A couple of charts in state economist Jim Terwilliger's presentation to the South Dakota Banking Commission last Friday explain part South Dakota's doldrummy fiscal outlook.

Screen Shot 2014-12-11 at 11.02.57From 1997 to 2007, farm income averaged about 6% of South Dakota's personal income.  When ethanol boomed, so did crop prices, and the farm percentage of our income grew to almost 11% by 2011. In 2013, it was back down to 9.2%.

Corn dropped 40% in 2013 and is down another 6.7% this year; oilseed is also down (OPEC strikes again!). Corn and wheat futures have dropped back to the trough they dropped into right after the recession. Hmm... imagine how much worse corn prices could have been if the Chinese resolved their grain-storage shortage and stopped losing so much corn to mold.

Screen Shot 2014-12-11 at 11.03.17Average farm income under Daugaard has been double the average farm income under Rounds; equipment tax collections have tripled from the Rounds-era midpoint. Low farm prices will bend down, not boost, those returns.

Those curves may not bend down as far as we fear. Thanks to all those pastures getting plowed for corn, fewer cattle are out there, taking beef prices to an all-time high. Until the market rebalances, ranchers who held beef stand to make some money. Now if we just hadn't let those schemers run that beef plant in Aberdeen into bankruptcy, we might have a nice surfboard to ride that beef wave for even more economic activity.

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Hey, that's my neighbor Charlie Johnson on the YouTube!

Actually, it's an ad from the Organic Farmers' Agency for Relationship Marketing. But it's also a great nutshell explanation of the Organic farming philosophy Charlie inherited from his dad Bernard: "What goes on this land has to go on our tongue first." (I invite you to take up with Charlie what that means about his use of manure as fertilizer.)

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Agricultural industry groups complain that President Barack Obama's immigration action won't help them find the workers they need to bring home the bacon. In a brilliant display of rationalization, Hurley hog farmer Steve Schmiechel says the President's inaction and the free market will force him to break the law to stay in business:

Steve Schmeichel, a Hurley, S.D., pig farmer, said he hasn’t hired undocumented immigrants to work on his operation, but the growing labor shortage and ongoing challenge to find employees willing to work means he’ll probably need to soon. Schmeichel said farmers he knows who have hired undocumented immigrants describe them as reliable and willing to work.

“It’s difficult for us or anybody else to find people who are willing to work and do the job and not be afraid to get dirty to get it done,” Schmeichel said. “It’s something that we’re almost going to have to do. It’s our next step” [Christopher Doering and Bill Theobald, "Ag Largely Left Out of Immigration Plan," that Sioux Falls paper, 2014.11.21].

I guess South Dakota's hog farmers and dairy farmers are in the same situation as illegal immigrants. We flooded the Mexican market with subsidized American farm products, crushing the Mexican farm economy. Wal-Mart, sweatshops, and other fruits of NAFTA made things worse for Mexican workers. Mexican workers couldn't wait for the United States Congress or the President to expand and expedite H-2A visas. They couldn't wait to save up half a million dollars to buy an EB-5 visa. To feed their families, those Mexican workers needed to cross the border illegally. They had to. It was their next logical, justifiable, sayable-in-the-paper step, right, Steve?

Schmeichel and the rest of Big Ag just don't want to pay the wages that the local market would bear. They don't want President Obama or Congress to do anything, because that would take away their pool of cheap, exploitable labor:

Sanjay Rawal is the director of Food Chains, a documentary about farmworkers in the United States, which is released in theaters today. I got to chat with him about whether Obama’s failure to address farmworkers in his immigration reform is actually a significant setback.

“Obama is not addressing the needs of agricultural workers in this country,” he agrees. “The reason why the agricultural lobby did not push for farmworkers to be included – and in essence actually fought against it – was because they said that if farmworkers get a pathway to citizenship, they will no longer work in the fields, and [farms] will lose that labor force” [Eve Andrews, "Obama's Immigration Order Won't Help Farmworkers. What Can?" Grist, 2014.11.21].

