Adam Smith: the Farmers’ Market Economist

“Agriculture, the Produce of the Land, is the SOLE or the PRINCIPAL Source of the Revenue and Wealth of every Country.”Adam Smith’s 1776 Econ 101 text book, Wealth of Nations

Henry Ford’s Farmall tractor put 100 farmers out-of-business.

RUDE PRODUCE versus MANUFACTURED PRODUCE

“whatever tends in any country to raise the price of manufactured produce, tends too lower that of the rude produce of the land, and thereby to discourage agriculture.” pg. 873, The Wealth of Nations, by Adam Smith

SHOW ME THE MONEY

Teddy Roosevelt bans the sale of raw milk in 1912 with FDA act

Smith’s quotation above explains why the only time the American farmer ever made money, was from the end of the Civil War to just after WWI. When Lincoln freed the slaves, the white plantation owner had to get up out of his rocker, abandon his porch and go to work for a living, which he was not willing to do. The former slaves were then free to get paid for picking cotton and raising the rude produce of the land by themselves. After 1865, the trade balance shifted to the farmer because “The inhabitants of the town…including the former plantation owner, had to pay the market price or grow their own. The town of Kendleton, Texas, was named for the former plantation owner, who sold his land to the newly freed, for 50 cents an acre. The same land that my wife Shelby bought 150 years later for $5,000 an acre.

Pasteurization put an end to local small – less than a dozen cows – dairy farms and the beginning of Fctory Farmer

The good times lasted until the day after WWI ended, and Henry Ford started making tractors instead of tanks, with the unintended consequence of raising the price of manufactured produce, which lowered the price of the rude produce of the land, and thereby discouraged agriculture.”

” Whatever tends in any country…” in post WWI the advent of mechanization increased the cost of doing business, separated the farmer from his customer and steadily lowered the price of his rude $produce and thereby discouraged agriculture. The mothers and housewives, “the inhabitants of the town…lost touch with the individual farmer, started dating the milkman and making sure their butcher’s thumb wasn’t on the scale.

Well, didn’t the farmers who could afford to buy tractors make any money? Nope! Not any real money, they mortgaged their farms to chase after the slim profit margins of commodity row crops. Smith called this “the rent value of the land.” Shelby called it the cost of capital. Our farm, rented for $750/month or $500/acre because it had a nice barn, a tested well, it was fenced and had both road and river frontage. The white farmer/ranchers from surrounding communities rented adjacent undeveloped land for only $14/acre per year. Shelby, the CPA Systems Analyst and creative financial genius, had her work cut out for her to come up with some “rude produce” that was going to pay that kind of rent. Not my problem, I was just the salesman.

The U.S. farmer uses machines, chemicals, and government subsidized mechanized irrigation systems, to grow 200 bushels of corn per acre, which at today’s, also subsidized Ethanol gas prices, works out to be $800/acre (931 RMB/mu) or double the pre-ethanol price. In China and North America, it takes a sixth of an acre or one mu to raise one goat. A Nubian nanny goat can produce 225 gallons of milk in her ten-month cycle. The Lone Star Cheese Company (the food manufacturer), in Conroe, Texas, 50 miles north of Houston was paying $3.40/gal, for grade ‘B’ raw milk, pasteurizing it at their plant, and selling the finished, artificially flavored goat cheese, to Whole Foods for $0.50/ounce. Whole Foods in turn, sold it to their ‘cusinely correct’ customers for $1.00/ounce. Prairie View A & M, gladly supplied half of Lone Star’s needs, because their $million ‘creamery,’ was bought and paid for with federal government grant money, and the students did all the work. Therefore, the future commodity price of goat’s milk, in the Metro Houston area, wasn’t going to change in our favor, anytime soon.

Shelby had to decide whether $3.40/gal, would pay the $9,000 a year rent of the land. If, all fifty girls gave 225 gallons each, we could sell their “rude produce”to Lone Star for $38,000. As our ‘bubba’ neighbors would say, it “penciled-out.”

