Factual · Powerful · Original · Iconoclastic
Under the tight-fisted fiscal management of the Reagan Administration, farm subsidies have grown from an annoying but obscure incidence of creeping socialism to perhaps the juiciest boondoggle around. Indeed, if you have been contemplating making money the old-fashioned way — by buying, or at least time-sharing, a few federal office-holders — you might do well to ignore the considerable, but dangerously well-publicized, attractions of selling paper clips to the Pentagon and think of becoming a horny-handed son of the soil, or at least getting to know a few.
It is popularly believed, of course, that the farmers are all going broke, or would be except for Willie Nelson and the $30 billion we spent on them last year. Some are, though the percentage of farms that fail every year does not greatly differ from the percentage of American business failures generally. The sudden halt to inflation crippled quite a few farmers who had bought land they couldn’t afford, and the sheer increase in productivity continues to reduce the number of farmers we need, as it has done since the birth of the Industrial Revolution.
Another significant, and less widely noticed, factor is that the explosion in price supports and protectionism has so raised the price of American farm products that we have been losing international markets. The Department of Agriculture recently estimated that eliminating price supports would cause a genuine boom in demand for U.S. farm products.
Indeed, though the Reagan years have brought a staggering increase in farm subsidies, it is difficult to remember a time when farmers have felt themselves so threatened. Which raises the question: If the enormous sums we are spending on the farmers aren’t helping the farmers, or at least not all of them, who got our $30 billion?
Multimillionaire Dwayne O. Andreas has been called the Armand Hammer of agriculture. A decade ago Fortune magazine called him a "fascinating executive type, a shrewd, tough-minded trader with the attitudes of a questing intellectual, the persuasive talents of a master salesman, and the zeal of a missionary."
Gregg Potvin, a Washington lawyer and onetime adversary of Andreas, says, "I’ve seen him on Capitol Hill and he’s so effective it’s scary." Andreas has also been blessed with friends in high places, such as the late Senator Hubert H. Humphrey. And in the highest of places. Three months before Mikhail Gorbachev took office, Andreas held a personal audience with the soon-to-be Soviet premier. When then-House Speaker Tip O’Neill met the new General Secretary of the Soviet Communist Party, Gorbachev supposedly greeted him with the question, "Do you know my good friend Dwayne Andreas?"
At 68, Andreas is president and largest stockholder of the nation’s largest agricultural processing concern, Archer-Daniels-Midland (ADM), based in Decatur, Illinois. Last year, ADM showed net sales of more than $5 billion from products including oil from soybeans, sunflowers, cottonseeds, peanuts, and linseeds. It refines corn, mills wheat, merchandises grain, and sells two lines of pasta.
But most importantly, it is the nation’s largest producer of gasohol and high-fructose corn syrup, two products that would be almost non-existent in this country without massive government interference. For like the robber barons of yore, who, though they went down in history as products of laissez-faire, were actually masterly manipulators of government power, Dwayne Andreas could not have done it without a little help from his friends.
Andreas is just one, though one of the biggest, of many American millionaires who realize that for the modern robber baron, the agriculture program — with its big budget that emphasizes grants and subsidies over federal employees, its thick cover of save-the-family-farm sentimentalism, the obscurity and relative flexibility of its regulations, and its relative lack of oversight, particularly from the press — is where the money is.
Conceived in the dark days of the oil crisis, mass production of gasohol (a 9 to 1 mixture of gasoline and grain alcohol, usually distilled from corn) was intended to give the United States a homegrown alternative to dependence on increasingly expensive imported petroleum. Like nearly all the other synfuels that were suggested in those days, gasohol was an economic albatross, so expensive to produce that the free market would not have supported it unless oil had gotten a lot more expensive than it did during the worst of the energy crunch.
Yet, unlike nearly all the other synfuels, gasohol thrived, and not only when oil prices were high. Though petroleum prices began to slide in 1980, grain-alcohol production grew from almost zero in 1978 to 120 million gallons in 1982. In 1985, in the middle of an oil glut, more than 625 million gallons were produced and blended with some six billion gallons of gasoline, accounting for 7.3 per cent of total gasoline sales.
