all forms of primary tillage, including moldboard, chisel or wide-blade plowing, discing, harrowing and similar physical means utilized on farm, forest or ranchland for the breaking up, cutting, turning over, or stirring of soil to prepare it for the planting of crops.”

The Court found that Mr. Duarte’s activities did not meet the exemption EPA has provided for farming. The Court believed that the land being aerated by Mr. Duarte had not been land used for farming activities but for the grazing of animals. (Grazing or pasturing of animals apparently is not an agricultural activity!) The Court believed the farming operation which could be exempted had ceased to operate as a farm, and that Mr. Duarte was engaging in new agricultural activities. 

Legal complications

The case is extremely complicated from a legal standpoint where Mr. Duarte sued the Army Corps of Engineers (Corps) claiming the Corps had violated his 5th Amendment right to due process and his 1st Amendment right against retaliatory prosecution. According to the opinion, there were two rounds of motions to dismiss significant evidentiary objections and objections over what constituted hearsay. The U.S. Department of Justice filed a counterclaim against Mr. Duarte using the CWA and won.

Basically the case says plowing can be a polluting activity particularly in areas that can be identified as vernal pools, vernal swales, seasonal wetlands, seasonal swales and areas where there may be intermittent and ephemeral drainages.

Mr. Duarte had purchased the land in order to plant winter wheat. He had been very careful in hiring consultants to identify any wetlands. Apparently what he did was insufficient according to Judge Mueller, an Obama appointee, who served as a City Councilwoman in Sacramento. In addition she has worked as a U.S. Magistrate Judge but appears to have no experience in agriculture. It shows!  It is indeed surprising that an attempt to grow wheat on approximately 450 acres results in the violation of the CWA.

Mandated GMO Labels: A Regressive Tax

by Levi Russell

The predictable effects of mandatory GMO labeling will be felt very soon in Vermont and those with low incomes will be especially hard-hit. Supermarkets in the state will lose some 3,000 products from their shelves. The video on this news story is telling: people don't seem to know much about GMOs and don't really think about the negative effects of mandatory labeling. Anti-GMO organizations such as Greenpeace have been accused of running a fear campaign that isn't supported by scientific evidence. There's no evidence that GMOs are harmful to people, but a law requiring them to be labeled very likely will be.

The federal law passed in the Senate will require companies to use QR codes or dedicated websites to provide information about the presence of genetically modified organisms in their food. The compliance costs associated with this law include the addition of the QR code or website URL to the packaging, the development of the databases with the required information, and the maintenance of this database as farming practices and ingredients change. The latter two will likely be far higher than the former and will affect food prices for the foreseeable future.

Here are some of the potential indirect effects:

1) Less consumer choice - The article linked above shows that this is already becoming a reality. I suspect those 3,000 products will come back to shelves eventually, but the development of new products is now more costly due to the necessity of adding information to GMO databases.

2) Higher prices - Additional costs to food companies will effectively shift the food supply curve to the left and raise prices.

3) Less innovation - Though "very small" food companies are exempted from the rule, many startups are created with the goal of becoming mass-market products (If you don't believe me, just watch an episode of "Shark Tank."). This requirement will be another cobweb of red tape these companies have to get through to get on consumer shelves.

Maybe all these costs are worth it. Given the lack of scientific evidence of harm and the fact that humans have been modifying the genetics of food in a far more haphazard way for a very, very long time, I have my doubts. The reality is that the costs mentioned above will fall disproportionately on those with the lowest incomes. Those with moderate to high incomes will be able to pay more for the food they really want, but for those who spend a substantial portion of their income on food already will find it harder to make other ends meet.

Legal and Economic Implications of Farm Data

by Ashley Ellixson

Discussions of farm data are a hot topic not only in today’s agricultural industry but also across the legal field.  I recently authored an article that describes the legal and economic concerns surrounding data ownership, privacy rights, and possible recourse in event of intentional data breach.  The publication aims to answer the questions around “who owns farm data?”, “what happens when farm data is misappropriated?” and “what can I do to protect my farm’s data?”  These questions and many more are swirling around industry, legislatures, and farm organizations.  

Until the law defines farm data or a court speaks to the protections of such data, experts in the field can only suggest best management practices (both at the farm-level and the legal liability level). From the farm perspective, not only the law but the relative value of farm data will direct the optimal choice for damages, if any. Damages may be realized as loss of local bargaining power or a direct cost to the farmer; however, only time will tell. This collaborative effort between Kansas State University and University of Maryland can be found on the AgManager.info website.  

Ashley Ellixson, J.D., LL.M. 

