Farmers Ruined as Hog Prices Collapse: More Evidence of the Developing Global Economic Crisis

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By NAT WEINSTEIN

A report by David Barboza appeared in the Dec. 13 New York Timesunder the headline “Farmers Are in Crisis As Hog Prices Collapse.”

Barboza reports on the drastic decline in the prices farmers are now getting for hogs raised for the market. His report partly explains how it came to be. And, whether intentionally or not, it illustrates the current trend toward a generalized global collapse in the prices of all commodities. Since the dollar and other currencies vary in value and price, like any other commodity, they too will fall in value.

However, the effect of a fall in the value of money (deflation) has hidden in large part the real rate of inflation. This seemingly contradictory phenomenon-deflation and inflation occurring simultaneously (see box)-has already broken out of control in Southeast Asia and Russia and will soon hit Japan and inevitably become generalized globally in the period ahead.

The Times reporter notes that the going price for hogs has not slipped so low since 1971, and “with inflation factored in,” Barboza writes, “hog prices stand at their lowest level since the Depression.” He explains its devastating effect on thousands of farmers who have staked their lives on hog raising to make a living and, in part, how it happened:

After years of spectacular growth and soaring demand for pork products around the globe, the nation’s hog farms-many of which are now huge corporate operations-produced the equivalent of a bumper crop of pigs, a supply so huge and unwieldy that slaughterhouses this fall are overflowing.

As a result, meat packers are no longer bidding up [more accurately, are bidding down], the prices of hogs and farmers-who have plowed great sums into new hog operations-are facing devastating losses and the prospect of financial ruin. [F]armers are beginning to talk of shooting pigs that are too costly to feed and too undervalued to sell.

It would be easy, but one-sided, and thus false, to dismiss the crisis facing farmers as due to an irrational expansion of pig productionmotivated by greed. This is irrational, of course, since production driven by blind market forces. To call it greed reduces the anti-social mechanism of the market-driven economic system to a matter of morality.

Whether the farmer, or other producer of commodities for the market, is “highly moral” or not is irrelevant. If you are in the business of producing commodities for the market, you must be competitive or your business will go under. Consequently, it is the market-driven economic system that is amoral, and that is the root of all the evils increasingly plaguing the world today.

Large corporate farms

The Times reporter points to the heart of society’s problem. After describing the plight of a middle-aged pig farmer in Iowa who had sold 230 hogs to a meat packer that morning-at a loss to him of more than $14,000-he reports:

There is a sense among some farmers that something bigger is amiss; the National Farmers Union thinks that the advent of large corporate farms is squeezing smaller farmers out and many find it disturbing that meat packers and retailers are ringing up huge profits while producers face collapse.

This sums up in one sentence the two factors at work, both of which are arousing the anger of farmers. First is the uninterrupted, irresistible, process by which large, highly-mechanized corporate agricultural entities are displacing working family farmers-the number of hog farmers have declined from three million in the 1950s to 138,000 today. But despite the massive decline in the work force, the industry will produce a record 19 billion pounds of pork this year.

(The same capitalist mechanism afflicts-in different forms, but no less harmfully-all those who must work to make a living.)

And second, while prices paid to producers have collapsed, prices to the consumer have remained essentially unchanged. The irrationality of this bizarre and contradictory movement of prices serves to magnify the sense of injustice felt by farmers facing severe financial loss-and for many of them, facing their life’s work going down the drain.

What is only implied in this New York Times report, however, is how the system compelled farmers to go ever deeper into debt to buy more productive equipment in a losing race with their billionaire corporate competitors for shrinking markets.

This race for higher rates of productivity is what led to the glutting of the market for hogs-and bankruptcy for the smaller and least capitalized farmers. It is a glaring example of the intrinsic tendency toward crises of overproduction in every sphere of world capitalist economy.

Busts must always follow booms

A glance back at the evolution of agriculture will put the current plight of farmers in perspective:

In 1930, the total of working farmers in the United States was 10.3 million, representing some 17.4 percent of the total work force. That was one year after the Great Depression began. By 1990, the number of farm workers declined to 2.4 million, representing some 2.4 percent of the U.S. work force.

Meanwhile, the production of an abundance of agricultural and other commodities has been skyrocketing. And the declining number of working farmers, which has continued uninterruptedly to this day, is now entering a period of even more rapid decline.

Agricultural production, like any other sector of the world capitalist economy, starts out with hordes of private enterprises in competition for finite markets. The history of capitalist production shows that the least efficient enterprises are gradually eliminated or absorbed by the more efficient producers.

Today, even billion-dollar corporate empires-national and multi-national-are being driven into bankruptcy or gobbled up by their more efficient competitors.

