The fresh connection

The fresh connection

A couple of weeks ago, my partner and I brought home our first-ever CSA (community supported agriculture) care package from an area organic farm. A CSA is simply an agreement where you pay a local farmer a certain amount for a set period of weeks, for which in return you get a weekly bag of the farm’s crop. They get the monetary support they need for daily operation, and you get a very healthy reward. Win-win for everyone.

When I ever got this bag home, I swore it was related to a clown car. The food just DID NOT stop coming, or so it seemed. This bag was simply BRIMMING with goodies, with even some greens I couldn’t identify. But that never scares us away. It just makes it more fun!

There were fruits, veggies, greens, spices… everything you could ask for. Two weeks later, I’m still trying to get through the last of it. And it was only $25.

Also let me tell you that when it comes to food, nothing says fresh better than taking your produce out of your “shopping bag” (pay no attention to the WHOLE FOODS logo on the side, does not indicate origin!) and each item is still covered with dirt and silt from the ground. They were probably only a few hours old out of the earth.


Still think it’s expensive to eat SOUL-fully? Search for yourself to find local organic farmers in your area, and see if they either have Farmer’s Markets or offer CSAs. I don’t think that you would regret it.

Guest column: The Dodd-Frank Net Might Ensnare the Family Meal

By Don Coursey
Ameritech Professor of Public Policy Studies
Harris School of the University of Chicago

Federal regulators recently roiled America’s farmers with the release of new rules for financial instruments. The Commodity Futures Trading Commission, one of the agencies charged with implementing the Dodd-Frank Wall Street Reform Act, officially announced the new requirements and said they would take effect by year’s end.

What does Dodd-Frank, passed in response to the 2008 economic crisis and aimed at reforming a vast swathe of the financial sector, have to do with farmers?

A great deal. Among the instruments covered by the Commission’s proposals are agricultural commodity “swaps.” Basically, swaps empower farmers, ranchers, agribusinesses and other food suppliers to hedge against certain risks common to their trade, like bad weather or a crash in the price of a food item they sell.

Swaps might sound like they serve some distant, exotic purpose far removed from the lives of average Americans. But they play a key role in providing food producers with a basic level of financial security through tough times, which helps to ensure price stability for consumers.

Consequently, the way the Commission imposes Dodd-Frank rules on these instruments will have a profound effect on Americans’ pocketbooks. And right now, all signs indicate the Commission’s approach to implementing Dodd-Frank is going to inadvertently smother agricultural swaps with over-regulation.

In the rush to prevent another crisis, it has cast its net too wide. As a result, Dodd-Frank could make risk management significantly more costly for America’s farmers, driving up volatility in the market and potentially leading to huge price increases for consumers.

The Commission’s new rules affect agricultural commodity swaps that aren’t sold on exchanges and don’t run through third-party intermediaries — so-called “over-the-counter” swaps.

Consider a bread baker in Kansas City. He buys thousands of pounds of flour each year. Because of this year’s droughts, though, he’s worried that America’s wheat supply will shrink, driving up flour prices over the next twelve months.

So, to hedge against a price spike, he buys $10,000 in over-the-counter flour swaps today to guarantee that next year he’ll be able to purchase up to 10,000 pounds of flour for $1 per pound. In 12 months, if the price of flour is dramatically higher, he’ll have saved himself a huge amount of money. The price could also be lower, of course, but that’s the risk he runs in order to guarantee he won’t go bankrupt.

Right now, over-the-counter agricultural swaps are mostly unregulated. But that shouldn’t be a point of concern — these instruments had nothing to do with the financial meltdown.

Nevertheless, this new round of Dodd-Frank rules would impose a slew of new requirements on these instruments. Buyers and sellers would have to trade them on approved exchanges, and they would need to have a certain level of capital on hand to trade. Reporting rules regarding profits and losses would be ratcheted up.

There would also be mandatory “clearing,” meaning swap trades would be required to run through certified middlemen. This is a particularly backwards idea.

The over-the-counter agriculture swap market has been running safely and efficiently for years without mandatory middlemen. No one — not even the regulators charged with implementing Dodd-Frank — claims otherwise.

On the other hand, the traditional futures market operating under mandatory clearing rules has been home to some of the biggest financial meltdowns of the last few years. About a billion dollars evaporated before the brokerage firm MF Global declared bankruptcy in October 2011. And Peregrine Financial had racked up a $200 million shortfall in customer funds before it was forced to shut down in July.

The clearing rules regulators are so eager to foist on over-the-counter agricultural swaps were in full force for both MF Global and Peregrine. And yet, the system still suffered massive losses. This regulatory structure is obviously broken.

So implementing Dodd-Frank as planned means forcing agriculture swaps to move from a regulatory environment that is universally acknowledged to be working well to one that has failed repeatedly to prevent fraud and abuse. That’s just senseless.

Overregulation can be just as dangerous and costly as under-regulation. And in this case, these invasive Dodd-Frank rules could dramatically drive up operation costs for farmers, ranchers, and others involved in food production. The rise in expenses would, in turn, be passed along to American consumers in the form of higher food prices.

Some farmers would no doubt be driven out of the swaps market altogether. With no way to manage financial risk, the next hurricane or tornado could put them out of business.

At the very least, regulators need to give themselves more time to study this issue by installing a three-year moratorium on the Dodd-Frank rules governing agricultural commodities. Blindly marching ahead and imposing strict new requirements on these instruments would wind up doing substantially more harm than good.