Country Cousins : French, U.S. Farmers: a Joint Crisis

MOUTIERS-EN-BEAUCE, France â€”  On the seemingly endless quilt of countryside that is Europe’s breadbasket, green sprouts of next spring’s wheat crop are breaking through the steel gray soil of Marcel Maguet’s farm. In adjacent fields, combines are harvesting corn from dry, golden-yellow stalks that rattle in autumn’s breezes.

On the plains of Kansas, 4,500 miles away in America’s heartland, Tom Giessel’s wheat is also sprouting, even as he races the approaching winter to harvest this year’s crop of sun-dried grain sorghum.

Although they live half a world apart and have never met, Maguet and Giessel are country cousins, as similar as the wheat they grow and as different as the languages they speak. The way each man farms affects the other. And buried in their fields are the roots of international controversy.

Subsidy, Trade Policies

Maguet and Giessel are led in the decisions they make by the subsidy and trade policies of their governments, policies that are helping to permanently reshape global agriculture.

In the United States, the new shape of agriculture is emerging from bankruptcies, farm foreclosures, bank failures and vacant stores on main streets. Next year, more than 200,000 American family farmers may be forced to leave their land--twice the number expected to fail this year.

The Reagan Administration--and some U.S. farm organizations--lay the blame for much of the economic chaos in rural America on the trade and farm subsidy policies of the 10-nation European Community, or Common Market.

However, European economists say the European Community is being used as a scapegoat for rural America’s troubles.

No. 2 in Agriculture

European analysts see the farm crisis in the Community and in the United States as the result of simultaneous, unchecked production expansion on farms like Giessel’s and Maguet’s during the 1970s, when Europe, which has only one-fourth as much farmland as the United States, unexpectedly emerged as the world’s No. 2 agricultural power and a U.S. competitor.

The production boom has brought burdensome surpluses and budget-straining farm program costs to both continents.

The rapid growth of America’s agricultural capacity in the 1970s took place in a virtual vacuum. Bankers financed that expansion, government encouraged it and farmers embraced it--all seemingly unaware of what was happening in the rest of the world.

Economists interviewed in Paris, London, Brussels and Washington point to the U.S. budget deficit as another factor in America’s agricultural crisis. The deficit keeps farmers’ interest rates high and the dollar strong, making U.S. farm products more expensive on world markets and keeping U.S. exports low.

The competition begins far from the world markets, however. It begins on farms like Maguet’s and Giessel’s.

“I do not think there are many differences between the American farmer and me,� said Maguet, 39, a muscular man with red cheeks and eyes that narrow when he talks about the future. “We both work hard, we both grow wheat and we both grow as much as we can. We make about the same, we get about the same subsidies.�

“I would feel much more comfortable farming in France, where the respect for agriculture is higher,� said Giessel, 33, a husky man who speaks in a flat prairie drawl. “They (European Community) make sure their farmers make a living and stay on the land. They have a strong commitment to their farmers.�

Maguet farms in the Paris Basin, a region surrounding the French capital that has been grazed and cultivated for more than 1,000 years. His farm is situated on the Beauce, a broad, level, Kansas-like area with the historic cathedral at Chartres at its center. The Beauce is distinguished by efficient, extraordinarily productive farms on the plains between cramped medieval villages of gray stone.

100 Years in Family

Maguet, who is married and has three children, works the same fields his great-grandfather began farming 100 years ago.

If land is used as a measure, Maguet’s 128 acres make him a small farmer by U.S. standards. That would not be sufficient to support his family if it were located near Larned, Kan., where Tom Giessel, also married with two children and a third due any day, farms more than 2,500 acres with his brother, Jay, 30.

Like Maguet, the Giessel brothers are fourth-generation farmers. They work land on the broad plains of west-central Kansas, where pioneering settlers first broke the soil about 100 years ago.

If Maguet is a small farmer in acres, though, he is a giant when it comes to production. The French farmer harvests almost three times as much wheat per acre as his Kansas counterpart.

Since 1970, Maguet and Giessel have experienced almost identical increases in the wheat they can produce. Maguet has seen his yields increase 54%, while Giessel’s yields have gone up 53%. However, Maguet harvests a remarkable 126 bushels of wheat from each acre, while Giessel, who gets less rain and endures a more severe winter, gets only 45 bushels per acre. His wheat, however, is of a higher quality than Maguet’s.

