How the Government Should Support Local Farms

Five years ago, I gave up a career as a business writer in New York City to take over a small farm in the Blue Ridge Mountains of western North Carolina with several friends. From the start, our goal was to help rebuild an ecologically sane local-food economy accessible to everyone in our community, from the second-home owners and vacationers who flock in every summer, to year-round residents with deep historical ties to the area.

That modest-sounding goal proved to be extremely challenging. Profit margins on small-scale organic farming are numbingly low, even when you charge prices that low-income folks can't afford. We quickly found ourselves in a paradox: we were growing great food for the rich—which is not what we set out to do—and losing our shirts doing it.

I started to think about the situation as a business writer would. Why was it so hard to squeeze out a living on a small farm? And why were large agribusiness companies and food conglomerates making out like bandits, and doing so by selling dirt-cheap (and low-quality) food?

A classical economist would point to economies of scale. According to this view, vast operations are more efficient because they can spread costs out over a larger base, allowing them to profitably churn out cheap stuff. But scale advantages couldn't fully explain it. For years, the U.S. government has paid out billions in subsidies every year to the large-scale farms that supply the industrial-food system. Between 1995 and 2006, the last year for which numbers are available, the federal government dropped a cool $140 billion in subsidies for a few crops, mainly corn and soy. That averages to $12 billion per year.

When you talk to longtime growers in my area, you find that the food-processing infrastructure has withered away over the past few decades. The plight of our county's last dairy farmer sums it up. For the first year of our project, we would illicitly buy raw milk from an older farmer, who fed 50 cows on grass. He told us that 20 years earlier, the lush pastures of his valley had housed more than a dozen dairy farms, all selling to a bottler a few miles away. By the time we met him, long after his neighbors had given in, he was paying to have his milk hauled to the nearest processor, 40 miles away. Then the dairy giant Dean Foods bought the midsize processor the farmer had been selling to, and promptly shut down the (relatively) nearby processing plant. Now the nearest buyer was 70 miles away, and the extra 30 miles of freight, combined with heightened energy costs, wiped out what was left of his profits. The man shut down his dairy operation, telling us he had sold his herd to a large dairy farm in South Carolina. Similarly, today there's no USDA-inspected slaughterhouse nearby, so livestock growers have to haul their animals a hundred miles and back if they want to sell meat locally.

What had happened to all the community-scale processing facilities that flourished a generation ago? The federal government watched idly, ignoring antitrust principles, while the food industry consolidated dramatically. Today, four companies process 90 percent of the beef consumed in the United States. In dairy, just two companies process nearly 70 percent of the milk produced nationally. As these giant companies scale up and buy competitors, they shutter smaller facilities and concentrate processing in vast factories geared to large-scale farms. In standard antitrust theory, when four players control more than 40 percent of a market, they have untoward power over their suppliers—in this case, farmers. The result has been a nearly wholesale obliteration of small livestock farms, and an explosion in the size of the remaining operations.

Of course, increased farm size doesn't just translate to economies of scale. It also generates massive ecological and social problems. Large, confined livestock operations require daily doses of antibiotics, contributing to the spread of pathogens like methicillin-resistant Staphylococcus aureus (MRSA), an antibiotic-resistant bacterium that now kills more Americans annually than AIDS. Concentrated animal-feedlot operations don't treat the vast amounts of sewage they produce, and instead let it fester in open "lagoons," from which it leaches into streams, fouling water and snuffing out marine life. As for working conditions in factory slaughterhouses, things have gotten so grim that in 2005 Human Rights Watch saw fit to issue a scathing report. (Article continued below...)

There has been a great emphasis in recent years on the importance of growing food sustainably; even the White House now has an organic garden. But if we want an ecologically sound local food system that's available to everyone, we'll need to figure out how to reinvest in that lost infrastructure. Small farmers can't do it on their own. What we need is the government to make smart, relatively low-cost investments in infrastructure like small-scale slaughterhouses and passive-solar greenhouses. In fact, there's already a program called Know Your Farmer, Know Your Food, set up to do just that. Under Know Your Farmer, launched early this fall, the Obama USDA has gathered myriad existing loan and support programs that can fund projects like county-scale slaughterhouses, and is making a concerted effort to encourage small farmers and their allies to use them for that purpose.

While the program is certainly a fine start, we should remember that it amounts to pennies on the dollar compared with what we're paying to prop up Big Ag. I asked Ann Wright, USDA deputy undersecretary for marketing and regulatory programs, how much Know Your Farmer would invest in local and regional agriculture. She told me it would amount to a total of "several hundred million dollars" by 2013.

That's a lot less than $12 billion annually, and it's unlikely to do anything to affect the lax antitrust oversight that allowed a few giants to grab control of the food system. Reducing Big Ag subsidy payments and diverting the proceeds into local-food infrastructure sounds like change we can believe in…and savor.