U.S. Farm Policy Flawed Because It Rewards All-Out Production
Published: Friday, September 14, 2018
The following is from Alan Guebert, a freelance agricultural journalist from Illinois.
While U.S. farmers and ranchers spent August fretting over escalating tariffs and retreating markets, two ag policy experts used the month to publish a series of five columns that artfully—and courageously—skinned most of agriculture's sacred cows even as they planted new policy ideas for farm and ranch success.
(All five columns are posted at www.agpolicy.org/arti cles18.htm under "August 2018.")
The industrious pair, Daryll Ray and Harwood Schaffer from the Agricultural Policy Analysis Center in Knoxville, Tenn., picked up their keyboards after the White House announced its $12 billion tariff "mitigation" package July 24.
"Call it what you want," the pair noted in an Aug. 3 column, "but to us it looks awfully like the first installment in a series of 'Emergency Payments'" that the two had, in fact, predicted in June.
The prediction, however, was easy. "There is no doubt about it," they explain, that "the underlying price problems farmers (face) in the summer of 2018 are not the result of Chinese tariffs. They are the predictable consequence of two decades of failed U.S. commodity policy."
That failure—which continues today with the pending 2018 Farm Bill—is rooted in "the willingness of most ag economists and policymakers ... to latch on to any commodity program design that will backfill low crop prices with government payments as long as it does not interfere with all-out production all the time."
But all-out production all the time means low to very low prices most of the time. By the way, that's not Ray and Schaffer; that's Ag Econ 100.
Indeed, they write in their Aug. 10 column, the very existence of "emergency" payments like the Chinese tariff money "is an admission that the existing set of commodity policies have failed ... in the face of extended period of low prices even though that is the historic pattern."
Translation: U.S. agriculture has a long history of overproduction, low prices and "emergency payments." All are baked into federal farm policy because it promotes production first and worries about price later.
As such, the pair argue, "The most important ... legislation affecting the prosperity" of American agriculture "has not been the three farm bills (2002, 2008 and 2014) ... passed in the wake of the disruptive 1996 Farm Bill ..." The most important piece "was the adoption of the Renewable Fuels Standard (RFS) that required the blending of biofuels into the U.S. transportation fuel supply." This bolt-out-of-the-blue shock to demand kicked corn prices "above $4 a bushel for the better part of a decade."
But Christmas doesn't last forever, they note, and "Whether we are talking about 10 percent or 15 percent or some other (RFS) level, there comes a time when the blend requirement is met and increases in U.S. corn production outpaces any marginal increase in the need for corn-based ethanol."
That "time" is now, and ethanol's boozy price effects have long worn off. The world market—as predicted—adapted to it and now something new (short of droughts and floods) is needed to restore the profitable prices enjoyed from 2010 through 2014.
Ray and Schaffer have just the tool, a policy that will work in coming years because it worked in the past: "... a well-designed—because there can be poorly designed—supply management program."
Perhaps you're rolling your eyes and are about to stop reading because, quite simply, you believe the vaunted market will correct itself sooner or later and that today's unwelcome Trump trade wars will blow over and normalcy will return.
Ray and Schaffer, with a combined 80 years of ag policy expertise, say just the opposite. "(I)t is a fool's errand for U.S. policymakers to continue to pursue a low-price-and-exports-will-be-agriculture's-savior policy. When all is said and done, such a policy is not in the interest of U.S. farmers or taxpayers."
Still, our policymaking machinery hopes to cook up another years-long, low-price/export-savior farm bill this month. The proof of its impending failure, however, is that while Congress is arguing over its final garnishes, you're completing paperwork for another "emergency payment" scheme.
It won't be the last one because without a dramatic policy change, America's decades-long, low-price farm bill history will, predictably, be repeated.
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