Are crop subsidies a good or bad thing?

[ShawnD]

American fiscal watchdogs (like John Stossel) point out over and over again how billions of dollars are used to subsidize crops grown in the US just so they can stay competitive with cheaper crops from other countries. At first glance it seems like an obvious waste of money. Forcing everybody to pay for more expensive food? wtf?
Anyway, the flip side is that subsidizing local crops lowers the amount of crops that are imported, which can be used as a method of preventing trade deficit with another country.
Just use this as an example using simple terms
Canadian grain would be $5
American grain would be $10
$5 worth of tax money is paid to American grain farmers so they can sell it to market for $5.
Americans buy American grain for $5 (plus $5 in taxes to make $10)
$5 worth of tax money goes towards socialism rather than trade deficit with Canada

Which is better? Having $5 leave the US and go to Canada, or having $5 of tax money spent on subsidizing overpriced American crops? This could be any country really, but the point still stands.

 

[Art]

America is not alone in this policy the EU also heavily subsidises it's farmers. There are several reasons to justify subsidies such as national security. Do you really want to become dependent on another country for your food supply? Then there is the social aspect. Do you want to decimate rural communities?

On the economic side there are some advantages even for the tax payer in subsidising farming such as the artificially cheap price of meat fattened on subsidised corn. Also by keeping the money in the country everyone gains from the multiplier effect which doesn't happen if the money has gone abroad.

Of course there are problems too with food surpluses etc but if the level of subsidy is set correctly this is manageable. The EU seems in recent years to have largely eliminated it's wine lakes and butter mountains whilst continuing to sustain farming.

 

[russ_watters]

Why is a trade deficit a bad thing?

In any case, the trade deficit isn't what the politicians in the US use to sell the farm subsidies - it is protection for farmers.

 

[Art]

Why is a trade deficit a bad thing?

It's not inherently bad, it depends largely on whether the imports are capital goods or consumer goods and currency exchange rate policy.

Trade deficits accumulated on the back of consumer goods can mean an intergenerational debt is being built up whereby future generations end up paying for today's extravagances whereas deficits based on the purchase of capital goods can be considered an investment for the future. Most countries for economic and prestige reasons like to maintain a strong currency but if a country is deemed to be living artificially beyond it's means it's currency takes a dive on the currency exchange markets leading ultimately to a fall in confidence and an unwillingness on the part of supplier countries to accept the currency in payment.

 

[loseyourname]

The reason we subsidize farmers are these:

1) Crop prices are unstable. One season they might be very high, the next they might be very low.
2) Smaller farmers tend to reinvest all of their profits back into their farms. Rather than accumulate profit in the form of liquid or stable assets, they plant more crops or buy better equipment.
3) This leaves them with little "cushion" money when prices drop, meaning they can easily be forced to sell the farm.

This places disproportionate strain on family farms, as corporate absentee owners can absorb the losses for a year and make the money back the next year. Small farmers eat the losses by losing the farm, usually selling it to corporate farms or housing developers depending on whether there is any housing demand. So, in short, we subsidize to guarantee a good enough price to at least stay in business each year, to ensure that farming remains a viable option for individuals and not just for larger entities with diversified holdings. In fact, I'm not even sure it would be a terribly viable option for corporations if it wasn't for the subsidies at this point. We're trying to not end up with every person and business in the midwest becoming a housing developer rather than a farmer. It's hard to ever regain farm land that becomes something else.

 

[out of whack]

to ensure that farming remains a viable option for individuals and not just for larger entities with diversified holdings.

Why is it desirable that a particular industry remains a viable option for individuals? We don't do this for mining or forestry. Why is it important for farming?

 

[edward]

Why is it desirable that a particular industry remains a viable option for individuals? We don't do this for mining or forestry. Why is it important for farming?

In addition to individual family farmers there are a lot of corporate farms that receive the same subsidies. It is important because food is important. Few people are willing to do without it.

 

[edward]

There are those who will milk the system.

This is an interesting site. Enter a zip code or county and it will show the top 20 recipients of subsidies over the past ten years.

http://www.ewg.org/farm/index.php?key=nosign

 

[ShawnD]

Why is a trade deficit a bad thing?

Having a trade surplus is like saving a small portion of your take home pay; it's responsible. Having a trade deficit is like spending more money than you're taking in, and by "like" I mean "it's exactly the same". Generally we laugh at people who voluntarily get into extreme amounts of debt, so why should a trade deficit be treated differently when it's basically the same thing?

Farming is just one thing. It's arguable that we can take a trade deficit on farming and take up a trade surplus on something else.

 

[edward]

IMO we should try to be nearly self sufficient when it comes to our food supply. The FDA can't even keep up with the safety of what is grown and produced here. No more Chinese wheat gluten please.

 

[out of whack]

In addition to individual family farmers there are a lot of corporate farms that receive the same subsidies. It is important because food is important. Few people are willing to do without it.