The explanation is massive government subsidies, lobbied for both by corn farmers and by large agricultural concerns such as ADM. The total subsidies are impossible to quantify because at various times the gasohol industry has been the beneficiary of such difficult to measure benefits as massive protection against foreign competitors and of sporadic giveaways of federal grain surpluses.
But the minimum figure is approximately ninety cents per gallon of grain alcohol, mostly in the form of state and federal tax breaks for gasohol, amounting to about ten cents per gallon. According to Jim McCarthy of the Federal Highway Administration, the grain-alcohol subsidy cost the Federal Government’s highway trust fund an estimated $ 480 million in 1986 and cost the state-highway trust funds an estimated $ 225 million in 1984, the last year for which figures are available.
Archer-Daniels-Midland made an estimated gross profit of $483 million from July 1985 to July 1986, of which $ 36 million, or approximately 7.5 per cent, came from grain alcohol. But this is only the beginning of the story.
For the subsidies to gasohol have helped create another industry, which, aided by its very own government supports, makes more than seven times as much money for ADM as gasohol itself — high-fructose corn syrup (HFCS). HFCS, like other corn-based sweeteners, has been around for a long time. But only with the boom of the gasohol industry in the late 1970s did it become the most important of them. In 1975, corn refiners produced only half a million tons of HFCS.
By 1980 this had jumped to 2.2 million tons and by 1985 to 5.1 million tons. The explanation is simple — the "wet milling’ grain-alcohol plants whose construction was subsidized by the gasohol scam are excellent for producing HFCS. Thus HFCS facilities were significantly financed by the gasohol subsidies. Also, like all corn sweeteners, HFCS benefits from sugar price supports and tariffs that keep U.S. sugar prices as much as three times as high as the world market price.
The Washington lobbyists for corn refiners are among the most powerful and effective advocates for sugar price supports. Of eight enclosures in a recent press packet produced by the Corn Refiners Association, five were devoted to encouraging sugar price supports.
ADM made $267 million from corn sweeteners in 1985-86. HFCS and grain alcohol provided its two most comfortable profit margins of 21.5 per cent and 8 per cent respectively, compared to 6 per cent for flour milling. But for the subsidies to those two products, ADM would not be the empire it is today. Indeed, without the security of those subsidies it might not exist.
No one believes that gasohol in itself is a worthwhile product. And massive government subsidies to multimillionaire businessmen hardly make a compelling political package. Thus the subsidies are usually justified as aid to the farmers; it is on behalf of the threatened farmers that the lobbyists plead and the politicians lend their support. This too is a scam. As the corn refiners’ advocacy of sugar price supports suggests, apparent aid for a particular farm product frequently serves interests contrary to those of the producers or marketers of that product. Subsidies and tariffs are arranged not to benefit the American farmer generally but farmers in favored businesses and industrial empires such as ADM.
If only the interests of the corn farmers were at stake it would be cheaper to give them direct cash subsidies: A Department of Agriculture study has concluded that the combined cost of gasohol subsidies and increased food prices cost consumers several billion dollars more than corn farmers are receiving as a result of the gasohol program.
Moreover, the gasohol program has clearly hurt wheat and soybean farmers. Soybean farmers have suffered because grain-alcohol by-products entering the market as a result of subsidized gasohol production have significantly depressed soybean prices. American tariffs on Brazilian grain alcohol have discouraged Brazil from opening its huge wheat market to American wheat farmers.
Moreover, ADM and other gasohol producers have even received government favors at the expense of corn farmers: The Federal Government has given gasohol producers huge donations of federally owned corn surpluses, thus weakening the corn market. As the robber barons knew, in a government-manipulated market only the professional manipulators of government are sure winners.
ADM’s political-action committee, Dwayne Andreas, and members of Andreas’s family have pumped more than $500,000 into the campaign coffers of various individual Republican and Democratic lawmakers since
Ideology and partisanship have no connection to the Andreas-ADM contributions. Strong conservatives such as Senators Jesse Helms (R., N.C.), Gordon Humphrey (R., N.H.), and Phil Gramm (R., Tex.) have all received Andreas-ADM funds, as have liberals such as former House Speaker Tip O’Neill, Senator Tom Harkin (D., Iowa), and Representative Thomas Downey (D., N.Y.). Often Andreas will fund opposing candidates in a race. Even while ADM and Andreas were bankrolling Percy in his Senate re-election bid, the Andreases gave his opponent, Democrat Paul Simon, $5,000 with an additional $1,000 kicked in by the ADM PAC to boot.
