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Paying retail for foodThere is a lot of excitement in the pending farm legislation about payment limits that may be imposed on large farmers and that price supports may be reduced or eliminated all together. This sounds wonderful to consumers who see this change as a means to reduce their taxes. It also seems fair to owners and workers in businesses that don't consider themselves to be subsidized and are adversarial to a system where a small number of farmers get most of the government payments to grow program crops. If we move this type of legislation forward through a farm bill cycle of five years, it will cause many changes in the structure of farming and the cost of inputs. It will also bring consumer food prices to the unsubsidized retail level. I'm not sure buyers will accept, nor Congress can stand, this outcome. When farm price support programs got underway early in the 20th century, the goal of government was to offer price incentives to farmers to produce crops that would supply the food and fiber needs of Americans and to get their votes, at the same time. Crops designated to be of greatest economic value (corn, wheat, cotton, etc.) were planted in greater acreage due to the "safety net" that the government offered if market prices dropped. Through the years, the farm community and the government have collaborated, while each looks out for its own self-interest. Farmers soon became accustomed to government programs, as they offered the greatest security and required the least imagination to stay in farming. It took a lot less creativity to grow a program crop than to fend for one's self in the market place. A farmer could produce a crop that may be in huge surplus and far below cost on the market, but know that he'd be paid for doing so. Farmers also became good at "farming the government" as they looked for ways to maximize payments in every area possible. The perfect system was established: The farmer made money, the processor made money, the grocer made money and the consumer received an abundance of an inexpensive processed product. The only catch was that the government had to subsidize the farmer to keep the production coming each year. If you think these programs saved farmers, they didn't. The decline in numbers of farmers has continued, from the beginning of government farm payment programs until today. Increased efficiency and higher productivity, brought on by new technology, caused some farmers to get larger and caused others, who were unable or unwilling to adapt, to exit the business. The skewing of benefits to larger farmers was not accidental, as the federal government realized it had to keep acres in the program and fewer farmers were controlling larger acreage. The Southern farmers who produced cotton and rice were obliged to hold very large acreage in order to cash flow. They manipulated the payments to their advantage by stringing farms together to reap the maximum revenue, while staying under the imposed payment limit. Overproduction of grain has caused raw commodity prices to remain inexpensive. Some others are amplified by price support, such as milk and sugar. The consumer has been led to believe that the price of food reflects its true value. They know of the billions of dollars the government is paying farmers, but they do not connect cheap food and higher taxes. If we eliminate price supports, they will see if the market place will provide cheap food without taxpayer assistance. So let's work through "Root Economics" and see what might happen if we did away with farm subsidies and let the market place determine the final cost of our food. Here's what I think would happen: All that is now predictable would become volatile. Land and rent prices would go down. Farm inputs would chase the market and generic products would go down in price. Machinery prices would follow a similar path. The backlash from the agricultural suppliers and land owners would be severe and farm state politicians would be in jeopardy. Those who speak for the free market may lose their seats to challengers who favor "stability and fairness." As farmers determine the crops they would grow, based on the market place, acreage would be erratic and low yielding acres would move to permanent cover crops. Farmers would become more sensitive to the market place and lenders would require linkage with integrators and processors. This would cause prices to independent producers to go down, unless they found a means to process and sell directly to the public. Unholy cartels might emerge that would skew production and price even more. Food prices, which might be lower for the first one or two years, would begin to rise. Food prices would become so volatile that they would become a political issue disruptive to legislators, especially in urban districts. Congress would find that it had limited means to stabilize or lower the cost of food, so they would remove all barriers to imports. This could lead to food quality and safety issues, that would develop its own backlash among consumers. At this point, government would realize that it is simply incapable of allowing domestic food production to operate in a totally free market. In the second farm bill cycle, consumers and farmers would be inclined to allow incentives for production to be re-introduced. Farmers would look for ways to stabilize income and would return to production of program crops, in order to protect the downside of crop prices. Increased production of subsidized grain would allow livestock and dairy farmers to profit from lower priced meat and milk. Consumers would see stable and declining prices in their weekly grocery cart of food. The world would return to "normal" and farm legislation would tap the treasury for revenue to support farmers. Consumers would still complain that they were subsidizing farmers but would realize that, without it, they risked higher prices and shortages. Comfortable in our discomfort, we would move on to more pressing problems in our lives. Editor's note: Ken Root is now celebrating his 34th year as an agricultural professional. His career began as a vocational agriculture teacher then turned to agricultural broadcasting and writing as well as environmental consulting and association management. He was the original host of AgriTalk (1994-2001) and now is lead farm broadcaster for WHO Radio in Des Moines, Iowa. Date: 8/2/07
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