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March 2002

The Future of the Family Farm

by Chris Farrell

On the Internet at:

Subsidy Failure Challenges Traditional Notions of Farming

"The family farm": The phrase exerts a powerful pull on the American imagination even in a nation that is largely urban and suburban.

"They are images that hearken back to when life was simpler," says Karl Stauber, head of the Northwest Area Foundation in St. Paul, Minnesota. "Part of it is, I think, the romantic notion that we have about other people having a simpler life where good and evil are much clearer. You're out there doing God's work-converting raw land into productivity."

Some of the nation's most disturbing and stirring images come from family farmers combating weather catastrophes and economic calamities, such as the Joad family and their neighbors in John Steinbeck's The Grapes of Wrath. Steinbeck captured the tragedy of farmers dispossessed by big farms and big banks during the Great Depression.

"They come with the cats ... the cats, the caterpillar tractors," says Muley Graves, Joad's neighbor, driven mad after being driven from his land. "And for every one of 'em, there was ten, fifteen families thrown right out of their homes. A hundred folks and no place to live but on the road .... One right after the other, they got throw'd out. Half the folks you and me know throw'd right out into the road."

Farmers were hit hard by plunging prices during the Depression, and it's stories like this that moved the government to start subsidizing agriculture in 1933 under FDR.

The Agricultural Adjustment Act, a centerpiece of the New Deal, raised crop prices by paying farmers to cut back on production. Seven decades later, the government still heavily subsidizes the farm industry. Over the past 20 years, farmers have received more than $300 billion in taxpayer-financed support.

"The farm program provides a mechanism of support for family farmers and ranchers when the market doesn't provide adequate compensation for the production of food and fiber in this country," says Leland Swenson, the outgoing president of the National Farmer's Union. The Union is a 100-year-old organization that strongly advocates government support of the family farm.

"We are fortunate in this country", he says, "by the system we have in agriculture to have a diversified food system and we can provide to consumers the most abundant supply and safest supply of food of an y country in the world. We do that domestically. We don't have to rely on imports to feed our people. And I think we have to make sure by the structure of farm policy that we sustain that."

Farmers now make up less than two percent of the work force, down from 21 percent in the early 1930s. Stauber says the subsidies aren't working.

"I understand the political and romantic base for encouraging people to stay in farming, but I would argue we are better off helping those people to make the transition to other kinds of enterprises, to other kinds of opportunities," he explained. "Right now, I would say much of our federal policy and much of our state policy is sending the message: 'Stay in it; it will get better.' Well, it's gotten marginally worse every decade for the last four to five decades."

Farmers limped into the 1990s following the farm depression of the 1980s. Direct government payments accounted for nearly half of net farm income in 1999 and 2000, and an estimated 40% last year, according to Vernon Eidman, a professor of applied economics at the University of Minnesota.

Little wonder the cry "save the family farm" is once again being heard in rural towns, as well as in Washington, D.C.

"I don't think there is any substitute for the footsteps and footprints of family farmers when it comes to growing safe and affordable food," says Senator Paul Wellstone of Minnesota.

"The debate is not going to be over the farm bill, " says Maya McGuineas, a policy analyst at the New America Foundation in Washington, D.C. "It's going to be over the timing and distribution of the rather large chunk of money both parties are willing to plow into farm subsidies."

But agriculture economist Steven Blank at the University of California, Davis, wonders why farming should be treated any differently from computers, the dry cleaner on the corner, or most any other product and service in the economy? His grandparents on his mother's side were farmers and ranchers. His other grandparents ran a mom and pop grocery store as well as a butcher shop.

"Why were my mother's parents doing something more valuable than my father's parents?" Blank asked. "They were both part of the food chain. Why should the government pay one and not the other?"

Farming might have evolved into a far more profitable industry than it is without subsidies. And there's no question that the global competitive pressure will only intensify. Emerging Markets like China, Brazil, and Ukraine are devoting more resources toward upgrading their agricultural industries. Professor Blank thinks that Ukraine will eventually threaten America's wheat belt.

