E (17:34)
All right. That's what the right, left and farmers are saying about this bailout. Which leads me to my take. I could write the whole take today in 60 words. Telling a simple story with a simple lesson. The story tariffs levied against the entire globe raised costs for importers and consumers of all domestic products, sending off trade wars that diminished our exports of soybeans and other crops. This motivated the government to use some of the revenue it raised to offset losses for farmers. The lesson we are robbing Peter and Paul to pay Paul. And that could be it. The same story you just heard six times with a lesson that changes slightly depending on the author's angle of attack. The problem is either government tariffs or government bailouts, or some combination of the two. But there's a deeper and I think more interesting story here that tariffs and bailouts only provide an addendum to. And if we focus solely on tariffs, then we'll learn the wrong lesson from all this. It's a story of how the incentive structure we've created for our food production makes Americans less healthy, makes farmers poorer, and has far reaching consequences that hurt us in ways we never even think about. That story starts with a root problem, which is not China buying too few soybeans. The Root problem is that U.S. farmers are not growing food. Think of a U.S. farm. What do you think it's growing? If you said corn or soy, you're probably right. In 2024, the two crops accounted for 45% of all cash crop receipts. They are easy to grow in rotation with one another and together have been common agricultural staples since US Soy production took off to meet the demand for fat and oils caused by trade disruptions in the lead up to World War II. If you reflect on what you eat, you'll probably note that corn and soy aren't 45% of your diet. So where does all that corn and soy go? A lot of it goes abroad, to countries like China or Mexico, while we import other crops from them. Somewhere between 10 and 20% of corn is exported, and roughly 50% of all US soy is exported. But most of those two crops together are used domestically. So how much of the domestic yield of our most widely produced crops would you guess becomes part of our diet? 60%? Half? Even less than that. In fact, less than 10% of the corn and soy farmers grow each year is used in food products domestically, almost all of which is highly processed. The food products that do come from American yields usually take the form of corn starches and high fructose syrups. And even though those products don't provide much of the nutrition in the average American diet, they are added to seemingly everything where they have become leading contributors to our epidemically high incidences of diabetes, heart disease, and obesity. That's the small portion of what we grow that feeds us. The other 90% goes to animal feed and biofuels. If, instead of asking what the average U.S. farm grows, I had asked, what is most U.S. agricultural land used for? The answer to that question would be different. About two thirds of agricultural land is used for grazing animals, cows, pigs, and chickens. But predominantly cows. That's a lot of land, but not nearly enough to support the number of cattle Americans consume every year on the grasses that those animals evolved to eat. Instead, cows are fed grains that are not healthy for the animal, and that, research shows, generally produce less nutritious beef. Biofuels, meanwhile, are no more beneficial to humans compared to petroleum. Corn ethanol itself burns cleaner and produces less greenhouse gases. But when you consider all the inputs, the oil used to drive the machinery and transport the fuel, the fertilizers and pesticides used in growing the corn or soy, and the land use itself, it produces a net increase in greenhouse gas emissions. Without subsidies to drive corn and soy production, using farmland to grow fuel would be an absurd proposition. As a result of all of our combined land management practices, we do a remarkably poor job feeding ourselves off of our own very fertile land. Here's a quote from a 2013 Scientific American article which remains tragically accurate today. The average Iowa cornfield has the potential to deliver more than 15 million calories per acre each year. Enough to sustain 14 people per acre with a 3,000 calorie per day diet if we ate all of the corn ourselves. But with the current allocation of corn to ethanol and animal production, we end up with an estimated 3 million calories of food per acre per year, mainly as dairy and meat products, enough to sustain only three people per acre. That is lower than the average delivery of food calories from farms in Bangladesh, Egypt and Vietnam. None of this is good for the American farmer as it creates a collective action problem. Don't grow enough and you don't earn enough. So individual farmers grow like crazy and they're turning out record yields in corn and soy. But that oversaturates the global market to the point that soybeans now cost more to grow than they do to buy. A boon for the buyer's market dominated by an incredibly small number of companies requiring taxpayer subsidies to keep individual farmers afloat. None of this is good for the American consumer either. The prices of the foods people actually eat stay high because again, most of what farmers grow isn't turned into food. The farmer and blogger Beth Hoffman put it best writing in Iowa, we have to import something like 80 to 90% of what we eat while we are one of the biggest agricultural states in the country. I like to say that if something happened like a pandemic or competing tariffs for example, we could starve here in Iowa and most of the land is farmed on the heels of the pandemic. And in the midst of tariff wars, farmers have only few options to sustain themselves. First, they can turn away from soy temporarily. Since such a large portion of the US soy crop is exported, that decision can produce an immensely wide reaching set of effects. Skipping a soy rotation in the field means turning to the other crop in their rotation corn. Less rotation means more monocropping, which means importing more pesticides and fertilizers and which increased input costs, shrinking farmers margins. And all of that means more soil erosion and more nutrient wash off that flows into the vast Mississippi drainage basin and ends up in the Gulf of Mexico, which means algae blooms that hurt ecosystems, which means fewer fish, which means fishermen get hurt among other externalities, and so on and so on. All of this creates an increasingly brittle agricultural system that goes back to harming farmers in the first place. Secondly, farmers can turn to the other asset. They can control their land itself. While their crops are becoming incredibly cheap, farmers land values are at record highs and investors are rushing to buy up farmland. The prospect of selling land that has been run by their family for generations can be painful for farmers, but the cash influx of a one time sale can be an attractive prospect to bridge the hard times. But most of the time, as someone involved in agricultural finance told me, farmers sell the land to another farmer in the area, getting out of the farming business completely. That consolidation further incentivizes row crop rotations that rely on soy and corn. Lastly, farmers can rely on government assistance to provide that bridge to better times as we're seeing today with the new tariff bailouts. But what better times are coming? Providing assistance to farmers now is essential. But if we continue to incentivize a dual crop system that keeps food expensive and unhealthy, keeps farmers dependent on external assistance, and degrades local and far reaching environments, then we aren't solving the problem. But if we continue to incentivize a dual crop system that keeps food expensive and unhealthy, keeps farmers dependent on external assistance, and degrades local and far reaching environments, then we aren't solving the problem. So I'll end with some good news and some bad news. First, the good news. We have the tools to address this problem in both the public and private sectors today. Publicly, the USDA administers the Conservation Reserve Program to offer assistance to farmers. It is designed not just to continue to perpetuate the cycles of financial dependency, but to encourage practices that help prevent soil erosion and improve water quality and general farm sustainability. Privately, some companies are popping up that offer discount financing rates to farmers for incorporating regenerative farming practices that will improve the long term health of their farms. Profitable farmers, hardy cropland and healthy diets are not mutually exclusive. In theory, they should go hand in hand. The bad news you can probably already tell for yourself. We are currently going in the wrong direction. Tariffs don't help our farm system and bailing out farmers so they can turn to corn won't help in the long term either. Our agricultural issues are far more likely to turn into a full blown crisis before they ever take a turn for the better. Hopefully they do. But first, something's got to change.
