Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

August 1, 2012

Farming in an Equilibrium Trap

by Chris Byrne

JayG wrote something today about how this summers drought is hitting farmers very hard; which is absolutely true. And it’s already having an impact on food prices, and that impact is just going to grow.

The crop that’s being impacted worst is dent corn, which makes up the majority of livestock feed in this country; particularly beef feed. This is exacerbated by the governments ethanol mandates, which take even more of the feed corn crop out of the feed market.

Over the next couple months, we’re going to see beef prices crash, as ranchers and feedlots come to the end of their stored feedstocks and slaughter more steer than normal (so they don’t have to keep feeding them), and then SOAR to highs we haven’t seen in years over the fall and winter.

Jay points out that some are “blaming subisidies” for the state of things… which I think is silly, you can’t blame subsidies for weather (well… usually… Microclimate and regional climate adjustments due to overplanting can sometimes be blamed on subsidies… but that’s not what we’re talking about here).

But honestly, there’s something that no-one wants to admit, no-one wants to say, and no-one wants to hear in this country….

We have too many damn farmers.

By far.

Probably by more than half, at least for some crops.

In particular we have too many grain farmers. In even greater particular, we have far too many corn and wheat farmers.

We have a natural market for corn and wheat that would support… something like half… of the farmers that we have now.

All of those people who are only making money because of subsidies; we really don’t need them growing corn or wheat.

Either they need to grow something else, or they need to sell their land and stop being farmers.

Even the argument that it “keeps our food prices low” is false; because it actually keeps them higher most years. If there were no subsidies, the market would find its natural level of supply, demand, and price; and the resources inefficiently allocated to subsidized crops would simply be allocated elsewhere (and I’m not even going to get into the second order effects of this regime like obesity, HFCS vs. sugar pricing, ethanol etc…).

But we don’t want to hear it.

We are constantly being presented with images of the “struggling family farmer”… And have been for over 100 years.

Shouldn’t that tell you something?

There are plenty of very profitable and prosperous farmers in this country, and plenty of large farming corporations that do quite well…

And who are they?

They’re farmers that grow crops which don’t get subsidies, who have found ways to be economically efficient; or they are farm corporations who have found ways to extract the maximum amount of government benefits.

Again… shouldn’t that tell you something?

When a business is failing, that doesn’t tell you “we need to subsidize it”, it tells you we need to reduce its regulatory and tax burdens and operational restrictions (stop artificially reducing its competitiveness); or we need to let that business die.

Farming is no different from any other business. If it’s not competitive, we shouldn’t be encouraging people to do it (unless it’s of importance to national security, and thus can’t be outsourced or offshored; and even then that’s an iffy one, and we should still be encouraging competitiveness internally ) and we shouldn’t be rescuing or subsidizing it.

Why on earth have we been subsidizing these non-viable crops for 80 years?

Oh wait… I know… it’s because to get elected president, you need to win the majority of Iowa, Kansas, Nebraska, Missouri, Minnesota, Illinois, Indiana, Michigan, and Ohio; and to be elected to congress (outside of a major urban constituency anyway) or win those states in the general election, you have to support subsidies for grain farming.

Right now, these farmers are in an equilibrium trap, where because of government subsidies they can just barely get by; but because of inefficiency, actual market conditions etc… they can’t get ahead

The way to deal with equilibrium traps, is to break out of them completely. You can’t do that by keeping on doing what put you in the trap to begin with; and they’ve been doing that for 80 years.

If we stopped subsidizing these crops, people would take huge losses in the first few years; particularly as their land prices fell dramatically. It would hurt. A few hundred thousand people would take a big hit…

An aside about numbers: there are about 2.3 million “farms” in the united states. 65% of all crops are produced by 9% of all farms (which farm 59% of the agricultural land), and 85% of all crops are produced by 15% of all farms.

Of the appx. 2.3 million “farms”, about 2.1 million are considered “family farms”. About 1.9 million of those farms are considered “small family farms”, which have gross revenues of less than $250,000 per year, and produce less than 15% of all crops. Of those, about 35%, produce about 9% of the total crops in this country and are generally considered viable. 40% are essentially “hobby” or “part time” farms that produce less than 3% of all crops per year. It’s the 25% or so of those 2 million farms, which only produce 3-4% of all crops, and which are basically non-viable, that are the biggest issue.

