Subsidies in competition

By ART CULLEN

We’re gratified and delighted that Tyson Fresh Meats plans a $30 million upgrade of its chilling facilities. The project will add eight good jobs, make the plant more efficient and, we hope, will further secure its future in Storm Lake as a profitable pork facility. Here’s the part that bothers us: The state will contribute $1.2 million to the project.

The Iowa public treasury will contribute about $20 million to a Prestage Pork Plant in Wright County. Prestage is from North Carolina.

So we are subsidizing one pork plant to compete against another in Iowa.

Tyson and Prestage are simply taking advantage of what the state offers. Prestage will locate in Iowa because this is where the hogs are. Tyson is heavily invested in Storm Lake and probably would make whatever further investments are necessary to move product faster, with or without state assistance. No doubt, North Carolina or Missouri would make Prestage the same offer as Iowa. They choose Iowa because of corn. No Tarheel tax incentive could exceed the critical mass of corn and hogs built up in Iowa.

Tyson and Prestage want to do business in Iowa. We do not have to beg them with incentives. Rembrandt Foods enjoyed the employment of tax subsidies subsequent to its opening. CEO Dave Rettig told us repeatedly that Rembrandt wanted to be in Rembrandt because of corn, not property tax abatements.

If you have a business that innovates by fractioning a corn kernel, as Quad County Processors does, then maybe the state should help give you a boost. If you are working in making renewable fuel from algae, as American Soy Processors in Cherokee has, that interests us as leading-edge work worthy of subsidy. If you are preserving South School as a historical building by converting it to apartments, then a public subsidy may be worthwhile.

But for processing hogs?

Or cranking out corn ethanol? Or makng fertlizer? Or even standard old ice cream?

To be clear, we begrudge no one taking advantage of corporate welfare. We enjoyed a full tax abatement on our building that we would have built without the abatement. But we accepted it. It was silly for the law to offer it to us.

The government should act when private enterprise is incapable of action for the public good. Iowa will have livestock slaughter facilities so long as we have rich topsoil. We will have fertilizer companies anxious to sell product here. We don’t have to subsidize them. We should subsidize the scientist who can make a wind turbine twice as efficient or ceramics that will conduct electricity. Distilling corn alcohol or breaking an egg is not exactly rocket science, as they say.

 

Stress in markets

Many a requiem has been sung for farm operators stressed by drooping row crop prices. Who are those for whom the bell tolls? According to economist David Swenson of Iowa State University, they are younger, expanding farmers with annual sales of $1 million or more. Swenson researched just who would be stressed by corn prices tanking to $3. Using data from the USDA Agricultural Research and Marketing Service, Swenson determined that those most at risk are farmers under age 45 with annual sales of at least $500,000 per year. The risk goes up with farm size as more debt accumulates.

He notes that 80% of the business is done by 20% of the farmers in Iowa, those in the highest class. But if some of those 20% drop out, others invariably take their place.

“If this trend continues, it means fewer family farms, fewer jobs and fewer dollars being invested in rural communities,” said Chip Bowling, president of the National Corn Growers, in an interview with The Wall Street Journal.

Actually, that is not true. Those who relent to the markets will be replaced by others on the come or by operators with steadier hands — that is, more capital. The number of family farms and dollars exchanged does not necessarily change. The acres will get farmed, just not by those who aspired to be on top, but could not make the climb. Someone will jump on the carousel to see if they can hang longer at $3 corn and $300 cash rent.

This is of grave concern to the agri-chemical complex that depends on the 20%. Bayer just bought Monsanto and Dow just bought Dupont and the Chinese just bought Syngenta in a wave on consolidations brought on by too much corn. Farmers from that top professional class are beginning to wonder if Roundup Ready beans are still ready, as bean fields sprout chemical-resistant weeds. They are starting to wonder if that genetically modified corn for rootworm is really worth the premium. As farmers begin to question the conventional wisdom, the real threat may be to the supply chain far upstream from the farmer. The downturn in crop prices exposed Monsanto’s weaknesses before the guy renting 1,000 acres. Because there will always be another one behind that guy. But what comes in the wake of Roundup and its soy patents?