(“Efficiency” is largely dependent on the quantity of capital available to the given enterprise. Access to capital enables an enterprise to buy the latest and most productive machinery. Thus more of a given commodity can be produced at a lower unit cost. This, in turn, allows the more efficient enterprise to undersell its competitors and drive them from the marketplace-resulting in a larger share of the market won for the victor.)

Whereas small-scale manufacturers (blacksmiths, iron-mongers and other small industrial enterprises) were among the first to be eliminated or absorbed by large-scale productive enterprises, agriculture lagged behind, allowing relatively small-scale, family-owned farms to persist somewhat longer than in the industrial sectors.

But to compete, these family farmers are compelled to mortgage their farms to buy more productive machinery. And when prices periodically collapse, as is now the case, such farmers are compelled to draw on their savings to stay afloat. That’s when family farmers can lose everything-their land, their farms, and their life savings!

Postponing the inevitable

Karl Marx foresaw 150 years ago, at the dawning of the globalization of capitalism, what we are witnessing today. In one of history’s most prescient documents-the “Communist Manifesto”-Marx and his closest collaborator, Frederick Engels, wrote:

The need of a constantly expanding market for its products chases the bourgeoisie over the whole surface of the globe. It must nestle everywhere, settle everywhere, establish connections everywhere. … Modern bourgeois society, … [which] has conjured up such gigantic means of production and of exchange, is like the sorcerer, who is no longer able to control the powers of the nether world whom he has called up by his spells….

It is enough to mention the commercial crises that by their periodical return put on its trial, each time more threateningly, the existence of the entire bourgeois society…. [A]nd why? Because there is too much civilization, too much means of subsistence, too much industry, too much commerce.

To be sure, the current global economic crisis is still in its earliest stages. But the most decisive indicator of the coming economic storms is being registered by the collapse of basic commodity prices. The rest of the world of commodities, and their producers in the developed industrial countries, only seem unaffected by the first manifestations of an upcoming deflationary storm.

And while capitalist economic commentators have done their best to avoid calling the currently unfolding crisis by its right name, the most perspicacious of them know and have begun to acknowledge the impending crisis.

Nevertheless, they are ever hopeful that they can find a way out before the entire economic applecart of global capitalism tips over. While there may always be a way to postpone the inevitable, however, the longer it is postponed, the more destructive will be the system’s collapse.

Value, Price and Trade Wars

“Deflation” describes the falling price of commodities, which reflects a fall in their value (price and value are related, of course, but are not the same thing).

Commodities can express their value most reliably in other commodities. Historically, the tendency is for one commodity-with special qualities-to be singled out from the world of commodities to function as the measure of value of all commodities-a sort of a scale “weighing” (i.e., measuring) the values of all other commodities-what Marx called a “universal equivalent.”

Gold and other precious metals have mostly served as the money commodities throughout the history of commodity exchange. Gold and silver have served as the preferred money commodities because, among other things, these metals don’t lose their value in use or in exchange by oxidation and are easily divided and recombined at relatively low temperatures.

However, starting in the closing days of World War II, by agreement between the soon-to-be victor nations, gold has gradually been replaced by paper money not backed by any commodity selected by the objective laws of commodity exchange to serve as the universal equivalent. Thus, each country “arbitrarily” sets the relative price of a country’s currency (paper money)-but in reality measuring its value in the prices of one or several of the world’s currencies.

Consequently, since there is no objective universal equivalent (like gold or silver) whose value is determined by its cost of production, all currencies “float” against each other-that is, they measure their values in the price of other currencies.

Thus, there is no way to know the real value of currencies and commodities since there are many artificial mechanisms to momentarily raise or lower the price of a country’s currency. That explains the many unpredictable and anomalous small and large economic crises.

No one, for instance, foresaw the collapse of the Asian economies because there is no objective measuring stick by which these countries’ monetary, financial, and economic health could be determined.

But how else explain the over 200 percent rise in basic commodity prices in Indonesia since December 1997-while the value of the country’s currency and exported goods has plummeted?

This explains, too, why the deflationary manifestation of the unfolding crisis of overproduction has already begun to precipitate a worldwide wave of protectionism. Each capitalist state is erecting tariffs to keep out imports that it claims are being dumped in its domestic market by other states.

Thus, the U.S. steel industry’s demand for protectionist tariffs on foreign steel is only the beginning of what is certain to be the mother of all trade wars.

The imminent commercial war has just been symbolically advanced by the Clinton administration’s threat to slap 100 percent tariffs on $500 million worth of European goods. The pretext was Europe’s alleged refusal to open up its market to bananas shipped by two American companies, Dole Food and Chiquita Brands International.

Unfortunately, it can only get a whole lot worse before it can get better!

Socialist Action News

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