"Mother Nature happened to give the Ukraine some of the best land in the world—and the climate too—for growing crops such as wheat," Blank said. "And as soon as they get their infrastructure together—not only their production, but the ability to get it off the farm and to the market, as it gradually gets up to the standards that we operate on in this country—they will be able to underbid us and all the parts of the U.S. which are not quite as good will not be as competitive."

Cost Still a Barrier to Farming as Livelihood

Farmers are hurting in Greenville, Mississippi. The land is flat in the heart of the Delta-farm country. Every other warehouse or business along the main road running into Greenville seems worn down, in need of paint.

Marc Curtis, a local farmer, raises 2,300 acres of soybeans, corn, and rice. He's harvesting his 30th crop with just three employees. Marc shows us what a soybean looks like out in the field.

"That's a soybean pod," he says. "The actual bean ... is just like a pea or something like that ... Right now with prices the way they are, I can't plant a crop and get enough income off of growing the crop to produce it .... The profit is all in the government support."

A second-generation farmer, Marc's father owned a small farm in northeastern Arkansas, and in the late 1950s he moved to Greenville for a larger spread. Marc worked on the farm as a youngster. Farming was a lot harder back then, especially in the heat of the Deep South.

"When I was a kid, we used to have flame cultivators," he tells us. "That was one of the first non-hand weed controllers we had. What it was was a propane jet ... that focused on the base of the cotton."

The flames would kill the weeds without damaging the cotton.

"I used to tie a thermometer on the tractor ... the thermometer measured to 120 and it would be at the top."

Tractor cabs are now air-conditioned. Still, it's hardly surprising that Marc went off and got a degree in aerospace engineering. But newly married after graduating, he joined his father on the farm. His father retired in the late '80s, and Marc has been on his own since then.

Looking out over acres of soybeans, he says he expects a good bean crop this year—a welcome relief from the drought of the past three years.

Even so, he tells us, "It used to be fun. It's not fun anymore."

Marc and his wife Cheryl live on the outskirts of Greenville in a one-story brick house with a pool in the back and a well-tended garden. The Curtis' are representative of the modern-day farm couple. While Marc works the fields, Cheryl has her own career teaching at a nearby private school. Nationwide, more than half of all farm households report that at least one adult family member works off the farm for income and benefits.

Marc and Cheryl are typical for another reason: Their two children aren't going into farming.

"Our son was interested in computers, and that's what he does" Marc says. "He had no desire whatsoever to farm. He helped his daddy for a while when he was in school, but he says no way would he do that for a living!"

And their daughter?

"She tried it one year. She worked for one of the seed companies or experimental plants or something, and she was out in the field picking things off ... about a month of that and she said 'no way—I want to be inside where it's cool.' "

She now lives in Atlanta, working at a wireless company.

Marc's kids are far from alone in their choice. Farming, an economic gamble with increasingly poor odds, isn't attracting a lot of young people. For example, the return on farming has run some two to three percent since the 1960s compared to a 14 percent return in the stock market. The average age of farmers is now 54 years old. At 51, Marc's reached that stage in life when thoughts about retirement are never far off.

"I've tried to find a young person who wants to do pretty much the same thing I did with my father—" says Marc, "come in as a partner and build some equity in the operation, and learn how this farm operates successfully, and be in a position where, when I get ready to retire, I could help him buy it—but I haven't been able to find that person."

The biggest barrier to entry is cost.

"It takes a lot of money to get into farming," he says. "In fact, you pretty much can't get into farming unless somebody gives you a road to it. There's too much initial capital investment to do it—for a young person to do it. ... You're talking about a capital investment in machinery and all he needs to do ... couple of hundred thousand dollars at the minimum."

Bruce Davis is sales manager for Farm Tractor Company, a John Deere dealership alongside highway 82 near Greenville.