Andreas’s bet-hedging also extends to the Executive Office. In 1972 he contributed $150,000 to Democratic presidential hopeful Hubert Humphrey, while at the same time heavily financing the campaign of Richard Nixon. Twenty-five thousand dollars of the contribution to Nixon was to prove highly embarrassing to Andreas, as it ended up as a cashier’s check in the bank account of Watergate burglar Bernard Barker, providing investigators with the first link between the break-in and the Nixon campaign committee.
In the last presidential race, ADM and the Andreases contributed to President Reagan’s campaign, as well as those of Walter Mondale, Senator Ernest Hollings (D., S.C.), former Florida Governor Reuben Askew, and Jesse Jackson.
There is nothing illegal or even necessarily improper about such contributions, though the Watergate connection is a bit embarrassing. It is simply not possible to buy a representative or senator, or at least not one worth owning, for the modest sums allowed contributors under current law.
If, like Andreas and many other large contributors, you are in a position to combine personal, corporate, and family contributions, you can make more of an impact, but it’s still not easy to buy a vote that runs flatly contrary to all of the congressman’s interests other than your check.
If (regardless of the details of economic reality) gasohol and HFCS weren’t vaguely and generally understood to be serving the interests of American farmers, and if the price-support system weren’t vigorously supported by nearly all the constituents and contributors of the politicians ADM helps, it would not have been possible for Dwayne Andreas to create them.
Rather, a good robber baron finds his golden gods in the details. Contributions, friendships, a dynamic and glamorous personality, and a good lobbying organization all can provide access to the people and the meetings that settle those details.
In 1980, despite the enormous subsidies it was already getting, American gasohol was being undersold by Brazilian gasohol. American gasohol producers lobbied for a tariff, but the Justice Department, the office of the Special Trade Representative, and the Treasury Department objected on the grounds that a tariff would raise costs to consumers, provoke retaliation from Brazil, and grant too much power to ADM.
On October 7, in the White House, Jimmy Carter hosted a small luncheon for campaign contributors including Dwayne Andreas. Former ADM lobbyist Joseph Karth, who was at the meeting, told me that Andreas told Carter he would announce plans for a big new grain-alcohol plant in Iowa if the Administration would guarantee the plant’s profitability by imposing the tariff. Obviously the news would have helped the Carter campaign in Iowa.
On the other hand, Karth adamantly denies that ADM was extorting political favors. "No guarantee was elicited," he says. In the last week of the election campaign Carter overruled his advisors and ordered Treasury Secretary G. William Miller to impose a tariff, by administrative means if necessary. On October 31, ADM announced the new plant, but canceled its plans after the election.
ADM later gave a top Carter campaign official who was instrumental in the October deal a seat on its board, hired Carter’s son, and bought the former President’s peanut warehouse for $1.2 million, though there is no evidence that any of these later actions were a payoff for the tariff.
As it happens, the 1980 tariff didn’t have to be imposed administratively. It was imposed by Congress, having been introduced by Senator Robert Dole as an amendment to a complicated revenue bill, and rammed through the Senate Finance Committee and the full Senate without debate, as often happens with such provisions. The original tariff phased in a forty-cent per-gallon import charge over three years. It has since been raised to 3 per cent of value plus sixty cents per gallon, successfully holding imports to about seventy million gallons a year.
The most virulent opponent of the Dole tariff was then-Representative Charles A. Vanik (D., Ohio), who denounced it as the "birth of a new monopoly" and a "steal for the benefit of one company," Archer-Daniels-Midland. Vanik in particular questioned the propriety of Dole’s sponsorship of the amendment in light of ADM’s heavy contributions to his campaign coffers.
