John Mattingly: Socratic Rancher 5-13-13
May 13, 2013
One of the things that really pokes my detonators is when I hear someone in the media, or a talking head say, "To balance the national budget, the first cut should be to quit paying farmers not to produce."
The reason this honks me off is that, on balance, farmers in the U.S. are actually paid to overproduce. And, for the most part, they do.
While it's true that there is a Conservation Reserve Program (CPR) that pays a small minority of farmers to fallow marginal lands, or highly erodible Lands (HEL Lands), any farmer in that program will tell you the money they receive is not all gravy, CRP contracts lock the farm up for 10 years and require annual maintenance that, in most cases, consumes most of the government pay check.
The other point missed by any criticism of the CRP is that this is arguably one of the good things government does. Fallowing marginal lands has two significant advantages. It keeps that production out of the market, which reduces supply, resulting in higher prices for crops raised on quality lands, and the CRP puts some lands into a kind of soil bank that may be needed in the future if world population increases.
A little history. Before 1973, U.S. farmers participating in government programs were in fact paid a subsidy for setting aside 20 percent of their certified acres. In this time period, commodity prices were quite low, and the logic of the program was to reduce supply so that all farmers could make a decent living.
I recall farming in that period, and getting about a dollar a bushel for wheat or corn, $25 a ton for good alfalfa hay, and, if lucky, $10 a hundred for pinto beans. If the government's 20 percent set aside program had not been in place, prices might have been lower than that, and thus farming would have been marginal at best.
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But, in 1973, the first oil embargo occurred, and this caused commodity prices to soar, due to the increased cost of energy, and the flight of capital to commodities. When this happened, Earl Butz, then Secretary of Agriculture, went to Nixon and suggested the government do away with the 20 percent set aside program, and replace it with a government price guarantee. Nixon agreed, knowing the result would be overproduction and thus cheap food.
What happened with price supports, was a fencerow-to-fencerow frenzy of production. If a farmer was guaranteed say, $3.00 a bushel for wheat, regardless of the "real" market driven by actual supply and demand, the farmer's only incentive was to produce as much as possible.
Over the years, this program has undergone modifications and adjustments, but U.S. farmers still operate under a price support system, not a set-aside system. The result has been an abundance of production and relatively cheap food (if considered as a percentage of personal income), not a bunch of farmers sitting around the coffee shop waiting for government checks.
Given that real market commodity prices have been high in recent years, few, if any price support payments have actually been necessary. To suggest that cutting price supports to farmers is a good start on balancing the national budget is pure nonsense. ❖