However, our goal was an urban income, with a rural lifestyle, and $38, 000 fell a little short, of our $10,000/month or $120,000 a year, master plan. After all, as possible former descendents of plantation owners, requiring copious amounts of psychotherapy, we needed to get at least $12/gallon for our “rude produce” to make our emotional ends meet.

Shelby’s idea was to be the manufacturer, the merchant and the farmer. She made Anala Inc. the parent company with the dba (doing business as): Anala Goat Company, as the farmer, Earth Mother Farms, as the food manufacturer and when we set-up our tent, at the farmers’ market, we were Earth Mother Farms, the merchant. We sold the milk at $15/gal, the cheese at $25/gal and the kefir at $40/gal, with a 55-30-15, ratio of milk, cheese and kefir. Since it takes a gallon of milk to make a pound of cheese, our average price for our 55-30-15 mix of rude produce dairy, was $25 a gallon. This equated to $1,300 an acre and gross revenue of $23,000 a month. The good business or added value practice of selling the milk as cheese, was later reinforced when I wanted to buy milk in, Eugene, Oregon, to make kefir. The goat dairy farmers wouldn’t sell me their $12 milk, unless I paid the $25/gal cheese price.

Our customers had to pay our price or do without because they couldn’t buy raw milk, cheese or kefir in the store. Whole Foods, a block away, was getting $1/ounce for goat cheese, made by Lone Star with pasteurized milk, while I was standing in the parking lot, of 2100 Richmond Avenue, enduring Houston’s 98% humidity controlled outdoor environment, selling grade ‘A’ raw goat cheese for $1.50 an ounce. We as Earth Mother Farms, the manufacturer, got to keep Lone Star’s 50 cents, Whole Foods’ 50 cents, as Earth Mother Farms, the merchant, and an additional 50 cents, for the drive in from the country to serve the inhabitants of the town.

The HAU ‘Hamlet for Humanity,’ sheep and goat dairy, could earn 1,500 RMB from the milk production of one goat, on one mu of land or the equivalent of a Chinese farmer’s total annual income, in just 30 days, that’s my kind of “Cultural Revolution.” As Deng Xiaoping allegedly said, “making money is exhilarating.” And all that therapy paid off too, because it was my ‘breath integration’ therapist, who told Shelby, she had to give up her $175,000/yr day job, if she was to realize her dream. When Shelby followed her advice, like Cortez ‘burning his boats It focused our attention on making it work. Maybe if she had quit earlier we would have reached our goal in six years instead of eight. It was scary enough in eight

Since selling the farm in June 2007, coming to Zhengzhou in September 2008 and reading Wealth of Nations once again, I have learned – no let’s say, I have had almost three years to reflect on the macro economics of agriculture, from a farmer’s perspective. On the micro level, there are many, many success stories. My favorite is the guy who grossed $250,000/year by selling organic specialty vegetable and salad makings, grown on a 1/2-acre vacant lot in Berkley. Now, I understand – no, let me say that, I think that I have a much better understanding of what Smith was talking about on page 873, when he wrote, “whatever tends in any country to raise the price of manufactured produce, tends to lower that of the rude produce of the land, and thereby to discourage agriculture.

Henry Ford’s unintended consequence was compounded with more well-intentioned subsidies from the politicians in Washington D.C. The corn farmer in west Kansas could grow 50 bushels of corn per acre on ‘dry land’ but with federal government largess, he could install mechanized, center pivot circle irrigation systems and reap 250 bushels per acre. The unintended harvest of consequences included 1) additional subsidies to keep the market price of corn equal to the farmer’s increased cost of production (second mortgage on the farm to pay for the well, pumps and circle machinery); 2) permanently depleting the depth of the Ogallala Aquifer (the underground water source for the central plains) by two meters a year and 3) exporting (dumping) the excess corn on developing countries in Africa and Asia at a price below their farmer’s cost of production.

