Thank God for taxpayers

ON A grey day in December Johnny Anderes, the head chef at The Kitchen, a trendy restaurant in Chicago, is checking out a farm in an unlikely place.

FarmedHere, which claims to be one of America’s largest “indoor vertical farms”, occupies 90,000 square feet of former warehouse in a run-down Chicago suburb. It grows three types of basil, baby kale, micro-radish and arugula (rocket) in vertically stacked beds, lit with LEDs and fed with water from tanks of hormone-free tilapia.

Mark Thoman of FarmedHere says the farm will be able to produce 1m pounds of leafy greens a year when it reaches full capacity. He concedes that his ultra-local, organic produce is costlier than food grown on the Midwest’s megafarms. But wealthy foodies don’t mind. “We have more demand than we can supply,” he says.

Carl Zulauf of Ohio State University sees two trends in American farming. One is the growth of local microfarms for picky posh people. The other is the success of high-tech big farms that produce cheap food for everyone else, as well as plant-based fuels and chemicals.

Farmers have just had five fat years during which crops such as maize (corn), soyabeans, sugar cane, cotton, rice and potatoes have generated record profits. Now the demand for (corn and sugar-based) ethanol is stagnant, the Chinese economy is slowing and the supply of most crops was bigger than demand this year. “We are now entering a boom-moderation period,” declares Chris Hurt at Purdue University in Indiana.

The Department of Agriculture (USDA) forecasts that net farm income will be $US96.9 billion in 2014, down 23% from 2013. The forecast for this year is the lowest since 2010, but still 15% higher than the previous ten-year average. Income from crops is expected to fall 12.3%, mainly because of weak prices for corn and soyabeans.

Many farmers, however, will compensate by raising more livestock, for which 2014 was a bumper year. According to the USDA, income from animal farming will increase by 14% this year, largely due to record prices for beef and milk. Low crop prices mean cheaper animal feed, which is excellent news if you have pigs to fatten.

Analysts expect crop prices to remain low this year, next year and maybe even longer. A bushel (25kg) of corn now costs $US3.81, down from $US8.49 in August 2012. This year, thanks to the taxpayers who were held down and fleeced by the latest farm bill, farmers will receive up to $US5 billion in subsidies through a new model of crop insurance.

No matter how rich they are, they get paid if their crops fail or prices fall too far. The payouts “will certainly be much higher than the $US2 billion in direct payments that farmers received last year”, says Vincent Smith of Montana University, who thinks crop farmers should buy their own insurance without subsidies.

Crop insurers will adjust rates to the new crop prices, so the crop-insurance bonanza won’t last for ever. Happily for farmers, they will still get subsidies through the commodity-insurance programme, another provision of the farm bill that protects farmers against “multi-year risk”.

Plenty of farmers also built up reserves during the boom years. The average wealth of a farm household is four to five times that of a non-farm household. At least 50 billionaires received farm subsidies between 1995 and 2002, according to the Environmental Working Group, a watchdog.

One measure of the health of the farm business is the price of farmland, which rose sharply in the Midwest after 2009 but has now settled down, thanks to the fall in crop prices, according to the Federal Reserve Bank of Chicago. Fields in Indiana and Michigan became a little costlier in the year to October, but those in Illinois and Iowa got cheaper, and there was no change in Wisconsin. This could mean leaner days ahead. Time to hire more lobbyists?

Click here to subscribe to The Economist 

Follow Business Insider Australia on Facebook, Twitter, and LinkedIn