Note: Over the course of three weeks, as Congress begins discussion of the 2007 farm bill, Victual Reality will be devoted to analyzing the political economy of farming and teasing out an agenda for a socially and environmentally sustainable farm policy. It’s more exciting than it sounds, we swear! [Read the first installment below, the second installment here, and the third here.]
Like a barnyard sow basking in attention at a county fair, the farm bill — that monstrously complex five-year plan for federal agriculture policy — has suddenly gained a high profile.
A classic example of omnibus legislation, the bill governs such disparate programs as food stamps and farm subsidies. The latter provision, with its byzantine formulas and mind-numbing jargon (“nonrecourse loan program,” etc.), has been a particular source of public befuddlement. Until not so long ago, only agribusiness lobbyists and farm-interest groups paid it much mind.
That has changed. U.S. farm subsidies are now big news, and seemingly everyone’s got an opinion about them. The Washington Post has devoted in-depth coverage to them. Groups ranging from the Environmental Working Group to the global anti-poverty organization Oxfam to the libertarian think-tank Cato Institute have cogently denounced them.
All of this is to the good. When a large swath of public policy becomes buried under the weight of impenetrable language, it’s reasonable to suspect that the treasury is being pillaged for private gain and little public benefit. It’s no doubt healthy that federal agriculture policy is finally getting a public airing.
Yet farm policy has operated under a veil of rhetorical obscurity for so long, and generations of U.S. citizens have gotten so far away from the land that sustains us — less than 2 percent of the population now farms — that it pays to take a fresh look at agricultural economics before demanding an abrupt end to public support for farms.
Farm Economics 101
Does farming deserve public support at all?
The question is worth asking. Other industries flourish with little or no government support. When the price of computer chips falls, for example, dominant chip-makers Intel and AMD have a simple remedy: they make fewer chips. With a dearth of chips on the market, computer makers begin to bid the price back up, and the chip makers are happy again.
Typically, of course, the newly high chip prices coax the chip makers into boosting production, and the whole cycle begins anew.
But computer chips and crops work differently. Say you’re an Iowa corn farmer and the price of corn futures drops after you’ve planted the spring crop. Unlike Intel, you can’t slash production any time soon; you have to wait until the next season’s planting.
Worse still, when the time comes to put the next season’s crops into the field, you’re faced with a harsh fact. If you decide to plant less corn, there’s no guarantee that the corn price will rise. Why? Because unlike Intel — which essentially shares the chip market with AMD — you have thousands of competitors. Unless you can figure a way to organize a significant portion of them to join you in cutting production, you’re not going to succeed in pushing prices up.
Since no mechanism exists to coordinate farmers in their planting decisions, they tend to respond to price drops in a way that would be alien to an Intel exec: they plant more corn. The calculation: If they’re going to hold their income steady while prices fall, they’ll have to bring more product onto the market. But since thousands of other farmers are making the same decision, the market just gets flooded with corn and prices fall further.
But there’s another, longer-term problem that haunts farming. To put it in economists’ jargon, productivity outruns demand. What does this mean? Simply that farmers — and the petrochemical, biotechnology, and heavy-machinery industries that cater to them — keep figuring out new ways to squeeze more and more food out of less and less land, but the human body’s caloric needs don’t change much. Food demand, in economists’ terms, is pretty inelastic.
Between 1948 and 2002, total U.S. agricultural output rose by a factor of 2.6, while population didn’t quite double. Since the food supply grew faster than population, it’s no wonder that the prices farmers fetch for their goods have steadily fallen.
Now, this steady downward pressure doesn’t mean prices don’t sometimes rise. Recently, for example, corn prices surged, bolstered by growing ethanol demand and Wall Street speculation. Again, though, external factors, and not farmers’ own planting decisions, sparked the rally. Moreover, farmers will likely respond to the windfall by scrambling to plant more corn — a factor expected to bring corn prices back down.
As University of Tennessee agricultural economist Daryl Ray put it in an influential 2002 paper [PDF], technologies that increase supplies and put downward pressure on prices are quickly adopted. The lower prices then encourage the adoption of more cost-reducing technologies, and prices continue their slide. In other words: you can’t win.
Bread and Butter
Why should this matter to the broader society? Shouldn’t a long-term trend of falling prices — i.e., cheaper food — be a good thing?
One problem is that food is such an important product, so critical to life, that it’s in society’s interest to promote a healthy, thriving farm sector. In fact, we want farmers to overproduce a little and maintain a surplus, because we never know when a drought, a flood, or some other disaster is going to wipe out an important harvest.
In the absence of organized government support, society would be asking farmers to bear the burden of carrying a surplus (in the form of steadily lowering prices) while counting on the benefits of food security when calamity strikes.
In that context, it seems fair and even wise for society to accept a share of the farming burden — that is, to support farming on some level. The questions then become: Does current farm policy, as embedded in the soon-to-expire 2002 farm bill, work to bolster farm health and enhance food security? If not, what would a farm policy that did so look like? I’ll be addressing these questions over the next few weeks.