I did not escape these same economic principles of “the invisible hand” by trading my career in new home sales for the gypsy life of a traveling ‘cabrito’ huckster on Wyatt Earp Boulevard, in Dodge City, Kansas. 1998, the same year we left Houston for Follett, the Republican controlled U.S. Congress decided it was going to eliminate those evil farm subsidies or bounties, as Adam Smith called them. However, the only subsidy they could agree on was mohair. Since Texas had only two senators and almost all the Angora goats in the country, the constituents of the other 98 senators wouldn’t get hurt, whereas nearly all the ag-states shared in growing, wheat, rice, corn, and cotton. The resulting legislation caused “The invisible hand” to pick up a knife and fork and eat over two million Angora goats in less than three years.

The unintended consequence of slaughtering 9/10ths of the Angora goat, mohair producing, population became my problem after I convinced Shelby to buy 88 goats from Floyd Thompson, in Higgins, for 80 cents a pound that I sold one by one and in batches from Dodge to Goldthwaite for 70 cents a pound. When I put the costs of transportation, meals and a minimum wage salary for time spent, into my little old EMBA case-study calculator, Shelby had paid for the single biggest ‘cabrito’ BBQ in panhandle history.

Is it any wonder why the Chinese refer to us as “foreign devils?” Or why Africa, the developing and third world nations look at Uncle Sam and say, “Aren’t you being a little two faced, as the most industrialized country, to dump government subsidized grain exports on the non-industrialized, agrarian only societies, of the world, for the sole purpose of propping-up your rural welfare program, for 3 million, over sixty-five, white heavy equipment operators? We don’t eat, soybeans, corn, rice or cotton, but like Madoff we must keep the cash flowing even though U.S. agriculture is not a legitimate economic enterprise.

The debate on the elimination of agricultural subsidies has gone on since Adam Smith first warned of such foolishness, but now the ‘soil geeks’ have linked them to climate change. The American farmer left the farm in the ‘50’s, the American manufacturer left town in the NAFTA ‘90’s. The G-20 met in Pittsburgh and found only a few Amish, “always was, and always will be organic,” farmers and zippo, nada manufacturers. The bulk of CO2 emissions, for the event, came from those ‘too big to fail’ gems from Detroit. No rural community in America has escaped abandonment. Eugene, Oregon, the home to third generation hippies’ whose ancestors migrated up from Berkley, used to source 95% of its food from farmers in the surrounding Willamette Valley but today only 5%. What changed? The price the farmers received for their rude produce”dropped below their cost to produce it. Thefew farmers, that remained, turned to industrialized grass seed farming because the inhabitants of towns, as far away as, NYC, were willing to pay the farmer a living wage for his rude produce.

Grass seed, like hay, alfalfa and marijuana is a cash crop, no subsidies, and subject to the law of supply and demand. But the unintended consequence is, the cuisinely correct citizens of Eugene don’t eat grass seed and are forced to import 95% of their food from outside the Willamette Valley. In addition to abandoning their backyard gold mine, much of the inhabitants have discovered their intolerance to grass seed pollen.

The U.S. doesn’t have a monopoly on these stupid, “whatever tends in any country,” consequences. China’s farmers have all gone to the cities to earn $200/month, rather than stay down on the farm and work like dogs for $200 a year. China’s 950 million, registered peasant-farmer, population after 30 years of ‘opening up’ has sent the youthful third of their number to the coastal mainland cities, leaving only the elderly, infirm and children behind. Why? For the same reason, we left or sold the farm – there was no money in farming. On 3/4ths of an acre, that is technically owned by the government, without machinery and a negligible subsidy, the Chinese farmer grows soybeans that he must sell for 20 cents a pound in the China market, against the heavily subsidized imported US GM soybeans selling for 11 cents a pound. Monsanto the merchant raised the price to manufacture soybeans, thereby lowering the price of the rude produce of the land. The tragically, China has followed this tail chasing strategy by advocating GM rice production.