Dramatic Differences

Both farmers operate bigger-than-average farms compared to their own countrymen, but there are dramatic differences between the averages. The European Community’s 5.6 million farms average 38.8 acres. America’s 2.3 million farms average 430 acres.

Differences go beyond farm size and yields. Conservative investments have insulated European Community farmers like Maguet from the kind of economic problems threatening many of Giessel’s Midwestern neighbors.

In Maguet’s living room is a 1920 photograph of his farm. It shows men in rugged work clothes loading a well-traveled wagon attached to a horse that was probably as comfortable pulling a plow as pulling a load of vegetables to town. “They rented the house and the land,� Maguet said of his grandfather’s days on the farm.

Today, Maguet owns his house and about one-third of the land he works. However, he shares ownership of expensive farm equipment with his neighbors--a common practice in Europe but almost unheard of in the United States where, after land costs, a farmer’s largest debt is for machinery.

And, like many Community farmers, Maguet does not borrow money to pay for his spring production costs, something American farmers have routinely done, only to find crop prices insufficient to cover the spring loans.

Diverse Mix of Crops

Maguet also has a more diverse mix of crops, hedging his income against weather, prices and crop diseases. Wheat is his principal crop, but he also grows corn, sunflowers and field peas, as well as carrot, sugar beet and spinach seeds for sale to other farmers.

Giessel’s crop mix is more limited largely because of the weather he faces. He grows wheat, grain sorghum and a particularly high-quality hay for horse breeders. He is more vulnerable to losses from insects and crop diseases.

Few of the Community’s farmers have the debt burdens of their American counterparts. In France, where agricultural credit is widely used, only 23% of the assets of all farmers are covered by loans, according to Denis Piet, director of economics and financial studies for the Caisse Nationale De Credit Agricole, the French agricultural bank.

In the United States, that figure for commercial family farmers ranges from 40% to 70%.

In Europe, farmers currently use about 20% of their revenues to repay debts. In contrast, U.S. farmers in trouble or on the brink of failure are not earning enough to cover even their interest payments and often have not repaid any principal for several years.

‘Would Have to Collapse’

“The European Community would have to collapse before European farmers face the problems that American farmers are facing,� Piet said in a Paris interview.

Yet it is only in Maguet’s lifetime that French farmers have been competitive with U.S. farmers like Giessel, who once dominated world agricultural markets.

Modern farming--with its big machines, new methods of planting and intense use of fertilizers, hybrids, herbicides and insecticides--did not arrive in Europe’s heartland until the late 1960s, long after the post-World War II agricultural revolution took hold in America.

Today, European farmers are technologically equal to their American counterparts, the result of the European Community’s aggressive and--in some U.S. eyes--unfair farm policies.

In the mid-1960s, the Community adopted the Common Agricultural Policy, or CAP, Europe’s answer to American farm programs. It was designed to make Common Market countries, where the memories of wartime and postwar food shortages and hunger were still fresh, agriculturally self-sufficient, to stabilize markets, reduce consumer costs and improve rural income.

Slow Flow Into Cities

Social policy was an important part of the Common Agricultural Policy. One goal was to slow the flow of rural residents into urban areas, both to help reduce urban unemployment and to maintain rural population.

“They believe in a system designed to keep people on the land,� Giessel said. “I think (the French farmer’s) government works with him to an extra degree to subsidize him, protect him and to make certain he makes a profit.�

The CAP eliminated trading barriers within the European Community and gave Community farmers protection from outside competition by imposing high tariffs on commodities that could be produced within Europe. And it encouraged production with subsidies for basic commodities. This, coupled with the adoption of modern agricultural production and management techniques, catapulted European farming forward.

In its first 20 years, the Common Agricultural Policy has become the cornerstone, the costliest and perhaps single most successful economic policy of the Common Market. It accounts for 70% of the organization’s budget, costing about $16.5 billion in 1985. That compares to an estimated $16.8 billion in U.S. farm aid for the 1985 fiscal year and estimates of more than $20 billion in the current fiscal year--the most ever spent in one year to aid American farmers.

Although current expenditures appear to be equal, the European Community has twice as many farmers as the United States and about three-fourths less farmland.