Guest Contributor

@Legally_Ashley

E-mail

Precision Agriculture Implications for Farm Management: Farmland Leasing Example

By Terry Griffin

In the US, most farmland is owned by the farmer. However, substantial percentages are owned by someone other than the farmer. In the most recent USDA Census of Agriculture, 62% of farmland was owned by the farmer-operator. The percentage of rented farmland has ranged from 35% in the 1960’s to nearly 43% in 1992. Rented farmland proportions are higher in the Delta, Corn Belt, and Plains states than the rest of the country (USDA Census of Agriculture 2012). Therefore, a primary focus of farm management has been on acquiring and maintaining control of farmland; and an important topic that precision agricultural technologies can be a useful tool.

During my precision agriculture presentations I have been discussing the value of data. In particular, the prevalence of farmers and service providers creating printed maps from yield, soil, and other data as the ultimate use of data was discussed. The value of these printed maps was debated. Upon stating that unused data has no value, I mentioned that printed yield maps usually end up with similarly very low values, but with a notable exception for farm management. One exception is that some landowners appreciate printed yield maps, especially when presented in a format such as framed like a picture suitable for hanging or as kitchen table place mats. Several participants at the meeting paused to make written notes, and several hallway conversations followed. Given the interest, it seemed worthy of a short write-up to share this idea.

Even though not all landowners would find value in receiving printed yield maps at the end of the year, many would cherish this and it ultimately could make the difference for a farmer to continue farming that tract. The overall farm management principle here is that farmers who get to know what makes their landowners happy can position themselves better to maintain and enhance that relationship (assuming some level of utility maximizing behavior). Some landowners view their investment just as that, an investment, and value the revenue stream only (i.e. profit maximizing). Others would enjoy telling their friends about their asset, the history, and current events expressed through a printed yield map, either framed or imprinted on a coffee mug or perhaps some other creative expression of it.

At a time when cutting-edge agricultural discussions include ‘big data’, telematics, and autonomous decision-making processes, there are still many opportunities to use precision agricultural technologies to improve basic farm management. In particular with the current economic farm environment of potentially increased financial stress, existing technology on the farm may aid in ways not previously considered. Other examples of using precision agriculture technology for farm management exist that will be discussed at a later time.

GMO Labeling Bootleggers and Baptists

"Bootleggers and Baptists" is a term coined by Clemson economist Bruce Yandle to describe coordination among groups who might seem at first to have very different interests on a given issue. You can find more information in this video or this article.

In this view, the Baptists are the people or groups who explicitly call for a regulation to fix something they don't like. The Bootleggers are the ostensibly unintended beneficiaries of the regulation. Some examples are firms or groups who are "grandfathered in" under a less-strict standard or individuals in possession of a license that increases the costs of entry to potential competitors. Check out the video linked above for a couple of concrete examples.

With that as background, let's move to the case of GMO labeling.

The recent defeat of a bill in the Senate that would prohibit states from creating mandatory labeling requirements for firms gives us a real-world example of the Bootleggers and Baptists phenomenon in the ag sector. In this case, the Baptists are individuals and interest groups calling for GMO labeling requirements.

The bootleggers are companies like Campbell's who support labeling requirements likely knowing that it will increase costs for its competitors. Large firms like Campbell's can more easily bear the costs of regulation than their smaller competitors or potential entrants can. If they simply wanted to tell their customers that their products contained GMOs, they could have started doing so a long, long time ago.

The Bootleggers and Baptists framework can be used to understand the particular features of a lot of regulations. What examples can you think of?

Potpourri

David Widmar at Agricultural Economic Insights has some interesting maps showing the run-up in ag land values from 2004-2014. Check it out!

The folks at the Pro Market Blog (a new blog associated with the Stigler Center at U Chicago) use survey data to show Americans' concerns about the influence campaign donors have on candidates. Trump and Sanders are seen as the most removed from these concerns.

Here's a short podcast interview with Bill Easterly (NYU) who works in international development. Easterly is famous for his skepticism of the benefits of foreign aid.

Don Boudreaux, in his characteristic style, criticizes Krugman for his support of trade protectionism. (here and here)

James Pethokoukis blogs about Deirdre McCloskey's work on economic history and what made the west prosperous.

Relatively Good Regulation - GMO Edition

In previous posts on food labeling I've discussed food labels and the information they provide as well as possible reasons why a private GMO label hasn't already appeared. In this post, I'll discuss the reasons commodity groups are in favor of federal GMO labeling legislation.

Senator Pat Roberts (R-Kansas) recently introduced legislation that would establish federal guidelines for GMO labeling. The law would preempt state mandates for GMO food labels and start an educational campaign for the public on the safety of GMO foods.

