Fri, 22 Oct 2004

Along Tobacco Row, a changed culture

The libertarian in me cordially dislikes price supports of any sort - they're an unnecessary and usually counter-productive interference in the operation of a free market. But what I dislike even more is the method that our government has used over recent years to phase them out, or, in this case to buy out the holders of the quota allotments.

First, the government makes it illegal to grow and sell a product without their permission, and to compensate for this blatant theft, they guarantee a minimum price for the product they will allow you to grow. This has the effect of subsidizing smaller farmers, and punishing productivity/efficiency gains. In economic terms, it imposes an excessive opportunity cost for start-ups in the field: if you're in at the beginning, you're good to go, but if you're not in, you're out of luck. And there's no real reason to expand from the size you were to start with: without buying out somebody elses' allotment at market prices, you can't grow any more.

Then, when they figure out that this was all a really bad idea to start with, and want to get rid of it, the allotments are bought back at substantially discounted rates (versus potential future earning under the regime) and the small guys are left holding the bag, while larger operators take the money and run. This happened in the dairy industry in the late 90's, and it's happening to tobacco farmers now. Small operators, who were subsidized at low levels for years, are simply driven out of business, and large operators reap a temporary windfall and get bigger.

I'm not sure that there is a good solution to this: but we really should do a better job at making sure that the cure isn't worse than the disease. Europe, take note! You'll be ending your agricultural subsidy structure someday ...

A move to end subsidies and offer a buyout will aid big growers and cause smaller ones to give up their fields.

(link) [Christian Science Monitor | Top Stories]

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