Genetically Modified Wheat is a Threat to the Economy

  • GM wheat is a mortal threat to the U.S. wheat market. It is estimated that the loss of markets for GM corn, soy and canola has reached over 300 million dollars per year because the European Union will not purchase GM crops. The U.S. is the world’s leading wheat exporter. Many foreign companies have stated that they will not purchase GM wheat or any wheat if GM wheat is grown in the region. Korea is the fifth largest purchaser of U.S. wheat exports. The Korean Flour Mills Industrial Association has stated that they want GM-free certification of any hard-red spring wheat they purchase. The price of spring wheat could drop by one-third if a GM variety is introduced commercially into Montana or North Dakota, per agricultural economist Dr. Robert Wisner of Iowa State University. This will spell doom for North American wheat growers even if they decide to not plant GM wheat themselves.
  • GM crops are not required to go through any type of independent safety peer review to determine if they are safe for either human consumption or the environment.

Economically independent – GM seeds are the latest example of raising the price of manufactured produce making the poor farmer shell out more money that he doesn’t have for machinery, chemicals, fertilizers and now even the seeds. Organic or eco-farming eliminates, the chemicals, purchased fertilizers, patented one time use only seeds and nearly all the machinery and the petrol to power it. The organic farmer works for himself, free from costly manufactured inputs.

Professor Jiang estimates, “that since the late ‘70’s the income disparity between China’s urban wage earners and farmers has increased 44-fold.” In another words the unintended “whatever tends in any country consequence of Deng Xiaoping letting the cat out of the bag was the merchants and manufacturers made money while the farmers were left with a bag, no cats, and no money, to buy any. Why? Because the price of manufactured produce,went from a $30 bicycle to a $30,000 Bee-eh-KEH, while China’s rude producegrain, onlyquintupled in price

History didn’t leave a record of organic soil management, success stories. Name a civilization that left the soil in better condition, than when they found it. The Romans turned North Africa into the Sahara Desert, because they used slaves to do the plowing, until there was nothing left to plow. On the positive side of the farm ledger, FDR, the Bryan College-Station and Stillwater Aggies did plant trees and introduced terraced farming along contour lines. This was after the top ten inches of Oklahoma-Texas Panhandle blew halfway to NYC at 27mph in 1937. The ‘bestest’ thing they did for the soil, was pay farmers $40 an acre to plant prairie grass. When my in-laws moved to the Monterey Peninsula, they had 400 acres in $40 CRP (prairie grass) and 350 acres in $7/acre rent of the land to their cowman neighbor. They could have sold it all, for $200 an acre or stayed on the farm and joined the old geezers at the Quick Stop and bitch that the only way a farmer-rancher could afford the ‘rent of the land,’ was if his father owned the bank.

Well let’s see. How about Eisenhower’s Interstate highway system?

No, that put all those 18 wheelers on the road so the rude produce” of organic ‘arugula’ from Chile, sold at Wal-Mart in Chickasaw, OK for less than the local farm family could grow in their side yard. Cheap arugula didn’t hurt the farmer but Tyson, Perdue, Murphy, Pilgrim and Iowa Beef Packers and their manufactured pigs, chickens, and cows did him in. Before I-40 when Todd and Buzz were Vetting down U.S. 66, twelve million farmers each took 200 pigs to market in their pickups. Now, Wal-Mart semis haul 240 million pigs past Ike’s house on I-70 from four major, ‘bred, fed, & bled chop-shops’ in Western Kansas and the Texas-Oklahoma Panhandle.

Maybe Adam Smith should have said, whatever tempts man to manufacture food, genetically modify seeds and in any way, subsidize the rude produce of the land discourages agriculture. When the carbon content in Illinois gets down to less than 1%. When the price of 100% grass-fed beef, makes the farmer–manufacturer- merchant rich. When the Surgeon General declares cheap food hazardous to your health and three-thirds of Americans are overweight and unable to find healthcare at any price, then Congress will pass a trillion-dollar stimulus package to encourage the inhabitants of the town to turn to eco-farming because they can make money. The returning old Yuppie geezers, will gather at the Quick Stop and brag about sending their sons and daughters to UC Davis, Kansas State, even Texas A & M for their PhD in Microbiology.

That stimulus package, even the awareness of the near and present danger, needs some grass roots, bottom up help. Not everyone has $400,000 and a burning desire to succeed in organic farming. How can we green shoots save the world, when we do not have Bill and Melinda Gates money to spend?