Saturday, March 29, 2008

Thinking about the Anger

I posted this as a comment to Professor Schneider's original post. Upon reflection, it seems long enough for a post, with some further response from both Professor Schneider and myself:

My Comment:

The anger is a bit puzzling, if high food prices are the problem. Subsidies try to encourage overproduction (by eliminating some risks inherent in production and the market). That, in turn, was historically grounded on a cheap food policy (as well as others). The desire for cheap food seems to remain, but the tool used to achieve it is somewhat ineffective with increased demand. Assuming at some point that supply will catch up to demand at the current price (query if that is possible), then one way to decrease the price will be over-production. That will, in turn, be aided by subsidies.

Read the rest of this post . . . .

So I guess my puzzlement asks whether the subsidies must remain if the objection is high food prices.

Of course, one could say that the market should be let to operate free of farm-bill subsidies. But that is not a cheap-food argument. Indeed, energy subsidies, to the extent they are increasing demand for agricultural products, are a likely bigger culprit. If anything, the farm bill subsidies are keeping food prices lower than they might otherwise be (though that may be a bit of a stretch given current profit margins).

But if equity in payments is the real concern ("I don't get subsidies for making widgets, but farmers get it for making corn"), that is a different argument. Some problems with it may be the subsidies in many widget-production areas. And the answer to the quit-paying-when-prices-and-income-are-high quandary is a bit problematic. If they can be heard to argue for payments that are made when prices, production, or income are low, international obligations restrict the ability to structure payments in that way. We can't subsidize too much based on production and price. And there may be limits on our ability to subsidize based on price (regardless of production; i.e., CCP). That in turn, makes income supports problematic as well, when the trigger for payment is tied to market price. Given those limits, decoupled payments are used. Those, of course, have the tendency to inspire outrage on an equitable level in high times.

Very interesting, and, I think, more complicated than most of the editorials that I have seen let on.

Professor Scheider's response:

On the anger issue - I agree that it is not founded on economic analysis. But, my concern is that our favored treatment of farmers, i.e., our system of agricultural exceptionalism, has been based largely on the good will of the people (and their representatives in Congress). I see our farm policy chipping away at that. The way non-farm people feel about agriculture has changed so dramatically since I first started into all of this - and even me, as a third generation farmer (or at least farm owner) have to say that I am embarrassed by the largess. So much money going to such wealthy people.

Further thoughts from me:

I agree that farm policy is eroding good will. Or, it could be, that good will is eroding as people become more detached from agriculture. Three (somewhat related) thoughts come to mind on these issues.

1) one counter to eroding good will that is occasioned by a generational disconnect from rural areas may be a focus on food production (even if you are from an urban area, you care about food)

2) what I tend to call "energy agriculture" works against point #1 somewhat by leading the urban electorate to see agriculture as an energy provider (I'm thinking big oil)

3) deep thinking about what exactly we are subsidizing is in order. If we are subsidizing "worthy" farmers, then objections based on wealth levels are appropriate. But if we are subsidizing food (and energy) production to keep prices low, then it is harder to argue that the income level of producers ought to matter (and I call them "producers" for a reason here). It seems to me that this distinction was not as important as recently as 30 years ago. But now it is. And that may be because of consolidation, an increasingly rurally disconnected electorate, a perception of agriculture as a production industry, or some combination of those.

Finally, still in #3, food is a basic human need that cannot go unmet. That seems to justify subsidization for affordability's sake (think health care and affordable housing). Energy seems to also fall into the basic human need category, but to a dramatically lesser extent if we decry the lack of a push toward conservation or increased efficiency in our consumption. Then again, we may have some over-consumption concerns with food as well.

Interesting conversation.


Blogger Tom said...

Let us just talk a little about farm policy and its subsequent hijacking by political interests.

Many of the farm subsidy programs came out of the political manipulation of the government of the markets. Carter and other presidents were all too willing to use food sales as a weapon. In his research, Dr. Fred Ruppel showed that many of the international purchases of U.S. agricultural products were a result not of economic conditions of price/value, but more of political conditions. The sales of grain to Egypt and other countries, were subsidized and made for political purposes, not market conditions.

As the tool for political policies, farmers had a good case that their production should be somehow be subsidized. If the prices farmers received were not part of a supply/demand economy but rather political considerations, why should they not be protected from those policies?

The excuses for this strategy has largely gone by the wayside in the current economy. Food is not being used as much as a political tool (some African and Indian farmers may take exception to this given the high subsidies to their markets in cotton).

Why should they still exist?

We still do live in a world where market dumping from overproducers like Europe does occur. Add to that currency manipulation by the Chinese and quality/safety standards being used to compete in the market, and a case for subsidies is still there.

The recent fall in the dollar (a high dollar is bad for farm income)and a change of corn to ethanol (personally I think it is better used for drinking rather than driving---unless it leads to breakthroughs in cellulostic ethanol) has increased the prices of grains and commodities in general.

Again, these higher are all result from political policies (low dollar being the result of expansionist monetary policy moving from housing, stocks, and other items of value, a slow economy, and a terrible fiscal policy that relies on foreign borrowing).

There is no doubt that these issues have been used to take away the market power that competitive markets bring (see my angry post on the farm bill)for producers. Big ag is taking over the value of the farm products and the above issues are giving them cover.

As Tom Harkin said, the Europeans are using conservation payments to get around WTO subsidy rules. Here we are cutting those funds and skimping on environmental issues. Should we not have public funding for helping to correct these externalities our system of government and laws have not addressed?

It was 20 something years ago that I heard a program on NPR over stream pollution. The argument was over allowing or giving and demanding the government correct the problems through regulation. The externalities were of someone using the stream as a moving cesspool was in question and government intervention was probably the most appropriate solution. My question, because I lived on a stream, was why couldn't I, as a citizen, take the people to court who were over flowing sewage to the stream. After all, it did affect my ability to use the stream. Of course, there was no answer. Without such answers, and in the case of environmental externalities of non point pollution, adequate regulation and funding for environmental fixes was a better answer.

We are cutting that solution out of the farm bill as we cut environmental funding. Are the Europeans that much smarter than us?

Of course this gets down to the core question of "has a cheap food policy" in the USDA allowed the resources to allocated and be spent by those in the industry like farmers? Of course not. It has decreased the amounts of money going to the farm community and without money, you can not force them to deal with environmental externalities. We have made the decision that cheap food is worth the price of a degraded environment.

Farm gate prices are at all time highs right now, but that doesn't erase the years upon years of low prices that forced farmers to look elsewhere in the economy for a living. Just as the number of family farmers has decreased over time due to low farm prices, the high prices will take time to increase supply.

This farm bill was a political bill that shows the entrenched problems in our government. It is turning out to be less and less about good farm policy, and more and more about political policy, just as it has been in the past.

Most farmers are just caught between political policies that have been a disaster for the small family farmer. The giant subsidies to a few farmers (if we can call them that now) is just a diversion.

5/04/2008 7:38 PM  

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