In-Depth Essay

The Vanishing Small Farmer

by Peter Barnes

Part Two (in case you missed Part One, you can find it in the Archives)

Why are major corporations suddenly fascinated with farming, a business where profit margins are generally small? The motives are chiefly three: land speculation, tax dodging, and the development of integrated "total food systems."

Suppose for example that a company invests $1 million a year of nonagricultural earnings in improving a large tract of farmland - by planting pear trees, say, or laying irrigation pipes. It pays no taxes on the $1 million, and can even deduct from its remaining taxes the cost of caring for the trees until they bear fruit, and the depreciable value of the irrigation pipes. Then suppose, as is usually the case, that each dollar thus invested creates a corresponding increase in the market value of the land. Suppose further that the company sells the land to another corporation at the end of ten years. Its profit on the land sale is then approximately equal to the earnings it has invested over the decade - in this case, $10 million. However, these earnings are now in the form of capital gains, and are taxed at 25 percent rather than 48 percent. Thus, the company has made a multimillion dollar profit at the taxpayers' expense. Any income the farm may have produced during this period is frosting on the cake.

Many corporations have their eyes on farming for another reason: they see vast profits accruing to vertically integrated conglomerates that control every stage of the food production and distribution process from raw nitrogen to precooked souffle' on the dining table. They are aware of the fact -- indeed, they are largely responsible for it - that profits in the food industry go increasingly to companies in the food business rather than to farmers: in 1969 only 33 cents out of every dollar spent on food went to farmers, down from 40 cents two decades ago.

No single company better exemplifies the corporate plunge into farming than Tenneco, formerly Tennessee Gas and Transmission. In addition to its oil, natural gas and shipbuilding interests, Tenneco controls over a million acres in California and Arizona, mostly as a result of its purchase in 1967 of Kern County Land Company. It also produces agricultural chemicals and owns J. I. Case, a manufacturer of farm machinery, Heggblade-Marguleas, a leading California farm management firm, and the Packaging Corporation of America.

Tenneco makes money out of its landholdings from all directions. First, of course, are the tax-privileged revenues from oil and gas that lie beneath the surface. Then there is land development, the ultimate stage in the speculative game. Tenneco has half a dozen major developments planned or underway in California. One is the Pine Mountain Club, community in Los Padres National Forest, about an hour's drive from Los Angeles. Another 6000-acre development on the outskirts of Bakersfield will include an industrial park, a shopping center, a golf course and a retirement community. One of the company's cleverest gambits was to donate 370 acres near Bakersfield for a new state college. (Lands for UCLA and the University of California at Irvine were similarly donated by large landholders.) According to Simon Askin, executive vice-president of Tenneco, the college "enhances the value of an additional 6500 acres of company land."

It is Tenneco's multi-faceted agribusiness operations, however, that cast the longest shadow over the small farmer's future. Tenneco's aim, says Askin, "is to accomplish integration from the seedling to the supermarket." The company is already far advanced along that road. It grows, on magnificently irrigated former Kern County Land Company farmlands, an enormous diversity of crops, including corn, potatoes, barley, sugar beets, cotton, almonds, grapes, oranges, lemons, peaches, pears and plums. For capital inputs it has its own agricultural chemicals and farm machinery. For processing and packaging it has a huge new plant near Bakersfield, more than six times as large as a football field. It is currently testing a brand name identification program which, it hopes, will make the Tenneco Sun Giant label a household word in foods.

End of Part Two.

Part Three will be published starting Thursday, October 30.

This essay is part of a series written by Peter Barnes for The New Republic magazine in 1971-72. We think you'll be pleased -- and perhaps shocked -- to see how timely and insightful the essays are for today. Each essay will be republished, in installments, by The Progress Report.