Dole had sponsored the original 1978 amendment providing a federal tax break for gasohol and has since sponsored at least 23 other bills designed to promote the product. Also, between 1981 and 1985 he sponsored or co-sponsored five different bills that set or served to maintain sugar price supports, thus assisting HFCS producers. (Only two of the bills concerned sugar exclusively.)
ADM and the Andreases have been major Dole contributors for some time. As of January 31, 1987, they had contributed $ 15,750 to Dole’s senatorial and presidential campaign committees over the years, more than to any current member of Congress. In 1983, Dole also took three free trips on ADM airplanes to Midwest speaking engagements.
Also, for the last three years ADM and Mobil Oil have co-sponsored Face-Off, a daily three-minute radio debate between Dole and Senator Edward Kennedy. Face-Off is distributed by the Mutual Broadcasting Network to more than 160 stations, most of which run it in good time slots. A spokesman for Mutual loosely estimated the cost of sponsoring the show at about $ 1,000 per day — about $780,000 over three years.
If ADM paid half, and if we cut that figure in half again to allow for Kennedy’s time, ADM has provided Dole about $195,000 worth of national radio time for the past three years. To be sure, such time may not be as valuable as equivalent time in campaign commercials scheduled by Dole’s managers would be, but it is a substantial benefit.
Dole answered Vanik in 1980 and has answered other subsequent critics with a not unpersuasive argument — no one needs to bribe him to support the farmers. As the senior senator from Kansas and the Senate leader of the party most dependent on farm-state votes, supporting the farmers is his job. In advocating the 1980 tariff, Dole claimed that it was supported by a vast majority of senators and that the "flood" of Brazilian alcohol "threatened to wash away the infant U.S. gasohol industry," thus damaging U.S. corn growers.
In 1984, Dole was part of a successful lobbying effort to persuade the U.S. Customs Service to tighten some loopholes through which certain blends of Brazilian grain alcohol were seeping. He was joined in that effort by several other senators, the Secretary of Agriculture, the Corn Growers Association, and Archer-Daniels-Midland.
Dwayne Andreas: Modern Robber Baron
In response to Washington Post reporter Michael Isikoff’s questions about his efforts Dole said, "Our primary goal was not to help any one company. I’m a farm-state senator, and our interest was in finding an outlet for some farm commodities . . . I don’t know anything about ADM."
But once again, the truth is in the details, for, as I hinted above, Dole was not doing even his own Kansas farmers nearly as much good as gasohol producers apparently persuaded him he was.
According to USDA calculations, on average, each hundred-million-bushel increase in demand for corn for grain-alcohol production increases corn prices by two to four cents a bushel. But the resulting by-products reduce soybean demand and cut soybean prices by 12 to 13 cents per hundredweight. In cash value of annual production, soybeans are almost as important to Kansas as corn.
Kansas’s biggest crop is wheat, worth four times as much to the state as its corn crop. Brazil is the world’s fifth largest importer of wheat. In 1984, when Dole was urging that loopholes for Brazilian gasohol be closed, there were clear, if unspecific, warnings that Brazil might retaliate with higher trade barriers. That did not happen.
In 1985, however, the Brazilian minister of Industry and Commerce, Roberto Gusmao, suggested that if the U.S. would relax import restrictions against Brazilian grain alcohol, Brazil would make corresponding trade concessions. One suggested concession was that Brazil would increase its allocation for wheat from the United States. Another suggestion was that Brazil would buy the corn for the increased grain-alcohol production from U.S. farmers, which, since it would have provided farmers with competing buyers, might have more than made up for any diminution in the American grain-alcohol industry.
The proposed deal fell through, in part, because a sudden drop in oil prices destabilized the gasohol market, but also because of intense lobbying. The U.S. Ambassador to Brazil, Diego Asencio, told me: "My understanding was that this ran afoul of the objectives of Archer-Daniels-Midland. The minister came back crestfallen, convinced he had been torpedoed by Archer-Daniels." Dole’s support for the tariff has never wavered, though it is not clear that he was directly involved in the 1985 negotiations.