Last year, for the first time in history, the European Community produced more wheat than the United States--a sharp turn in Europe’s fortunes. Just two decades earlier, Europe imported millions of tons of grain from the United States each year.

‘We Saw the Threat’

“From a strictly parochial view, we never really liked the CAP,� said a ranking U.S. agriculture official who spoke on the condition that he not be identified. “We knew exactly what would happen, that they would achieve more than self-sufficiency and become our direct competitor. While . . . the U.S. government was supportive of the Common Market concept, we (in agriculture) saw the threat.�

Subsidies to farmers have been a key element of the CAP, just as they have been a key element in American farm programs.

Subsidies Similar

“But it is a useless exercise to try to figure out who has the biggest subsidies,� said an American agriculture expert who has examined both the European and U.S. programs. “My guess is that, when all the things that can be added in are included, they come out to be about the same, and maybe favor the U.S. farmer.�

Basic subsidies guarantee farmers a set price for their crops and generally encourage farmers to grow as much as they can, because the bigger the harvest the greater the subsidy payments. The U.S. subsidy system is designed to guarantee farmers a return for their crops and to keep consumer prices low. Taxpayers foot the bill for most of these subsidies.

The European subsidy system guarantees farmers an income but consumers pay more for their food--helping offset subsidy costs. Taxes and tariffs on imported products help to finance the remainder of the subsidy costs.

No Curbs on Planting

This year, Maguet sold his wheat for just under $4 a bushel, $1.20 above the harvest-time world price for equal-quality grain. He received this price for every bushel of wheat that he could harvest and there were no restrictions on how much he could plant. A European Community subsidy provided the difference between the world price and the price Maguet got for his grain.

Land Left Fallow

By contrast, Giessel received a net of $3.99 for every bushel he harvested this year under the U.S. farm program. That was 32 cents above the harvest-time world price for the high-quality winter wheat he produces. However, to qualify for this guaranteed price, Giessel had to agree to leave 30% of his wheat land fallow. For Giessel, that meant harvesting 9,000 fewer bushels of wheat than he could otherwise have reaped.

“One of our main objections to CAP subsidies is that they do not include any controls on production,� said a U.S. agriculture official who specializes in European Community policies. “Although we have not always been very successful, our programs have been aimed at reducing production.�

Although differences among member countries of the European Community have kept them from effectively controlling grain production, they have made progress in controlling dairy overproduction.

This year, Community dairy farmers were forced to cut back their production by 3%, while production in the United States climbed 4% over the year before.

“We don’t have the money to finance more and more surpluses,� said Claudio Guida, a Cabinet aide to the European Community Commission. “We have got to cut production.�

Source of Friction

The most “unfair� European Community subsidy, in the eyes of the Reagan Administration, is the trade subsidy. It is the source of friction between the world’s two agricultural giants and possibly causes the most distress in rural America.

Figures released Thursday show that American farm exports have plunged 29% from their 1980-81 high and were down 18% from last year.

Twenty years ago, the European Community imported about 20 million metric tons of U.S. grain annually. Today, they export about 20 million metric tons of grains--a net shift on world markets of 40 million metric tons.

The Community, as exporter, is now a fierce competitor of the United States in world wheat markets, along with Argentina, Canada and Australia.

An examination of what happens to both Maguet’s and Giessel’s wheat after they sell it illustrates the sharp differences between European and American marketing systems and shows why the United States contends that it is at a disadvantage on world markets.

Same Sales Options

Giessel and Maguet have the same options after harvest. They can sell their grain immediately or store it for later sale. Maguet can sell it on the open market or to cooperatives and grain exporters who pay a subsidized price. Giessel can sell his on the open market or, if the price falls too low, to the U.S. government for a guaranteed price--a subsidy.

This summer, Maguet sold most of his wheat to a nearby farm cooperative. The cooperative sold the grain to an exporter.

To encourage the export of that grain--to make it a good buy on the world market--the European Community gave the exporter a subsidy of $1.20 a bushel, lowering the price of the wheat Maguet sold for $4 to $2.80. That was 74 cents a bushel below the export price for American grain.

“They have chosen to dump their surplus production on world markets,� said Daniel G. Amstutz, undersecretary for international affairs for the U.S. Department of Agriculture.

The United States has tried to counter Community wheat export subsidies by offering its own subsidies to specific countries that have been big buyers of European grain. However, this $2-billion, three-year export subsidy program seems to have backfired in two ways.

