Applying Systems Theory to Agriculture

William Krehm

The New York Times Magazine (12/10, "Farmer in Chief – What the next president can and should do to remake the way we grow and eat our food" by Michael Pullan) applies systems theory – without mentioning the name – to society’s mounting problems with its food supply.

To illustrate the purpose of the discipline, I will begin with a simpler application that COMER has devoted decades to – the very different factors that may be driving up a society’s price level. Few economists distinguish one from another, although that is extremely important: (1) to distinguish the different causes that can lead to higher prices. Thus while it is true that if there is too much demand for available supply – other things being equal – prices will go up.

(2) But that does not mean that the proposition can be turned around. Prices may be due to a variety of other causes. For example, there may have been a greater layer of taxation to pay for public services not paid for in the market but by taxation.

(3) Nobody leaving a town of 10 or 20 thousand to move to New York City is foolish enough to expect his living costs to remain the same. Why then expect it when society is making just such a move? The needs of cities are much greater than those of small towns – subways, universities, centres of development of high technologies.

(4) Technology requires a more elaborate work-force. That involves public expenditures that should be considered public investments and hence, too, so must spending on health, social services. What is lacking is accountancy recognizing such expenditures, which economist Theodore Schultz in the 1960s was celebrated for having identified as the most profitable investment a government can make.

These circuits cross and tangle. They cannot be flipped around and stay valid, or be replaced with the notion of a market that is supposed to keep the price level flat or "uninflated.". Non-inflation should be used not as a synonym of "flat-priced" but a price climb tilted only enough to express the result of an excess of demand over available supply. The rest of our price rise is the result of quite other factors. Of these a particular group requires our particular attention.

Thirty years ago systems theory was taken up by many economists. It was the subject of special conferences by Economic Associations. But it ran counter to the campaign of the banking sector to acquire a monopolist command of the world economy. As a result systems theory is no longer mentioned by officially approved economists.

The Pullan essay is a quite brilliant application of its principles. I will merely condense his arguments.

Addressed to Mr. President-Elect, renamed "Farmer-in-Chief" for the occasion, Pullan writes: "It may surprise you to learn that among the issues that will occupy much of your time in the coming years is one you barely mentioned during the campaign: food. High food prices have not presented a serious political peril, at least since the Nixon regime. But with a surprising suddenness the era of cheap and abundant food appears to be drawing to a close. Like so many other leaders through history, you will find yourself confronting the fact – so easy to overlook these past few years – that the health of a nation’s food is a key issue of security.

"Complicating matters is the fact that the price and abundance of food are not our only problems. If they were, you could follow Nixon’s example, appoint a latter-day Earl Butz as your secretary of agriculture and instruct him to boost production. But there are reasons to doubt that the old approach would work this time around."

Here is where other equally critical systems enter the picture, its cause-and-effect lines become entangled with the simple "increase of food production at the lowest cost" system. There will be an army of other factors of menaces and possible solutions that will turn up. It is Pullan’s task to disentangle them and study how they can be kept assisting rather than undermining one another, if possible. The jumble and tangle of independent and even clashing factors is greater than that between a flat price level and the accommodative needs of ever greater public investment in physical and human capital.

Returning to Pullan: "You will need not simply to address food prices, but to make the reform of the entire food system one of the highest priorities of your administration. Unless you do, you will not be able to make significant progress on the health-care crisis, energy independence, or climate change. Unlike food, these are issues you did campaign on – but as you try to address them you will quickly discover that the way we currently grow, process and eat food in America goes to the heart of all three problems and will have to change in the hope to solve them. Let me explain."

That is the purest system theory – the causal lines entangle and negate one another. Policies can be judged not in isolation one at a time, but with an eye to harmful entanglements amongst them.

"After cars, the food system uses more fossil fuel than any other sector of the economy – 19%. And while the experts disagree about the exact amount, the way we feed ourselves contributes more greenhouse gases to the atmosphere than anything else we do – as much as 37% according to one study. Whenever farmers clear the land for crops and till the soil, large quantities of carbon are released into the air. But the 20th century industrialization of agriculture has increased the amount of greenhouse gases emitted by the food system by an order of magnitude, chemical fertilizers (made from natural gas), pesticides (made from petroleum), modern food processing and packaging and transportation together transformed a system that in 1940 produced 2.3 calories of food energy for every calorie of fossil-fuel energy it used into one that now takes 10 calories of fossil-fuel energy to produce a single calorie of modern super-market food. Put another way, when we eat from the industrial food system, we are eating oil and spewing greenhouse gases. This state of affairs appears all the more absurd when you recall that every calorie we eat is ultimately the product of photosynthesis – a process based on making food energy from sunshine. There is hope and possibility in that simple fact.