That does not really address my question. On a large scale, things in general (including food) are produced by corporations more efficiently than by family operations. Corporate farming is more efficient due to economies of scale. Encouraging this would help to make farming more competitive against foreign sources, reducing the need for subsidies and lowering the tax burden. Encouraging smaller, less efficient farming through subsidies seems to be against the national interest.

 

[edward]

If we were to allow a total take over of farming by big business our food supply would be at the mercy of market forces. That may sound good to some until you think of milk costing $6 per gallon, because one huge dairy producer is facing a hostile takeover by another.

Even with a total corporate farm situation, they would still need subsidies to keep up with cheap foreign labor.

Other than that I just like the idea of family farms. I see a farmer caring more about his land than some CEO who sits in an office 1,000 miles away. With the growing popularity of organic foods the smaller farms may once again become competive.


http://www.npr.org/templates/story/story.php?storyId=1137493

 

[out of whack]

If we were to allow a total take over of farming by big business our food supply would be at the mercy of market forces.

It already is, and foreign competition also keeps things in check. I don't see a problem, capitalism works.

That may sound good to some until you think of milk costing $6 per gallon, because one huge dairy producer is facing a hostile takeover by another.

Market forces prevent this. When Daimler and Chrysler merged, car prices did not jump like that.

Even with a total corporate farm situation, they would still need subsidies to keep up with cheap foreign labor.

That's probably true. I also agree that for reasons of national security, farming must be allowed to survive and subsidies may be needed. But they can be reduced if farming can be done more efficiently, and this should benefit every tax payer.

Other than that I just like the idea of family farms.

I suspect this is the main reason. Farmers are voters, and even non-farmers like the romanticism of family farms. It's very Smallville.

 

[edward]

It already is, and foreign competition also keeps things in check. I don't see a problem, capitalism works.

Yep nothing beats capitalism when times are good.

Market forces prevent this. When Daimler and Chrysler merged, car prices did not jump like that.

The merger didn't cost Chrysler anything. Currently Daimler is trying to dump Chrysler. This was kind of my point , market forces are never stable, and our food supply has to be.

That's probably true. I also agree that for reasons of national security, farming must be allowed to survive and subsidies may be needed. But they can be reduced if farming can be done more efficiently, and this should benefit every tax payer.

Efficiency has gained in farming, even with small farmers most use computer programs to keep up with what works best.

I suspect this is the main reason. Farmers are voters, and even non-farmers like the romanticism of family farms. It's very Smallville.

I agree, farmers do get a lot of attention form Washington. As for living on a farm, you just can't beat waking up to the smell of real cow manure, instead of the sanitized odor of the bag of stuff from home depot.

 

[russ_watters]

In addition to individual family farmers there are a lot of corporate farms that receive the same subsidies. It is important because food is important. Few people are willing to do without it.

You're saying we will go hungry without farm subsidies? Seriously, what exactly would happen if we got rid of them?

 

[russ_watters]

Having a trade surplus is like saving a small portion of your take home pay; it's responsible. Having a trade deficit is like spending more money than you're taking in, and by "like" I mean "it's exactly the same". Generally we laugh at people who voluntarily get into extreme amounts of debt, so why should a trade deficit be treated differently when it's basically the same thing?

It should be treated differently because it isn't the same thing. It is not like spending more money than you are taking in, it is simply that you are importing more goods than you are exporting. But the balance sheet always equals zero: we pay for the goods we import, we don't get them on credit.

Also, for the US, currency itself is an export product. So why don't we consider that when calculating the deficit?

Seriously again: why, exactly is a trade deficit a bad thing. Because the word "deficit" sounds bad? What harm, exactly, does it cause to the economy?

 

[Bitter]

Why is it desirable that a particular industry remains a viable option for individuals? We don't do this for mining or forestry. Why is it important for farming?

Well, I grew up on a farm and one main reason why it is important for an indiviual have the option to be a farmer is that some operations are to costly for industry.

It is easy for the industry to sit a few thousand chickens in a room and let them lay eggs or place a few hundred cows in a room and milk them. However, when it comes to letting cattle graze and roam free, then it becomes a problem. It is far easier for a family to manage cattle that will be meat than for the the industry.

 

[Anttech]

Seriously again: why, exactly is a trade deficit a bad thing. Because the word "deficit" sounds bad? What harm, exactly, does it cause to the economy?

Money flows out rather than in.
I disagree with the idea of subsiding Farmers, not because it makes more economical sense at home, but because of what effects it has on Farms in poorer regions, who cannot compete and thus because of the greed of the richer nations are forced to live in abject poverty. Example is http://www.un.org/ecosocdev/geninfo/afrec/vol17no1/171agri4.htm

 

[Anttech]

$5 worth of tax money goes towards socialism rather than trade deficit with Canada

Whats socialist about your example? If you are referring to the redistribution of money to the poor, I don't think that is what is happening at all. Rich farmers are being kept rich. If you are referring to the fact the government is controlling production, you may have more of a point.