Oh and 10% of all farms receive 75% of all subsidies, for producing about 25% of all crops. Corn, wheat, cotton, rice, soybeans, dairy, peanuts, and sugar, make up 97% of subsidies. Corn and wheat alone make up 52%, cotton about 14%, rice and soybeans another 23%). The VAST majority of those subsidies go to large corporate feed grain farms in Iowa, Illinois, Nebraska, Kansas, and Ohio, and to Cotton farms in Texas (Texas produces 30% of all cotton in the U.S., with Arkansas, California, Mississippi, and Georgia accounting for another 40%); NOT to small family farmers

And then, we would be better off as a nation; and THEY would be better off as individuals. They, and their children, would no longer be trapped into a just barely livable, just barely getting by, dependent on the government economic condition for decades. They would move to more productive more useful employment. They would be better off eventually, as would the country as a whole.

The problem? Many of them don’t want to. They WANT to be farmers, even though they KNOW it’s a bad business. They love being farmers. They’ve been farmers for generations in their family. It’s all they know, it’s what they’re passionate about, it’s part of their culture and they can’t see ever doing anything else.

Well… I want to be an Aerospace Engineer, and design and build airplanes; or even boats (many boat designers are also aerospace engineers. It’s a very similar field of study). It’s what I trained for, and I love it and am very passionate about it.

But it’s not viable for me.

There are more than enough airplane designers out there for the market as it exists today; so I can’t find employment as an airplane designer. The fact is, very few new airplanes are being designed.

Now, I’m the first to say that we should get the excessive regulatory burden out of the way of the aircraft industry, and if we did that it’s likely that more aircraft would be designed and more aerospace engineers could find jobs…

But would you say that just because I can’t find a job in the field I was educated in, that we should subsidize that field just so I could?

…Well… Sadly, some would… Or at least they would, if the field I was in was politically or socially favored… But anyone with any sense or integrity knows better.

We have romanticized the idea of the “family farmer” in this country for far too long.

The fact is, it is no longer economically viable, nor is it necessary, for many of these people to be farmers, and we should stop enabling the equilibrium trap constantly keep them locked into farming, but always on the edge of failing.

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  • MingoV

    I grew up in farm country in upstate New York south of Lake Ontario. The only subsidized or price-controlled “crop” was milk.** Everything else (chickens, apples, cherries, grapes, potatoes, tomatoes, lettuce, cabbage, carrots, string beans, cucumbers, etc.) was raised without subsidies and sold at market prices. The successful farmers had enough cushion to handle too little rain, too much rain, hail storms, fungal or pest infestations, equipment breakdowns, etc. Many farms have been passed down to relatives for more than three generations. Their success, without government intervention, proves that family farms can survive without subsidies and price controls.

    ** Ironically, almost all the family dairy farms failed or switched to other crops by the mid-1970s.

  • http://anarchangel.blogspot.com Chris

    Mingo, I absolutely and entirely agree.

    There are MANY successful unsubsidized farms all over this country, for basically every crop other than feed and cereal grains, cotton, dairy, peanuts, and sugar.

    If people don’t want to pay the prices for unsubsidized crops… we shouldn’t be growing them.

  • http://www.thelibertypapers.org/ Stephen Littau

    Chris:

    What do you believe would happen to food prices if the government stopped subsidizing agriculture?

  • Greg H

    >What do you believe would happen to food prices if the government stopped subsidizing agriculture?

    First, many of the “non-viable” farms would go out of business. Nearby “viable” farms would buy up most of their land and farm it, so very little of it would go out of production. Probably there would very, very little difference in crop production due to this because new farmers would increase yields compared to before, making up for any newly idle land.

    Second, a fair number of farmers would switch crops — as a made-up example, without a subsidy for soft white wheat it might be more profitable to plant hard red wheat, or barley or peas or whatever. But with less soft white wheat being produced, demand would drive up the price a little. These two effects would balance out at some point — the market price, undistorted by subsidies. That price might be higher than the current price, or it might not, because…

    Third, subsidies are not this simple! For example, many farmers are paid not to farm some of their land. Without that payment, they would probably farm that land. This would tend to drive up production and drive down prices.

    But there are many, many other programs that affect farmers and farming. “Off-road” diesel is not taxed. Transportation and storage subsidized. Foreign markets are opened, closed, or deals are brokered by the government. Etc, etc, etc. Are these considered “farm subsidies”? Even if “subsidies” were eliminated, we would be quite far from a free market in farming.

  • procopius

    You’d have to distinguish farming from modern farming. Modern farmers often get paid not to plant. Modern farmers, mostly, either have family capital gain through generations, or, others are debutantes that had capital when buying the land and everything else. Others are corporate entities.

    Oddly, small time farmers can fly under the radar, grow a little of high value crop, and make money selling it firsthand. This relatively new, and that’s why all the new laws are cracking down on small scale cultivation.

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