The question isn't whether farmers, food companies, and retailers believe the guidelines are good for them financially but whether these guidelines are better than the relevant alternative. I'd wager that food companies would, in an ideal world, prefer to label their food in a manner that maximizes their profit.

Since that world doesn't exist, and there's a credible threat that interest groups in some states will successfully pass legislation mandating GMO labels, federal preemption of such laws is preferable. For producer groups, federal preemption makes it less likely that potential discounts on conventionally-produced food will be passed on to them. Additionally, the cost of educating consumers will not be borne by food companies, retailers, and farmers but by taxpayers.

As I argued in a previous post, the tremendous cost of educating the public on the safety of GMO foods is one possible reason why we haven't seen widespread efforts by food companies or third parties to create a GMO labeling scheme.  Another possible reason is the presence of substitute labels. Many consumers who are concerned about the safety of GMO food might be content buying food labeled "organic."

The more I think about it, though, the more I'm convinced that the main reason we haven't seen a third-party, private effort to create a GMO label is that the public generally trusts only the federal government to ensure food safety. It's true we have all sorts of private labels informing consumers of the characteristics of the food they buy, but safety is a separate issue in most people's minds.

The new legislation introduced is likely to be a net benefit to farmers, food companies, and retailers. They'll be shielded from the risk of more onerous regulation at the state level and won't have to bear the cost of educating the public about GMO safety. This makes the bill, from their points of view, relatively good regulation.

Farmer Hayek at the 2016 Southern Ag Economics Association Meetings

Four of us will either be presenting at the SAEA meetings next week or are authors on papers and posters. Here's a list of titles with links to abstracts and full papers!

Levi Russell

Price Impacts of Brahman Influence in South Texas

Profitability of Beef Cattle Best Management Practices in South Texas


Michael Langemeier

The Challenges of Precision Agriculture: Is Big Data the Answer?

Economic Threshold for Dynamically Optimal Late Blight Management


Gregg Ibendahl

Kansas Farm Profitability Persistence: Do Top Farms Remain Top Farms? (also with Terry Griffin)


Terry Griffin

Defining the Barriers to Telematics for Precision Agriculture: Connectivity Supply and Demand

Value of Internet Connectivity Uptime for Multiple Vehicles Using Automated Section Control

Applying Data Envelopment Analysis Methodology to Site-Specific Precision Agriculture Data

Farmers' willingness to pay for farmland based on machinery and precision technology adoption

My Confusion on WOTUS and Ag Exemptions

In the past I've been puzzled over the conflicting stories told about WOTUS by the EPA and Farm Bureau. The EPA claims that the rule does not impact normal farming operations but will require permits for many non-day-to-day activities farmers might engage in that would affect a "water of the United States." Farm Bureau makes much stronger claims, indicating that many typical practices will be hindered by bureaucratic red tape.

I've not found any source that nails down precisely what is and is not a "water of the United States." That's more than a little bit unnerving, as the definition of that term is the basis of the regulatory authority. [A previous version of this post indicated that my colleague Tiffany Dowell-Lashmet claimed that the EPA's characterization of the WOTUS rule is more accurate than FB. I've been informed that this is not her view and have deleted the offending portion of the post.]

A recent DTN column entitled "Farming Under Regulatory Fear: California Farmer's Battle Spotlights Growing Fear of Government Overreach" sounds at first like clickbait, but brings to light a case that makes me think Farm Bureau's claims are more accurate than I first believed. The article is ungated for now, but might be behind a paywall in the near future.

The Hockey Stick of Banking Regulation

Since the early days of the financial crisis, we've heard from many sources that it was caused by deregulation in the financial sector. Some economists and commentators blamed the crisis on general deregulation, while others pointed to the repeal of specific regulations over the last couple of decades as potential causes.

Recently, the Mercatus Center published RegData, which is a comprehensive measurement of regulatory restrictions by industry and by regulator. This index gives us a better picture of the regulatory environment at the industry level. I've referred to RegData in previous posts about EPA and USDA regulation of agriculture (here, here, here, here, and here).

In this post I provide some graphs and a brief discussion of banking regulation since 1970. This is an especially important issue in agriculture since ag lenders are likely to face liquidity issues due to low farm profits in coming years. 

Whither the Young Farmer?

Much is made about the average age of the American farmer. USDA Secretary Vilsack was once quoted as saying, "We have an aging farming population. If left unchecked, this could threaten our ability to produce the food we need – and also result in the loss of tens of thousands of acres of working lands that we rely on to clean our air and water." That's serious stuff, but a more careful analysis reveals that the situation isn't so dire after all.