"This is a '95," he says, looking over a big machine used for picking cotton, "and that picker right now would sell for between $75,000 and $95,000 depending on how much work is done to the heads. ... You can spend between $10,000 and $25,000 a year on the head. The spindles are $275 apiece, and these are pretty worn."

Bruce Davis says the main reason why farms keep getting bigger, and the machinery larger, is the perennial push for ever-greater efficiencies.

"I think your days of the 1,500-acre farmer are gone," he says. "You're going to see five- to six-thousand acres as a rule down here. I've seen eight, nine, ten thousand acres. I think that's the way it will go, I even think they will get bigger, and the small guys won't be able to survive. You have to have a lot more acres to make the money come around, to be able to make it come out. It doesn't take a rocket scientist to know that if you take something that costs 50 cents to grow, and you have to turn around and sell it for 35 cents, you can't stay here long."

Looking for a Solution

Marc Curtis' office on the farm looks like a former tool shed. The inside walls are covered with plywood, with some cartoons and price charts tacked onto the walls. Outside, the humid semi-tropical heat of the Delta seems worlds away from China or the Middle East, but Curtis is the outgoing president of the American Soybean Association so he has a sophisticated grasp of the global battle for markets and profits.

"We've got some competitors ... who have seen the light," he says, "… and made up their minds that they want to replace us as the leading agricultural producer in the world."

Brazilian farmers are especially competitive. "They're very aggressive and entrepreneurial, and lots of land," says Curtis.

Agriculture played a big role during the last round of global trade talks held by the World Trade Organization. Tariffs on manufactured goods have plunged over the past half-century, while farm tariffs are still relatively steep. Big farmers like Curtis are export oriented and tend to favor freer trade. He thinks the trend is toward more open borders for farm and ranch products.

"When you start talking about limiting imports to make your small farms work right, in the world economy we function in today—all industry in the world—if we want to maintain our export markets for other industries—cars, airplanes, computer software," Marc says, "then these folks are going to want access to our products here ... If we start shutting off those markets, then no longer are we going to be able to send our products to them."

What's the answer? "Going to have to stay efficient," he says.

Congress passed the 'freedom to farm" bill in 1996. It was supposed to wean farmers away from government support. Instead, it's evolved into one of the most expensive farm programs ever. From the start, almost nobody was really happy with the law; critics nicknamed it 'freedom to fail.' Congress is about to expand subsidies to the industry. But lately, more and more people—including family farmers—are asking What would happen if the subsidies went away?

In the twilight of his presidency, Bill Clinton called upon the world's wealthiest nations to let the world's poorest countries freely compete for markets in industries where they have a natural advantage—such as agriculture.

"If the wealthiest countries ended our agricultural subsidies," he said in a speech to the students of The University of Warwick on his last tour of duty as president, "leveling the playing field for the world's farmers, that alone would increase the income of developing countries by $20 billion a year."

The stakes are even higher after September 11th. Afghanistan and many of its immediate neighbors, much of Africa and countries once part of the Soviet Union, are trapped in grinding poverty and plagued with rampant disease and malnutrition. Such countries are breeding grounds for terrorism and civil war, as well as the tragedy of child warriors. Economic development will not only improve living standards, but it will lessen for future generations the lure of suicide missions, car bombings, and other nihilistic acts of terror. There is no magic elixir for transforming poor countries into rich ones, but most economists argue that opening America's agricultural borders would boost profits and income of developing nation farmers.

"If we go the route to combat terrorism through not just the stick of defense spending," says Maya McGuineas of the New America Foundation, "but the carrot of economic development, we're going to see more competition in the agricultural area. At the same time, that's going to lead to more protectionism of our farmers. We have been very hesitant to allow our farmers to compete on a level playing field. Global trade, free trade, and interaction with developing countries could strongly benefit those other countries if we allowed farmers to compete on a level playing field."

