A new "commodity agriculture" could be profitable for farmers

Have you ever heard a farmer say, "You can't make money growing corn. It's only a commodity?" Likewise, milk, soybeans or wheat are "only commodities."

I guess I'm getting old, because I can remember farmers laboring under the old-fashioned notion that they should make their living producing the food we all need to live. Now all that seems to have gone out the window in favor of new-age strategies intended to "add value." What's going on here?

A "commodity" is usually thought of as a common farm product that is in plentiful supply. In other words, it's what the majority of farmers produce. So if we allow ourselves to think that commodities can't make money, then we have a big problem. We are saying that most farmers can't make money from farming. I don't like the sound of that.

The idea that most farmers can't make money from farming is certainly out there these days. It's why we plan farm program payments years in advance. That same way of thinking has farmers across the country dreaming up ways to make money from non-farm businesses that add value to their farm products. It's as if airline pilots had suddenly given up on making money flying planes, and started selling peanuts to the passengers.

Airline pilots, of course, don't sell peanuts. They don't say they "only fly planes." And they don't compete with each other to see who can work the cheapest. Instead, they work together as a union to make sure that a fair share of airline profits comes their way.

Farmers, on the other hand, seek prosperity by competing with each other. As long as farmers do this, the results are predictable. If dairy farmers produce milk, it is "only a commodity." If they process that milk into cheese, it's still "only a commodity." If corn farmers produce ethanol, that, like the corn it was made from, remains "only a commodity." And if soybean farmers get more involved in the biodiesel business, it is only a matter of time before that, too, is "only a commodity."

What's the problem? Mergers and acquisitions have led to less competition, more market power and more profits in many non-farm sectors of the food system. As this happens, farmers question whether they can ever make money farming, and so they naturally look elsewhere in the food system to make money. But when they do that, two things happen.

First, they run head-on into some of the world's largest corporations and try to beat them at their own game.

Second, they don't focus on what they are the best in the world at: farming.

When farmers move into other businesses, they take their competitive attitude with them. That attitude, not what they were producing, caused their farming problems. It will just as surely cause problems in their value-added ventures. Without market power, farmers can add value, but they cannot keep that value for themselves.

Here's my definition of a present-day commodity: It is any product produced by large numbers of farmers competing with each other. The way to restore value to those products, and income to those who produce them, is by ending that competition.

What will a post-commodity agriculture look like? My guess is that it will still feature plenty of milk, corn, wheat and soybeans. But those vital food products won't be produced by farmers desperately trying to undercut each other. Instead, they will be produced by farmers working together to build the market power so essential for maintaining profits in today's food system.

From a speech at a recent farm meeting sponsored by the National Farmers Organization in Henning, Minn. Levins is an agricultural economist with the University of Minnesota Extension Service. He can be reached at dlevins@apec.umn.edu or by phone at (612) 625-5238.

March 15, 2006

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