But wait! We can still get Schmeichel off the hook. Don't blame farmers for the exploitation of migrant labor; blame Safeway and Hy-Vee:

The thesis of Food Chains, essentially, is that the exploitation of migrant farmworkers is a direct result of supermarket monopsony. In short, huge supermarket chains have maintained prices at artificially low levels as the cost of producing fruits and vegetables — in terms of land and equipment — has increased. To survive, farmers have no choice but to hire very, very cheap labor.

“Over and over, we kept hearing that the problem was farmers, the problems were labor contractors, but it seemed like the issues were much more systemic,” Rawal tells me. “And when we started following the coalition, we understood that the problem was really these gigantic corporations that control the entire supply chains. And these corporations can be ruthless” [Andrews, 2014.11.21].

A hog farmer resorts to breaking the law instead of paying market wages. Supermarket corporations refuse to pay producers the market value of their products. Consumers aren't making enough to afford food at the prices legal employment practices and fair payment of farmers would set because their corporate employers aren't paying living wages. That's the American "free" market at work.

What's the real tyranny here? Who in our society is exercising dictatorial power? And what was I saying the other day about slavery?

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The Legislature's Ag Land Assessment Task Force gets me to notice a tiny portion of our agricultural land assessment rules that show South Dakota thinking like Earl Butz, telling farmers to get big or get out... of agricultural land classification.

The evaluation of ag land is currently a contorted potential income tax, but the important part here is that ag land is taxed much less per acre than residential land. SDCL 10-6-31.1 says that land must meet two of these three criteria to be taxed at the lower agricultural rate (farmers, legislators, let me know if I'm boiling them down correctly):

  1. A third of the gross family income must come from agricultural activities on the land;
  2. The principal use of the land is agriculture;
  3. The land in question is at least 20 acres (although counties can increase that minimum up to 160 acres).

The interim committee is considering rewording that statute to make the principal-use criterion mandatory and requiring the land additionally meet either the one-third-income or minimum-size requirement.

I understand that some of the angst over ag land assessment comes from Pennington County, where evidently some Black Hills residents have kept taxes on their scenic parcels low by harvesting a little timber and calling themselves tree farmers.

But consider this situation: suppose the Governor gets serious about rural development in his second term and retools Dakota Roots to recruit young families to take up small-scale farming. We encourage young couples to buy small farms, less than ten acres, to grow real food for local sale and consumption. These young farm couples dig in for some local-level garden farming, but at least one member of the family maintains professional employment teaching, lawyering, doctoring, carpenting, what-have-you to ensure some income stability.

Under either version, current or amended, of our tax rules, those intrepid young small farmers get hit with an extra tax burden. It seems odd to tax farmers more just because they have chosen to work on a smaller scale. It seems contradictory for our income-tax-averse Republican Legislature to impose a higher tax rate on farmers based on their income.

Our property tax code should be able to distinguish between farmers engaged in real farming and Black Hills retirees tricking the county by chopping a few trees. But if we can't write a law to recognize that difference, we shouldn't punish small farmers who choose to sell their goods to their neighbors at the farmers' market instead of Smithfield, ADM, and Bel Brands.

We could avoid all this land-evaluation rigamarole if we just replaced our antiquated property tax with an income tax. Short of that, we could write a tax code that encourages young people to get into farming without feeling like they have to commit to the Big-Ag cycle of corporate serfdom and debt.

Related: The Legislature may be inching toward turning the agricultural land assessment into something even closer to an income tax. At their Tuesday meeting, the ag land assessment task force voted unanimously to commission SDSU economists to study the impacts of assessing ag land on actual use instead of ideal use. (Hey, isn't that Rep. Charlie Hoffman's good idea?)

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Keenly interested rural observer Don Carr smells bull-fudgery in Senator John Thune's faint signal of sensibility on climate change. Carr says Senator Thune should get serious about science for the sake of agriculture:

If Senator Thune actually believed what scientists and the U.S. military tells us about our dire climate future, he would be compelled to act immediately and with force. He’d have to stop pushing for the Keystone XL pipeline and questioning the economic impact of climate change solutions.

