How Farm Policy Affects Us All
(Page 2 of 5)
June/July 2007, Issue 222
By Tom Philpott
Now that discussion is underway on the 2007 farm bill, a hard look at how our subsidy system evolved is in order. By tracing the roots of current dysfunction, we can perhaps find a way toward a farm policy that serves the public interest.
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A (NEW) DEAL GONE SOUR
A common problem faced by farmers is the tendency of prices for their goods to fall over time. U.S. farmers have often churned out food faster than Americans can consume it, and this leads to ever-lower prices.
According to classical economics, farmers should respond to the “signal” of lower prices by cutting production, which would cause prices to stabilize. Instead, they’ve tended to respond by scaling up — investing in land and technology to boost production dramatically. They hoped to make up in volume what they were losing in price — creating a vicious circle of rising productivity, lower prices and recurring farm crises.
That situation came to a head during the Great Depression, when an extended bout of overproduction led to falling prices and a severe farm crisis. While millions of Americans went hungry due to lack of funds, farmers were stuck with huge food surpluses. Overall farm income fell by half during the early years of the Depression, and thousands of farmers defaulted on loans.
In response, the Roosevelt administration made farm support a linchpin of the New Deal. To keep prices reasonable, the government tried to manage farm output. The program worked like this: When farmers began to produce too much and prices fell, the government would pay farmers to leave some land fallow, with the goal of pushing prices up the following season.
There was an additional New Deal mechanism that sought to stabilize prices: In bumper-crop years, rather than allowing the market to be flooded with grain, the government would buy excess grain from farmers and store it. In lean years — say, when drought struck — the government would release some of that stored grain, mitigating sudden price hikes. The overall goal was to stop prices from falling too low (hurting farmers) or jumping too high (squeezing consumers).
Now, you don’t have to be a free-market zealot to identify some problems with this setup. First of all, it concentrated a tremendous amount of authority within the U.S. Department of Agriculture (USDA), whose director came to occupy a kind of “Agriculture Czar” position, wielding power over food production roughly equal to that of the Federal Reserve chair’s sway over interest rates.
But there was a deeper problem: The technological revolution in farming that blossomed in the second half of the 20th century — the cascades of synthetic fertilizers and pesticides, the explosion in petroleum-powered heavy machinery, the advent of hybridized seeds — overwhelmed the government’s ability to limit supply.
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