First, the Europeans have countered by selectively increasing their own subsidies. Second, traditional foreign buyers of American wheat have complained that they too should get U.S. trade subsidies, and some, notably the Soviet Union, are holding back on additional purchases.

U.S. Exports Falling

In the last 15 years, while both Maguet and Giessel were sharply increasing their wheat yields, the European Community captured 16% of the world’s wheat market, double its share before 1970. Meanwhile, since 1980, U.S. wheat exports have been falling, dropping 32% last year alone.

Giessel, who sold his wheat in Kansas at about the same time as Maguet sold his in Chartres, was offered only $2.50 a bushel by his local grain elevator. So Giessel put his wheat “under loan.�

That means that he borrowed $2.91 a bushel from the Department of Agriculture’s Commodity Credit Corp. If that wheat ever becomes worth more than $2.91 a bushel plus his accumulated interest on the loan, he can repay the debt, reclaim his wheat and sell it for the higher price.

However, if the price of wheat does not climb above $2.91 within 10 months, he will forfeit his wheat to the government and keep the loan money. In addition, Giessel will get a “deficiency payment� or subsidy from the government that brings his net up to $3.99 a bushel.

The Commodity Credit Corp., meanwhile, is prohibited by law from selling the farm products it now owns for less than it paid.

Added Shipping Costs

As a result, it must sell Giessel’s wheat for $2.91, or 11 cents more a bushel than what European Community wheat is selling for. And, after the costs of getting it to a shipping port are added, it will sell for 74 cents more than European wheat.

“The whole world knows that the U.S ain’t going to sell for less than the loan rate,� said Amstutz. “This provides an incentive to others to produce if they can do it cheaper than the U.S. loan rate.�

Government Strategy

Huge surplus stocks of grain held by the U.S. government will depress prices that Giessel might get for future wheat crops. If demand rises, the Commodity Credit Corp. will unload its holdings, suddenly increasing supplies and driving prices down.

Similarly, building surpluses in Europe and mounting pressure by some European Community countries, notably France and Great Britain, to restrain budget costs and to control production cast a shadow over Maguet’s future.

That is just one part of the faint echo of America’s farm problems beginning to appear in Europe.

Farm Employment Drops

Between 1960 and 1983, at a time when hundreds of thousands of farmers were disappearing from the rural American landscape, farm employment in Europe also dropped 60%, contributing to the European Community’s huge urban unemployment problem.

As in the United States, there is a trend in Europe toward a greater number of large farms and more part-time farms and away from the medium-size family farms. The latest European statistics available show that there was an increase of 19,000 in farms with more than 123 acres between 1975 and 1980. At the same time, the number of farms with fewer than 123 acres decreased by 166,000. Economists say that this trend has accelerated.

Up to now, subsidies have protected the incomes of Community farmers. However, burdensome crop surpluses are forcing economists and planners to find ways to bring supplies in line with demand. One possible solution involves cutting subsidies--a line taken from this year’s farm bill debate in Congress.

Just as subsidy reductions in the United States will accelerate the reshaping of rural America and speed the demise of the traditional family farm, a reduction in subsidies in Europe will mean substantial shifts in rural life.

“In 10 or 15 years, we will have only half of the current farming population working the land,� French agricultural economist Piet said.

Harder to Get Loans

And, even in the Beauce, where some of the Community’s most valuable farmland is situated, “things have fallen off so much that I don’t think the bank would give me money to buy a farm today,� Maguet said.

More than 4,500 miles away, in Kansas, Giessel last week discovered an unexpected caution at the bank he has dealt with for years. He was asked to sign documents giving the financial institution a lien on virtually everything he owns, even though his farm still turns an annual profit. “The banks here are getting squirrelly,� he said.

Maguet and Giessel are country cousins in other ways too, committed to a way of life and to a vocation of producing food.

“I feel really comfortable planting and harvesting,� Giessel said. “I am producing something useful. It is a gift. I am never ashamed of a bountiful crop. It is a blessing.�

Said Maguet: “I make little money but I get tremendous personal satisfaction. After all, I grow wheat, and, ever since the Egyptians, wheat has been as valuable as gold. It gives people life.�

Researcher Wendy Leopold contributed to this article.