But what would happen here if subsidies were eliminated? First, everyone agrees the American agriculture industry would dramatically shrink, and the U.S. would import a lot more food. But Karl Stauber of the Northwest Area Foundation says the remaining farmers would be more competitive.

"Fundamentally, given our soil, our rainfall, given our transportation system, and given our research system, regardless of what happens we're still going to be one of the most effective producers of a wide array of crops and fiber sources and animals in the world," he said.

An Eye Toward Technology for Boosting Profits

American farmers aren't hayseeds in bib overalls, says professor Steven Blank. About a quarter of all farmers have at least some college education. Among the operators of very large family farms, the figure is 35 percent. Many farmers live on the scientific edge of a major global industry.

Gary Wagner is next to his sugar beet field, running his eye over six farm houses visible in an arc from where he's standing.

"That guy works in Crookston. They no longer farm," Gary says.

Crookston, Minnesota is in the Red River Valley, nestled alongside the North Dakota border. "The guy there was farming about five years. He quit, runs a chemical business now ... selling to area farmers .... That farm there, somebody lives there, but they no longer farm .... So technically the only yard that you see right here that's actually farming is our stead here."

The same economic forces that are at work elsewhere in the U.S. are at play here in Minnesota: historically low prices, farmers squeezed out of business, no young people getting in, spouses working in town.

To counter those forces, the Wagner brothers—Gary, Wayne, and Daryl—are tilling the technological frontier. The second-generation farmers are leading practitioners of what's called "precision agriculture." The idea is to increase yield and lower cost by using technology to gather data and then use the information to boost productivity.

Wayne is sitting in an air-conditioned tractor with 90-foot booms. His hands rest on the steering wheel, but the computer housed in the cab is really in control. Wayne is spraying fungicide on a wheat field.

"That's the new technology that we're in, so we don't have to spend so much money," he says. "And we're a little more environmentally sensitive so that we only hit the spots we really need out here."

The Wagner equipment and their 4,200 acres of wheat, soybeans, sunflower seeds, and sugar beets are wired for data. They also rely on satellite-generated maps. The topographic images, with different hues of red, green, blue, and other colors, impart all kinds of information to Gary.

"Here is a satellite image of a field," he says, pointing to one of the maps. "What's this? Total nitrogen map. Used to spray whole field with fertilizer, but only 20 acres that needed to be treated .... To me, that's what this is all about. Less chemical in the environment. Less money being put out."

Gary says farmers from Russia, China, Australia, Germany, and elsewhere frequently visit the Wagners' high-tech farm. "[There is a] lot of interest," he says, "because they think they need to know this technology to keep up with the U.S."

Investing in new technologies is costly, but it creates profitable opportunities for family farmers like the Wagners'. Plus, the Wagners' are having fun working at the leading edge of agricultural know-how.

Expanding Farms' Roles to Increase Profit

Technology is one way to boost profits. Changing the way farmers do business is another. Russell Lester is an organic walnut farmer near Davis, California. Like farmers everywhere, Lester is upset that the products he grows are such a small part of the price of food. For instance, corn accounts for only a fraction of the price of a box of cornflakes. The same is true for wheat in wheat bread.

"I think the biggest threat to the family farm is the idea that we need cheaper and cheaper food," Lester says. "Since I graduated from college some 20 years ago, it was at that time 17 percent to 18 percent of a person's consumable income went to food. Now it is around nine percent and that includes fast food, prepared, and everything ... so more money is going to the processing costs and cooking instead of the farmer."

To bolster their profit margins, many farmers are moving up the nation's food chain. Lester is "vertically integrated": He owns a processing plant on his farm where the walnuts are shelled, boxed, and shipped to stores.

He shows us the processor, a metal and wood contraption of pulleys and conveyer belts that takes up most of one wall in a warehouse. "The sheller head is what cracks the shell off the walnut, and if everything is adjusted right," he says, "we are not doing too much damage to the meat."

