The U.S. Department of Agriculture expects Minnesota farmers to plant 8.7 million acres of corn this year, 7 percent more than in 2011. For the whole nation, it expects a 4 percent increase.
However, it expects an 8 percent drop in spring wheat plantings and a 3 percent cut in soybeans.
All this is interesting, but the economic question is whether it is of real value to society and whether the government should spend money to tabulate such numbers.
Should we turn this over to the private sector? Yes, the USDA has compiled these data for the better part of a century. But in an era in which much public sentiment trends toward smaller, less intrusive government, questioning this practice may be appropriate.
Economists argue that information is a scarce commodity, often valuable, and usually costs something to produce. That is true for most goods, but how does it play out in the case of crop production or in refinery output or in oil imports and exports?
The data crunched by the USDA are a classic example of how better information leads to more efficient use of resources and how society can get greater fulfillment of people’s needs and wants.
Knowing how many acres farmers as a whole are going to devote to corn, soybeans and wheat helps individual farmers make final tweaks to their crop plans. It helps them decide at what prices they may want to contract some portion of their expected output. It helps suppliers of fertilizer, seed and other crop inputs adjust their orders and inventories. It helps grain handlers and feed dealers plan for how large a harvest they will face in the fall. Dairy farmers and other livestock producers will better know what to expect in terms of feed costs and availability.
The data allow producers to adjust their operations to varying input and output prices, both of which ultimately reflect the value to society of the resources or products in question.
Is it necessary, however, for government to spend money to tabulate the data? We don’t, for example, do surveys to find out producer intentions to turn out taco sauce or hula hoops nor of consumer intentions to buy such products. So why do we send out government employees to ask farmers about how much corn they will grow?
The answer is that this information is a “classic public good” in that, once produced, it is hard to exclude anyone from using it. And, the fact that one farmer or flour miller benefits from the information does not reduce the ability of others to similarly benefit. Economists describe this as being “non-rival,” in contrast to something like a hamburger that, if eaten by one person, cannot provide satisfaction to another person.
Economic theory and experience both demonstrate that private markets will never produce public goods like these data in optimal quantities. Yes, some interested parties such as grain trading companies or fertilizer manufacturers may conduct their own proprietary surveys. But, unless the information they tabulate is subject to tight internal control, it is likely to slip out and benefit their competitors as much as it does the firm that spent the money. So the first firm would have spent money in vain.
This is analogous to the situation in bond markets where it is hard to keep one firm’s rating of a new bond from becoming public knowledge, even to those who don’t pay anything for the information. Here the solution, admittedly an imperfect one, is to have the issuer of the bond pay the fees of specialized rating agencies. But there is no similar possibility in agriculture.
If left purely to interested private firms, there might be duplication of effort as large companies with much at stake would each put resources into generating information for their own use.
The marginal cost to society of sharing that information with everyone is zero, but the cost to any single company would be a reduced competitive edge. Such a situation where an overall net benefit to society is sacrificed because of the needs of one market participant is a classic case of economic inefficiency.
One sometimes hears the argument that it is not necessary for the government to compile agricultural production and price information anymore, because there are now myriad private ag analyses and forecasting companies that issue reports to their clients on market conditions, including expected plantings. But the vast bulk of the information on which these reports are based all comes from USDA’s National Agricultural Statistics Service.
Nor do all farmers understand or agree with such surveys. USDA personnel carrying out planting surveys regularly get chased off the property of a few farmers who resent any government prying into their business affairs. And some argue that the surveys primarily benefit large grain traders like Cargill or Archer Daniels Midland. But, in the absence of government surveys released to the public, it is likely that the large firms will have much better information, and hence market power, than the little guys.