"In addition to the problems of climate change and America’s oil addiction, you have spoken at length on the campaign trail of the health-care crisis. Spending on health care has risen from 5% of national income in 1960 to 16% today, putting a significant drag on the economy. There are several reasons health care has gotten so expensive, but one of the biggest, and perhaps most tractable, is the cost to the system of preventable chronic diseases. Four of the top 10 killers in America are chronic diseases linked to diet: heart disease, stroke, type 2 diabetes and cancer. It is no coincidence that in the years national spending on health care went from 5% to 16% of national income, spending on food has fallen by a comparable amount – from 18% to 10%. While the surfeit of cheap calories that the US food system has produced since the late 1970s may have taken food prices off the political agenda, this has come at a steep cost to public health. You cannot reform the health care cost to public health, much less expand coverage, without confronting the public health catastrophe that is the modern diet.

"The impact of the American food system on the rest world will have implications for your foreign trade policies as well. In the past several months more than 30 nations have experienced food riots. Should high grain prices persist and shortages develop, you can expect to see the pendulum swing away from free trade, at least in food. Nations that opened their markets to the global flood of cheap grain persist and shortages develop, you can expect to see the pendulum shift away from free trade, at least in food. Nations that opened their markets to the global flood of cheap grain (under pressure from previous administrations as well as the World Bank and the IMF) lost so many farmers that they now find their ability to feed their own population hinges on decisions made in Washington and on Wall Street.

"Rich or poor, countries struggling with soaring food prices are being forcibly reminded that food is a national-security issue. When a nation loses the ability to substantially feed itself, it is not only at the mercy of global commodity markets, but of other governments as well. At stake is not only the availability of food, but its safety. As the recent scandals in China has shown, we have little control over imported food.

"There are many moving parts to the new food agenda I am urging you to adopt, but the core idea could not be simpler: we need to wean the American food system off its heavy 20th century diet of fossil fuel and put it on a diet of sunshine. That requires putting the food system back on sunlight by changing how things work at every link in the food chain in the farm field, in the way food is processed, and even in the American kitchen and at the American dinner table. Yet the sun still shines down on our land every day and photosynthesis can still work its wonders wherever it does.

"It must be recognized that the current food system – characterized by mono-cultures of corn and soy in the field and cheap calories of fat, sugar and feedlot meat on the table – is not simply the product of the free market. Rather it is the product of a specific set of government policies that sponsored a shift from solar and human energy on the farm to fossil-fuel energy.

"When you fly over Iowa from October to April, you will notice that the land below is completely bare – black. What you see is the agricultural landscape created by cheap oil. In years past, except in the dead of winter, you would have seen those fields a checkerboard of different greens, pastures and hayfields for animals, cover crops, perhaps a block of fruit trees. Before the application of oil and natural gas to agriculture, farmers relied on crop diversity (and photosynthesis) both the replenish their soil and to combat pests, as well as to feed themselves and their neighbours. Cheap energy, however, enabled the creation of mono-cultures, and mono-cultures vastly increased both the productivity of the American farmer and the American land. Today the typical corn-belt farmer is single-handedly feeding 140 people.

"After World War II the government encouraged the conversion of the munitions industry to fertilizer – ammonium nitrate being the main ingredient both bombs and chemical fertilizer – and the conversion of nerve-gas research to pesticides. The government also began subsiding commodity crops, paying farmers by the bushel for all the corn, soybeans, wheat and rice they could produce.

"Subsidized mono-cultures of grain led directly to mono-cultures of animals, since factory farms could buy grain for less than it cost farmers to grow it. So America’s meat and dairy industries migrated from farm to feedlot, driving down the price of animal protein to the point where and American can enjoy eating animal protein, on average, 190 pounds of meat a year.

"But if taking the animals off the farm made a sort of sense, it made no ecological sense whatsoever. Their waste, formerly regarded as a precious source of fertility on the farm, became a pollutant – factory farms are now one of the greatest sources of pollution.

"What was once a regional food economy, is now national and increasingly global in scope. Cheap energy – for trucking food as well as pumping water – is the reason New York City now gets rather more from distant sources than from the "Garden State" next door, as it did before the advent of state highways More recently, cheap energy has underwritten a globalized world economy in which it makes sense to catch salmon in Alaska, ship it to China to be filleted and then ship the fillets back to California. Or Denmark and the United States can trade sugar cookies across the Atlantic. About that particular swap the economist Herman Daly once quipped, ‘Exchanging recipes would be more efficient.’"

It was actually John Maynard Keynes who made the observation about the cookies exchanged between Denmark and Britain, and Keynes died some sixty years ago. But our cookies today are more likely to come from China.

Beyond the facts relating to agriculture, we must try to do all our thinking in this broad way of encompassing all major factors that in the real world have an important bearing on the issue being considered. That is what systems theory about. Without it humanity is lost in trying to find its way with the help of a favored issue or two.

William Krehm

– from Economic Reform, November 2008