Friday, August 26, 2016

Money for farmers

When "demand is soft" for some agricultural commodity, the Feds step in and buy a bunch of it. That has cost taxpayers over $300 million this year, including $15 million to buy up extra cheese and give it to food pantries. While farmers are subject to the vagaries of weather in addition to the ebbs and flows of the market, do you think this is appropriate?

I'm not a farmer (and there are no farmers in my family) so it's easy for me to say that this looks like waste, but I don't know the other side. so I'm going to write to a friend of mine who knows more than I do. I'll update this post when I hear back.

Here's the comment from my friend, agricultural economist Jenny Ifft, who replied with superhuman speed:

I'd say Marin's comment is probably the right way to think about it. It is political, and also not "large" in the big picture. Farm policy in the U.S. started this way - trying to buy commodities to keep prices up -didn't work then and doesn't work now. That being said, I'm skeptical that Section 32 is large enough to have much of an impact on producer decisions or markets, although I'm sure in some cases it has. My personal opinion on farm policy broadly is that it is more of a small boondoggle than large one in the sense that producers are mostly responding to market signals; overall as economists we would do things differently, but it could be a lot worse. Sugar, cotton and rice policies are probably the most distorting, while corn would be amongst the least, but with smaller payments spread over more acres, it is larger in aggregate. Dairy is very complicated and very cyclical - but from NY I can tell you that successful dairies large and small don't have much riding on MPP or any other current programs. 

Not sure if that helps! These are interesting issues. The article you send is overselling the impact and intent of Section 32 (such is journalism...), especially in the first paragraph and I think the 3 ag economists that were quoted are spot on.
The economic argument is that if this is supposed to help recipients of the cheese, they would be better off with cash than with cheese. I've heard that food pantries in particular can get really fantastic deals on food, getting huge bang for their bucks, so just give the $$ to the food pantries and take the farmers out of the loop.

In the meantime, I'm looking at the price of Cheddar over the last few years, and I do see that prices are really low right now.

If this money keeps people in business through a short term dip in prices, that might be a good thing for the economy: it's tough to have a bunch of people go out of business. On the other hand, if the money props up a business that is fundamentally unsustainable, that would be a bad thing for the economy: resources consumed by that business would be better given to a business producing something more in demand, like say improving mass transit.

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