Wed, 09 Feb 2005

Bush Faces Fight on Farm Payment Limits

The libertarian in me wants to shout "Right on! Kill the welfare for the huge agribusiness corps!". And in truth, that's where most of the payments end up. And, as a spokeman for an enviromental group points out, they help the big get bigger:

"The way the big boys grow is by buying up their weaker, smaller neighbor," said Ken Cook, president of Environmental Working Group, an advocacy group that analyzes Agriculture Department programs. "If you're getting a constant flow of big government checks, that gives you just that more of an edge to invest when someone sells a farm."

But the one thing that's never mentioned in any of the articles on farm subsidies, here or in Europe, is why they exist and how they came into being. It's because of the way the commodities markets work.

Commodities represent the law of supply and demand in it's purest form. Wheat is not like automobiles: the former is a commodity, while the latter can be divided into Fords, Chevys, BMW's, etc. A Ford Taurus is like a Toyota Corolla, but it's not one. Wheat from Romania is the same as wheat from North Dakota. And with advanced transportation systems, wheat from one part of the world sells for the same price as wheat from the other side of the globe. The more wheat that is produced, of course, the lower the price goes.

Put yourself in the position of the grain farmer. You grew wheat this year, and had a bumper crop: so did all your neighbors. And you profit margin fell because the price dropped due to over supply. What are you going to grow next year? Corn, or soybeans perhaps. You can bet your neighbors will be thinking the same way - what's that going to do to the price of wheat? It'll rise, probably dramatically, and bakeries will be short of bread. Complicating this is the fact that agricultural commodities, unlike, say, minerals, have a limited shelf life.

It was wild fluctuations like this that led governments to institute price supports: it's in everybody's interest to have a consistant supply of flour (and soybeans) rather than the "feast or famine" methodology that prevailed.

Good or bad, if we don't understand why something has been done it's almost certain that we'll shoot ourselves in the foot when we try to apply a quick fix.

AP - The idea behind President Bush's proposal to limit crop subsidies is to stop big corporate farming operations from gobbling up most of the government payments, but smaller farmers say they'd be hurt too.

(link) [Yahoo! News: Top Stories]

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