...[W]hat South Dakota farmers urgently need now from Senator Thune is leadership that drives immediate action on mitigating and adapting to a volatile climate, not this incremental, cynically motivated, glacial-pace acceptance.

Continued inaction puts a sector that generates $25.6 billion of economic activity a year for South Dakota at severe risk [Don Carr, "Loos Science Tales: Senator Thune's Science Problem," Republic of Awesome, 2014.11.20].

Carr has a direct stake in saving agriculture from global catastrophe: he's managing his family's farm in South Dakota. Carr notes that Senator Thune is maddeningly capable of acknowledging scientific consensus when it serves his image and corporate backers. Carr even agrees that science says GMOs are safe to eat, showing that he's not some GMO-free corn flake crier (sorry, it's an inside blog joke). Carr is serious about science and agribusiness; Senator Thune should be, too.

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There is something perverse about capitalism and the global economy when a shipping company suspends cargo runs from Minneapolis at the height of harvest. We have food, something human being needs every day, and big business would rather haul coal and oil across the Pacific. The capitalist system shows further malfunction in failing to pay those who grow food enough to make shipping their product to eaters pay off.

Senator-Elect Mike Rounds and his facilitators think the solution is more more more! Pump and pipe more oil instead of challenging the root problem, an addiction to fossil fuels.

In my reading on the grain-rail-oil problem, I notice that Northwest grain farmers are having an easier time getting their product to market because barges can haul their grain down the Columbia. That gets me thinking: why don't we alleviate the shipping shortage by returning to barge shipments on the Missouri River? Let's even expand it: install some storage bins and grain chutes at the dams—up and over!—and maybe we could float grain all the way down from Bismarck.

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District 28 Senate candidate Rep. Betty Olson (R-Prairie City) earned herself some media attention this week. It seems only fair that we give her opponent in the Senate race, Parade Democrat Oren Lesmeister, a little air time.

Hat, cattle, and mustache—Oren Lesmeister, Democratic candidate for District 28 Senate

Hat, cattle, and mustache—Oren Lesmeister, Democratic candidate for District 28 Senate

Lesmeister runs Fox Ridge Ag Supply in Parade, Dewey County, on the Cheyenne River Indian Reservation east of Eagle Butte. He also raises wheat, sunflowers, corn and cattle on his patch of the high plains. He spoke to me Thursday from a motel room in Belle Fourche, about 150 miles from home. District 28 covers more territory than any other legislative district in the state: all of Dewey, Ziebach, Corson, Perkins, and Harding counties, most of Butte, and the northeast corner of Meade—14,700 square miles, almost a fifth of South Dakota, with about 3% of the state's population. He drove 235 miles just the preceding evening

That's sparse country to be out rustling up votes, but Lesmeister says campaigning is an "absolute blast," even for a Democrat campaigning in what Betty Olson's representation makes clear is hard right Republican country. Lesmeister reminds us that he comes from the eastern, reservation side of District 28, which leans Democrat. But even on the western side, where he says he gets skunk eye over that D in front of his name "every day," Lesmeister says he has great conversations with very "receptive" voters.

What do they talk about? Education funding comes up. Lesmeister says his school district, Eagle Butte, comes out better than others, since it receives a fair amount of impact aid from the federal government to make up for tribal land that doesn't pay property tax. But he looks around at the sprawling, far-flung school districts of District 28 and sees the state's "broken" funding formula failing to meet their needs. Lesmeister says we need more money for schools, but he's not proposing new taxes. He first wants to look at the hundreds of millions in sales tax exemptions as well as economic development handouts to corporations as sources of revenue to bolster our schools.

Lesmeister does talk taxes with his neighbors, particularly the agriculture productivity tax. In 2008, South Dakota revised its property tax to assess ag land not on the basis of land sale and rental values but an Olympic average (eight years, drop high and low) of crop prices and yields for comparable land. Lesmeister says that taxing ag land based on the corn or hay it could have produced according to past averages of neighbors' activity is like taxing a 40-story building for 200-stories: you could have built a taller skyscraper, so we're going to tax you as if you had!