Lester farms 240 acres, and he buys an additional 200 acres of walnuts from growers. He will process nearly two million pounds of walnuts this year.

"We sell our walnuts around the world," he says, "and it makes me satisfied when I go to Maine or southern California and see somebody enjoying my walnuts."

He also gets to pocket more of the profit. "Being vertically integrated gives us more of a potential for a profit, [not] being at the whims of another processor," he says. "If you're making more one year on processing than on the growing, we still absorb that income in ... whereas if we were just growing alone, would be at the mercy of whoever is offering us the best price."

Indeed, Lester isn't much of a farmer these days. He's mostly an office-bound small business entrepreneur with a hired manager that runs the farm and its seven year-round employees.

"I have to deal with people to collect bills—to collect money," he says. "You have to hire more individuals to do the work in the processing plant, and we have a lot more investment in the equipment, and there is always the risk of not being able to see your crop and not getting paid by somebody."

Rural Communities in an Era of Fewer Farms

Consolidation, new technologies, innovative business practices—these are some of the ways farmers are adapting to the global economy. But it's not just farmers that are changing, so are rural communities.

Dean Torreson is city manager for Spencer, Iowa, a town of some 11,000. Spencer is in better shape than many nearby farm towns whose main streets have become ghost towns. Folks from those towns are coming here to shop now. But that's not enough to maintain a thriving community.

"Rural America is in decline," Torreson says. "As there are fewer farmers, there's less money flowing into the community."

Farm subsidies are often justified as necessary to prop up rural America. But Karl Stauber of the Northwest Area Foundation says it's a myth that "rural" and "agricultural" are the same. For instance, a majority of jobs counted as agricultural, such as in food processing and production, are in metropolitan areas.

"So I think the notion of helping rural communities to be prosperous is a great political objective," says Torreson, "but doing it through agriculture is missing the mark quite significantly."

Towns like Spencer are taking matters into their own hands and diversifying their economic base. In Spencer, that means catering to an aging population.

The three-story, three-building, red-brick complex that makes up St. Luke's Lutheran Home rests on top of a small rise above Highway 71. The nonprofit offers senior citizens the option of moving into an independent living apartment, an assisted living center, or a nursing home. St. Luke's is one of five elder centers in town.

Mildred Bruns is 85 years old, and her husband Carl is 89. They're waiting for lunch outside the cafeteria in the independent living complex at St. Luke's. They've lived there for seven years. Their home was in Sheldon, about 40 miles away. Carl sold insurance, and Mildred raised a family. Despite summering for years in southern Texas, they retired to Spencer.

"Our roots are here," says Bruns, "and this is where we should be. ... There is a lot to do .... More than in Sheldon. And we take part in the community theaters, and we have season tickets to that and the concerts. Carl belongs to Kiwanis. I belong to bible study .... We belong to Grace Methodist Church .... In fact the whole town is friendly."

Spencer's elderly population, as well as its townspeople and commuters, shop on Grand Avenue, the town's main street. As in many rural cities, the long main street is lined with classic, small-town, two-story buildings. But in Spencer only two or three stores are vacant.

Bob Rose is head of the local chamber of commerce. "It's quite unique in that we have one of the Midwest's largest collections of art deco architecture in our downtown," Rose says. "And if you look at the buildings you will see the little tiled roof areas, the definite points of difference, the design in the brick work, and the terracotta trim that are all part of the early 20th century arts and crafts, art deco architecture."

Town leaders are lobbying for their main street to be designated a historic site by the National Trust for Historic Preservation—for both recognition and money. Businessmen like Bob Rose also hope a charming downtown will help keep or attract young, tech-savvy workers and entrepreneurs in the new digital economy.

"The best thing we have to offer young people is a quality of life," Rose says, "very low crime rate, very easy to move from one place to another .... We try to provide some of those amenities you find in big cities."

