This Is a Worst-Case Scenario?
April 2002
One way to understand how much trouble you may be in is to “bracket” the
problem with best and worst-possible outcomes. These results can be too
unlikely to warrant much attention, but at least you know that the probable
answer is somewhere in between.
I wonder why we have not done this with farm policy. We have neither described what the ideal solution would look like, nor examined the end-of- the-world circumstances. Best case ideas are usually starkly impossible (high prices, low costs, low risks, light competition). Worst-cases are usually overwrought and hysterical.
One problem is the vague horror associated with the unthinkable possibility of deregulating agriculture. No government programs? At all? It could never work. But no evidence is given to buttress this conclusion.
For good reason, it turns out. Of all the possible choices for farm policy, applying the American system of free enterprise is the last considered. I recently asked an economist at FAPRI – world class ag forecasters – whether they had ever modeled a future with no programs. The answer: Nope, nobody has ever asked.
How odd. The same system that seems to work for the rest of our national economy and – with the exception of 8 subsidized and protected commodities – most of agriculture, has never been contemplated as a rational solution for the farm problem.
We just assume we know what would happen if there was no farm program, subsidies, tariffs, quotas, etc. Farmers would all go out of business, food would be scarce, rural economies would vanish, the country would plunge into depression, yadda, yadda.
Hardly. In the first place, ending the farm program would affect producers only in the proportion to which it currently enriches them. The large number of small farms who derive little income from the government would be unfazed. Many other commercial operations with deep pockets and owned land would have one brutal, but not fatal year.
I wonder why we have not done this with farm policy. We have neither described what the ideal solution would look like, nor examined the end-of- the-world circumstances. Best case ideas are usually starkly impossible (high prices, low costs, low risks, light competition). Worst-cases are usually overwrought and hysterical.
One problem is the vague horror associated with the unthinkable possibility of deregulating agriculture. No government programs? At all? It could never work. But no evidence is given to buttress this conclusion.
For good reason, it turns out. Of all the possible choices for farm policy, applying the American system of free enterprise is the last considered. I recently asked an economist at FAPRI – world class ag forecasters – whether they had ever modeled a future with no programs. The answer: Nope, nobody has ever asked.
How odd. The same system that seems to work for the rest of our national economy and – with the exception of 8 subsidized and protected commodities – most of agriculture, has never been contemplated as a rational solution for the farm problem.
We just assume we know what would happen if there was no farm program, subsidies, tariffs, quotas, etc. Farmers would all go out of business, food would be scarce, rural economies would vanish, the country would plunge into depression, yadda, yadda.
Hardly. In the first place, ending the farm program would affect producers only in the proportion to which it currently enriches them. The large number of small farms who derive little income from the government would be unfazed. Many other commercial operations with deep pockets and owned land would have one brutal, but not fatal year.
As for those whose budgets would not come close to balancing, an
interesting economic flux would develop, I believe. Assume half (100,000)
of subsidized producers are instantly and enormously unprofitable. (I think
this number is high, but stay with me). Landowners everywhere would be
looking for new tenants, acres and machinery would be for sale. Survivors
would need to expand by 100% simply to cover the acres.
Likely some acres would not get planted. Acres where crop insurance and subsidies comprise the highest proportion of income would be idled first. Bluntly put, artificial farm economies on marginal land would be devastated.
Farmers would suddenly have some leverage with owners. Cash rents would decline, share rents might even rebound. Land values would be all over the board, but likely lower everywhere. Bottom line: fixed costs would plummet.
And let’s not forget prices. If the market price for beans is $4.00 for example, how many acres will be planted in the US? Not as many with our supported price of $5.25, I’ll bet Prices would necessarily rise to ensure production to satisfy demand. Our customers will be placing their own bets. My guess is they will opt for covering their needs as soon and as cheaply as possible. If we really need corn and beans and sugar, customers will have to pay what farmers can grow them for. Uncle Sam won’t be sharing the tab. If growing these commodities has simply been make-work, we will discover that too.
How many farmers would disappear? Your guess is as good as mine. But certainly not all, and likely not most. As uncomfortable as this thought is, watching the same thing happen in slow motion isn’t much better. How many farmers should America have anyway? Are we all on tenure?
Would America go hungry? Absolutely not. America needs agricultural output and can easily afford it. Where it comes from doesn’t make much difference. Besides most all food crops – meat, vegetables, and fruits – are already deregulated.
Would rural America perish? It would be harsh in some areas, but not many. As noted in a recent Kellogg Foundation report (kellogg.org) the largest source of income in rural areas is the service sector and only 1/6 of rural residents are farmers.
Likely some acres would not get planted. Acres where crop insurance and subsidies comprise the highest proportion of income would be idled first. Bluntly put, artificial farm economies on marginal land would be devastated.
Farmers would suddenly have some leverage with owners. Cash rents would decline, share rents might even rebound. Land values would be all over the board, but likely lower everywhere. Bottom line: fixed costs would plummet.
And let’s not forget prices. If the market price for beans is $4.00 for example, how many acres will be planted in the US? Not as many with our supported price of $5.25, I’ll bet Prices would necessarily rise to ensure production to satisfy demand. Our customers will be placing their own bets. My guess is they will opt for covering their needs as soon and as cheaply as possible. If we really need corn and beans and sugar, customers will have to pay what farmers can grow them for. Uncle Sam won’t be sharing the tab. If growing these commodities has simply been make-work, we will discover that too.
How many farmers would disappear? Your guess is as good as mine. But certainly not all, and likely not most. As uncomfortable as this thought is, watching the same thing happen in slow motion isn’t much better. How many farmers should America have anyway? Are we all on tenure?
Would America go hungry? Absolutely not. America needs agricultural output and can easily afford it. Where it comes from doesn’t make much difference. Besides most all food crops – meat, vegetables, and fruits – are already deregulated.
Would rural America perish? It would be harsh in some areas, but not many. As noted in a recent Kellogg Foundation report (kellogg.org) the largest source of income in rural areas is the service sector and only 1/6 of rural residents are farmers.
Would any of the apocalyptic prophesies come to pass? I don’t know, and
neither does any one else. We haven’t even bothered to ask. I think we all
suspect the answer. Economic freedom – like democracy – looks horrifying
until you compare it to the other choices.
Our worst-case scenario may be to keep doing what we are doing now.
Our worst-case scenario may be to keep doing what we are doing now.
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