Farming is one economic sector that’s missing out on the current general prosperity. And with only 15 months to the next general election, politicians are scrambling to help. Some, such as Minnesota’s Paul Wellstone and North Dakota’s Byron Dorgan, are calling for a return to federal price supports as a means of saving the family farm. Since farm incomes are suffering because of low prices, they reason, government should take action to raise prices.
But before these politicians raise their voices even louder, they should think about what they really want to accomplish. Do they want to increase the income of all farmers, regardless of how wealthy they are? Do they want to help small- and medium-scale farmers right now? Or do they want to maintain a system of agriculture that includes many small- and medium-scale farms?
These objectives are different from each other, and broad government price supports are a poor way to achieve the last two goals.
Don’t get me wrong. The prices of many farm products are extremely low relative to historic levels and to the costs of production at current input prices. It would be hard to find a farmer in the Midwest who would not welcome higher prices for his corn, wheat, soybeans, meat or milk.
But in the long run, there’s nothing about higher farm prices that favors the small farm over the large, or the family-owned farm over that largely mythical bogeyman, the corporate farm. Government actions to raise the prices of major agricultural commodities do nothing to preserve the long-term existence of small-scale family farms.
The history of 65 years of government programs to raise farm prices, beginning with the Roosevelt Administration’s Agricultural Adjustment Act of 1933, teaches that lesson well.
The number of farms in the United States dropped by more than 90 percent during the 60 years the government tried to help farmers by raising prices, and the average size of a farm increased five fold. Most farms are still family owned and operated, but they’re much larger, more capital intensive and mechanized than they were in 1939 or even 1969.
Government outlays of as much as $25 billion per year on price supports didn’t halt this trend toward fewer and larger farms. In fact it may have accelerated the process.
Studies show that price supports, by reducing risk, actually motivated large farm owners to specialize more narrowly and mechanize more intensively than they would have otherwise. Price supports gave large-scale farmers an incentive to gobble smaller operations.
The problem with across-the-board price supports is that, like the biblical description of rain, they fall on the unjust as well as the just. They do nothing that favors smallness or family ownership. Like recent Republican tax cut plans, they do a bit for nearly everyone, but the bulk of the benefits go to a few, relatively wealthy, households.
Moreover, since the major crops such as wheat, corn and soybeans are all internationally traded commodities, programs that seek to raise prices by cutting back output end up increasing prices for Brazilian, Argentine, and Australian farmers as well as for those in Minnesota and the Dakotas. The U.S. taxpayer pays, and farmers around the world benefit. The increase in U.S. farmers’ net incomes relative to the cost to the U.S. Treasury is small.
It’s hard not to feel sympathy for farmers. Most work very hard for their living, and face relentless challenges from the weather and economic events. Producing internationally traded commodities, they’re more exposed to price and income fluctuations than nearly any other sector in the U.S. economy. And most are concerned about stewardship of the land, water and other natural resources in their care.
Many believe society as a whole benefits by buffering small- and medium-scale farmers from the harsh effects of long-term trends in technology and the gyrations in the international economy. They argue that the continued existence of many small- and medium-sized farms has social benefits for the nation. These arguments appeal to me as well.
If, as a democratic society, we decide that these are goals that deserve tax dollars, so be it. But there are much more effective ways to help struggling farm households than by trying to raise farm prices for all farmers.
Farmers may deserve help, but citizens deserve an assurance their tax dollars are spent on policies that have some chance of achieving their objectives. Pouring federal funds into untargeted and ineffective price supports is not the way to go.
© 1999 Edward Lotterman
Chanarambie Consulting, Inc.