The subsidy for gasohol reached new heights last summer when the Agriculture Department announced that it would be providing $70 million in corn from federal stockpiles, free of charge, to gasohol producers. (In the end, only $53.8 million worth of corn was actually dispensed.) Given an average sale price of $ 2.40 per bushel (based on market quotes from the Wall Street Journal) and USDA’s complex formula for sharing out the surplus among existing production, the giveaway added about 27 cents per gallon (of grain alcohol) to the subsidy. That brought the total quantifiable subsidy (excluding the value of import restrictions) to $1.35 per gallon at a time gasoline was wholesaling for approximately 55 cents a gallon.
The grain transfer was permitted, though not required, by legislation passed in 1985. The decision releasing the corn came from Agriculture Secretary Richard Lyng just two days after Lyng held a breakfast conference with Dwayne Andreas and Martin Sorkin, ADM’s Washington lobbyist, both of whom, he told me, are "personal friends."
Lyng says the grain transfer was not discussed. He also says that though he was not aware how much of the transferred grain would go to ADM, he "knew they’d get quite a lot. Sure, they’re the largest grain-alcohol producer."
USDA figures released in January of this year indicated that of the $53.8 million giveaway, ADM received $ 29.23 million, or just over 54 per cent. According to Robert Milton, a USDA staff economist, that payment to ADM may be the largest one-time subsidy the USDA has ever given to a single agricultural producer. "The $ 29 million transfer is the largest subsidy I know of to any one individual," Milton told me.
Lyng has claimed that he approved the giveaway out of fear that declining gasoline prices would force many small grain-alcohol producers out of business, crippling an industry that used two hundred million bushels of corn in 1985. But Lyng’s fears seem to have been cultivated as much by giant ADM as by any small producer.
In an interview with Washington Post reporter Michael Isikoff, Andreas said that despite a huge increase in earnings in early 1986, the company had been suffering problems. Indeed, Andreas told Isikoff, he had told Lyng he was contemplating closing some or all of his grain-alcohol plants. (However, in late 1985 ADM announced plans to increase its grain-alcohol capacity by 200 million gallons per year.)
Likewise, in keeping with the tradition that multimillion-dollar giveaways to huge corporations and their multimillionaire owners must always be justified as benefits to the downtrodden, Lyng expressed his concern that without the giveaway gasohol workers might end up on the unemployment lines. As an unemployment program, though, the giveaway would not get high marks for efficiency. ADM does not publish figures showing how many of its employees are involved in gasohol production. But if the percentage of ADM workers so employed even roughly parallels the 8 per cent of ADM’s net sales that come from grain alcohol, the corn giveaway was worth between $30,000 and $40,000 per employee.
Lyng’s protests that he was only doing it to help the little guy out of a tough spot are contradicted by the office of Senator Edward Zorinsky (D., Neb.), who originated the grain-giveaway provision. I asked Rick Pasco, a Zorinsky aide, if the transfer would not simply cause grain-alcohol producers to cancel $53 million in corn purchases, thus actually hurting corn farmers. No, he said, that wasn’t the point. The transfer wasn’t meant as a one-time bailout but as a continuing program. The intent was for grain-alcohol producers to use the free grain as "collateral" for "new facilities," thus expanding total production. So much for the little guy.
In American myth the age of the robber barons was a time of capitalism run amuck, historical proof that unscrupulous profiteers would destroy the economy and the nation unless restrained by the benign hand of government. Closer study reveals that it was the power of government that transformed many a small-time operator into a little emperor of commerce by destroying less well-connected competitors. A maze of unequally applied regulations, the huge land grants for the railroaders, and numerous government-supported cartels and monopolies all favored sharp dealing over efficient production.
Nevertheless, the robber barons of that age were men of daring and imagination who tied a nation together with rails of steel and who built the greatest industrial economy on earth. Compare their accomplishments to gasohol and corn syrup. In an age in which it seems one can get a subsidy for any product, so long as it is clearly inferior to an unsubsidized competitor already on the market, being a robber baron seems a bit less challenging.
Perhaps Andreas and the many like him don’t even deserve the title of "robber baron," unless it is the synthetic type, made of a bizarre combination of soybean by-products and vegetable oils, expensive and not very interesting, but high in polyunsaturated fats.