For example, the town's municipal utility invested in a high-tech communications network. And a group of local investors is converting empty second-story rooms above the retail stores on Grand Avenue into city—like lofts that should appeal to a younger generation. "We are almost ready with our first project .... We'll create three apartments, and we'll have to create some of the uniqueness. Brick walls. Open space," says Rose.

But despite all the efforts by community leaders to grow Spencer, the town has managed to gain only 250 people in a decade.

Small Farmers Finding a Niche

Back during the Great Depression, deflation, or rapidly falling prices, traumatized an entire society. Farmers were hit hard. These lines from Steinbeck's The Grapes of Wrath memorably echo the confusion about how to stem the tragedy:

"I've been thinking about us, too. About our people livin' like pigs and good rich land layin' fallow. Well, maybe one guy with a million acres and a hundred thousand farmers starvin' and I've been wondering if all our folk got together and yelled … maybe I can find out something, just scrounge around and maybe find out what is wrong and see if ain't somethin' can be done about it."

Federal subsidies offered farmers a lifeline back then. Today many farmers say they don't like government subsidies, but worry about what would happen without federal money.

America's farm subsidy system is complex. Federal subsidies rarely reach the small, marginal farmer. Roughly 10% of farmers receive 90% of the subsidies.

Still, if the experience of the past quarter century is any indication, deregulating agriculture—as in the case of airlines and financial services—would trigger a painful turmoil. But deregulation might also increase the industry's overall global competitiveness and productivity.

Many small farmers would go out of business without federal financial protection. But the family farm would not disappear with consolidation. After all, most large farms—about 96 percent—are "family farms," and nearly all corporate farms are family owned.

New niche opportunities might also emerge for entrepreneurial farmers to exploit. The number of niche farms is rising, including hobby farms. Small farmers, especially producers of organic farm goods, who work near urban markets are finding loyal customers, such as at the Saturday-morning farmers' market in Davis, California.

"I have a little bit of everything," says one vendor. "Have 51 varieties of tomatoes, 21 varieties of peaches, squash, cucumbers. You name it, we grow it. We have three farms going. Thirty acres of heirloom tomatoes."

Proximity to major urban markets gives these small farmers a competitive advantage. But not enough can benefit from this. Rural America is no longer America's storehouse for food. Instead, American consumers are increasingly reliant on imported food, such as Mexican tomatoes. And that dependence worries Lori, director of Public Citizen's Global Trade Watch.

"Woe be to us," Wallich warns, "at the moment that—actually given drought in some part of the world, and economic downturn in other parts of the world—there is no food to be had, to be exported, and we've made ourselves totally reliant."

Farmers like Marc Curtis from Mississippi share her concern that eliminating subsidies would threaten the nation's food security.

"You've got to be careful in doing that," Curtis says, "because you'll wind up getting yourself in the same shit we're in with OPEC right now."

And as Maya McGuineas notes, farmers are quick to wrap subsidies in the flag after the terrorist attacks of 9/11.

"What we have seen is the repackaging of many policies that senators and reps favor in terms of security. What we are now looking at is a farm bill called the 'farm security bill'."

But the analogy is flawed. During the oil crisis in the 1970s, America was highly dependent on imported energy to run our factories, offices, and cars. Even today, OPEC wields enormous influence because there is no easy substitute for oil. But Stephen Blank says food is different from oil.

"Food is not one commodity," Blank explains. "There are hundreds of products that will make my body go. I can't get apples because the state of Washington decides to boycott; I won't eat apples. I will eat something else. It is impossible to conceive of the whole globe deciding not to sell us food all at the same time."

It's striking how few people, including farmers, are happy with the current subsidy system. One reason is the confusion over what subsidies are supposed to accomplish: Protect the small family farmer, shield farmers from foreign competition, defend national food security, preserve the environment, shore up rural America, or maintain a way of life.

These are all vital public goals. Yet there is a growing consensus among economists and policymakers that farm subsidies aren't achieving any of these ends well. After seven decades of government support, they're wondering if the era of farm subsidies is passing.