Replacing that tax methodology is tricky, and Lesmeister wants to have more conversations with experts, but he'd rather return to assessing land on sale and rental value than keep the current system. At least with land sale prices, says Lesmeister, we're dealing with real numbers.

In general, Lesmeister says, the best tax reform would allow everybody to pay less. But he recognizes that we've got to pay for what we need. Nowhere is that tension more apparent than in road funding. He admires the efforts of Senator Mike Vehle (R-20/Mitchell) to find money to improve our roads. He praises Senator Vehle for pushing people to get beyond griping and propose real solutions. Lesmeister says the ugly reality is that federal funding will dwindle and that state and county governments will have to pick up more of the tab for getting from Buffalo to Timber Lake.

Lesmeister says we could take some of the pressure off our highways by expanding railroads. He doesn't favor state ownership, but he would support incentives for private industry to build more rail shipping capacity.

Lesmeister does not support the Keystone XL pipeline. He says laying pipe across South Dakota to ship North American oil out to the global export market doesn't do South Dakota a bit of good. He challenges the assertion that running against Keystone XL will do in Democrats; in his district, the tribes are strongly opposed to the pipeline, and folks in Bison and elsewhere along the Keystone XL route don't say much nice about the pipeline to Lesmeister. (Remember: Betty Olson thinks Keystone XL is just peachy, as do far too many other South Dakota legislators.) At the very least, Lesmeister says we should learn from examples in Wyoming and North Dakota and not let Big Oil walk all over us.

Lesmeister also talks Medicaid expansion with his District 28 neighbors. He says South Dakota will eventually accept the money being offered under the Affordable Care Act to cover low-income South Dakotans. We have to, says Lesmeister, in part to make up for the $14 million he says we'll lose in the coming year as our increasing state income lowers the federal aid we qualify for under existing Medicaid rules.

Lesmeister recognizes the need for economic development in his big corner of the state, on reservation and off. He says the major challenge to creating jobs in District 28 is not lack of workers or skills; contrary to certain prejudgments, Lesmeister says his neighbors on the Cheyenne River Reservation want to work. Simple geography makes it hard to lure businesses: Eagle Butte and Lemmon are a long way to ship inputs and outputs. Economic development needs to focus on improving and maintaining the infrastructure necessary to connect West River businesses to their suppliers and customers. Lesmeister says Northern Beef Packers would have been a great project to build in his neighborhood, given that it could have relied on local supply. (Hmm... EB-5 to benefit the reservations... don't forget that idea!)

I mention women's issues to Lesmeister, and he focuses on legal protections against domestic abuse and sex trafficking, an issue of particular concern for reservations near the proposed Keystone XL construction camps and the man camps of the Bakken oil fields in North Dakota. He doesn't propose new laws; he says we can protect women sufficiently by stepping up our enforcement of laws already on the books.

As for abortion rights, Lesmeister says he as a legislator should never decide such issues. He says he would resist legislative efforts to further curtail women's reproductive rights. "It's too big of an issue" for the Legislature to decide, says Lesmeister; any abortion legislation should go straight to the ballot so all South Dakotans can vote.

Lesmeister wants to talk about these issues and everything else on voters' minds right through Election Day. He invites his neighbors to give him a shout via his Facebook campaign page and his campaign phone (605-365-6856—yup, he said I could publish that). Ping him, ring him... Oren wants your thoughts and your vote on November 4!

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Big Ag groups in South Dakota are raising a stink about the EPA's latest proposed regulations to keep our water clean. As we know, this industry-manufactured fuss is mostly myth. The EPA is using science to make clear, consistent rules to protect South Dakota tourism and agriculture.

Mike Rounds won't let truth stop him from advocating that we "shut down" the EPA. But wait—an eager notes that shutting down the EPA would pull the rug out from under farmers who count on the EPA to maintain the ethanol mandate. Rounds liked the federal subsidy that boosted ethanol. Rounds's fellow farm-state Republicans really want the EPA to stick around and force folks to buy more ethanol.

Perhaps Rounds should ask to change his answer: he doesn't really want to shut the EPA down. He just though the E stood for "Ethanol," not "Environment."

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