Analysis by Carl Zulauf indicates that farmers are aging no faster than the general public. Additionally, we would expect, he says, that farmers would be older than the average business owner because modern agriculture is so capital intensive. Todd Kuethe breaks down farmer age by number of farms, acreage, and income, and notes that

The largest share of the income of the sector is captured managers between the age of 45 and 64. Just over half of Illinois' primary farm operators are between ages 45 and 64 (51.5%). This group, however, represents 60% of Illinois' agricultural land and 62.9% of the state's farm income.

Zulauf's observation that capital intensive industries are likely to have older sole proprietors on average is especially interesting given the current land price environment. As Brent Gloy and David Widmar note, land values are currently quite high, but a combination of low returns and rising interest rates could pave the way for a downward correction in land values. I made a similar argument about land values in Texas last October. The potential for a decline in land values may open up opportunities for younger farmers to buy in.

Another potential driver of the increasing age of the average farmer is increased regulation. As I've documented in the past, regulation by the EPA has increased almost continuously over the last 4 decades. Now more than ever farmers are burdened by the cost of regulation by the EPA. This increased regulatory cost creates economies of scale which might serve to hinder entry into the industry.


There are likely many causes of the increase in the average age of the American farmer, but it seems the worst thing that will happen is consolidation. If land values correct and young farmers are able to maintain access to credit, the trend of the aging farmer may at the very least slow down.

Crop Insurance Spending Myopia

In the last couple of weeks there's been a lot of focus inside the beltway on crop insurance. First, a 2-year budget deal between Republicans and Democrats planned to cut $3 billion from the crop insurance program. The deal would boost total spending by $80 billion (not including off-budget items) over 2 years. The $3 billion has since been restored to crop insurance in this bill.

More recently another bill called the "Assisting Family Farmers through Insurance Reform (AFFIRM) Act," has been proposed in both the Senate and House. The bill would cut $24.4 billion over 10 years from the crop insurance program by 1) capping RMA's premium share at $40,000, 2) eliminating RMA's share of the premium for all farmers with adjusted gross income over $250,000, 3) retaining the $3 billion cut to insurance providers, 4) reducing the commission paid to insurance salespeople, and 5) eliminating the Harvest Price Option.

The AFFIRM Act is, of course, being sold as a fiscally-conservative measure, but numbers can be deceiving. "Billion" is a big word, but context is important. 

I want to be clear here that I'm not advocating any cuts to or expansions of federal spending, I just want to bring some data to bear on the conversation.

The Foreign Subsidies Database

If you've ever wanted information about agricultural subsidies in other countries, the Foreign Subsidies Database at Texas Tech is a great resource.

The page has several interactive features. One feature is the Subsidy Tables which are laid out in table form and includes information from Argentina, Australia, Brazil, Canada, China, Egypt, the 27 countries of the EU, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, Russia, South Africa, South Korea, Thailand, Turkey, Uzbekistan, Vietnam, and the West African countries.

The tables include information on direct support (price supports, direct payments, import quotas and tariffs, subsidies and export taxes), indirect support (state trading and ownership, investment assistance, and credit and transport subsidies), and statistics on the production, consumption, export, and import market share by country. Commodities listed in the database include corn, cotton, rice, sorghum, soybeans, sugar, and wheat.

The site also includes more detailed information in narrative form on the commodity support in the countries/areas listed above in the Searchable Database. Some of the data goes back several decades. For instance, here's a graph of Australian cotton production, consumption, imports, and exports:

If you're interested in the way other countries subsidize their ag industries, I suggest you check out this site.

Food Labels and the Informed Consumer

Product labels are an important part of communicating product information to consumers. For a long time, regulators and politicians have been in the business of mandating the content of labels for a whole range of products, especially food. While other reputation mechanisms are important to being fully-informed, we all rely on labels to some degree.

But mandated labeling has its share of pitfalls. Regulators might require too much information on a label, increasing costs to consumers with little upside. They might reduce the amount of information on a product label by increasing the costs of using certain language. More bizarrely, they might require completely misleading information to be put on a label. Arguments in favor of different labeling requirements can come from consumer pressure groups, but often they come from within industries.

An example of the first problem is mandatory country-of-origin labeling (or MCOOL) of meat products. Though there are efforts in congress to repeal MCOOL, it is currently the law of the land. A fact sheet distributed by K-State concludes:

The overriding finding of limited awareness of MCOOL, narrow use of origin information in purchasing decisions, and no evidence of a demand impact following MCOOL implementation is consistent with the argument that voluntary labeling by country of origin would have occurred if it were economically beneficial to do so. More broadly, the findings of this project generally support the assertions of MCOOL opponents who have asked “where is the market failure?” 

MCOOL creates international trade issues and increases costs to producers, processors, and retailers with little to no upside.