 

[Moridin]

The EU is spending countless of millions of dollars on it, paying farmers to grow it, just about ignoring whether or not it is used.

http://europa.eu/pol/agr/index_en.htm

 

[Anttech]

Yeap and so is the USA...

 

[BobG]

America is not alone in this policy the EU also heavily subsidises it's farmers. There are several reasons to justify subsidies such as national security. Do you really want to become dependent on another country for your food supply? Then there is the social aspect. Do you want to decimate rural communities?

On the economic side there are some advantages even for the tax payer in subsidising farming such as the artificially cheap price of meat fattened on subsidised corn. Also by keeping the money in the country everyone gains from the multiplier effect which doesn't happen if the money has gone abroad.

Of course there are problems too with food surpluses etc but if the level of subsidy is set correctly this is manageable. The EU seems in recent years to have largely eliminated it's wine lakes and butter mountains whilst continuing to sustain farming.

I agree with Art. Some products are critical enough you want your own country to capable of producing them. Just look at the problems caused by the US having to import so much oil.

 

[Anttech]

I agree with Art. Some products are critical enough you want your own country to capable of producing them. Just look at the problems caused by the US having to import so much oil.

Sure thing, but would you say cotton is one for example? Or perhaps the idiotic EU Common Agricultural Policy specifically for French farmers?

 

[Averagesupernova]

There are those who will milk the system.

This is an interesting site. Enter a zip code or county and it will show the top 20 recipients of subsidies over the past ten years.

http://www.ewg.org/farm/index.php?key=nosign

I looked at this site and can tell you that on the crop subsidy end of it that I know personally many of the individuals and companies listed in my locality. It's nothing I didn't already know before looking at the site, but Anttech is right, rich farmers are being kept rich. Our current farm program is taking too much financial risk out of the equation for large farms. That's how the US seems to be run. Big business takes priority over small business. Whoever said corporate farms are more efficient than small farms doesn't know anything about farming at all. I will guarantee that if farm subsidies go away (not necessarily a bad thing) corporate farms will be out of business. There is not enough money in it without farm subsidies to make it worth doing for most corporations.

 

[edward]

You're saying we will go hungry without farm subsidies? Seriously, what exactly would happen if we got rid of them?

Those are good question Russ. I don't think that we would go hungry, but we would definitely be eating a lot of food and food ingredients that comes from countries which do have subsidies.

As far as what would happen if we did away with farm subsidies, I don't think that anyone knows for sure. The subsidies work in a complex way and I sure don't know the formula the government uses.

The subsidies originally were meant to stabilize prices and act as a safety net for small farmers. They now seem to be going to the most wealthy farmers, especially corporate farms. I think that it is time to overhaul the whole situation, but we have to leave American farming in a competitive position.

When it comes right down to it I really have a problem with the fact that a good portion of the subsides go to pay farmers not to grow a certain crop, or not to produce over a certain amount of milk.

Below is an interesting link on people who are not farmers, yet are paid not to grow a crop.

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html

 

[out of whack]

Whoever said corporate farms are more efficient than small farms doesn't know anything about farming at all.

That was me and you caught me right, I'm no farming expert and I should say so. I only respond to posts made here and ask questions. I said that corporate farming should be more efficient than smaller operations by extrapolation from other industries plus the mention that subsidies are needed to keep family farms alive. So I withdrawing this claim but wouldn't mind some details about how small farm operations are more efficient than larger ones from those in the know.

I will guarantee that if farm subsidies go away (not necessarily a bad thing) corporate farms will be out of business. There is not enough money in it without farm subsidies to make it worth doing for most corporations.

How do subsidies to family farms differ from those made to corporations? Why wouldn't both types suffer equally from a drop in subsidies?

 

[Averagesupernova]

That was me and you caught me right, I'm no farming expert and I should say so. I only respond to posts made here and ask questions. I said that corporate farming should be more efficient than smaller operations by extrapolation from other industries plus the mention that subsidies are needed to keep family farms alive. So I withdrawing this claim but wouldn't mind some details about how small farm operations are more efficient than larger ones from those in the know.



How do subsidies to family farms differ from those made to corporations? Why wouldn't both types suffer equally from a drop in subsidies?

Without being exposed to daily life on a farm it is difficult for me to explain why I feel larger farms are less efficient. For a start, larger farms rely on employees. Most employees are unwilling to work the kinds of hours it takes to get all the work done. On a small farm most of the work is done by one to two people and both usually have a direct interest in the operation. They are willing to work long hours like most entreprenuers. (sp?) I thought I explained it well enough, but I'll just say it again, the larger farms are run by people who have the thirst for large amount of money that is generated by farming on a large scale with todays farm subsidie program. The typical small farmer is happy living with a lower income and has an interest in the farming itself more so than generating large amounts of money. If more financial risk is brought back into the equation (relying on what farmers used to rely on, mainly weather) the large farms will go away. The owners are simply not satisfied with lesser potential of income.
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On a different note, any business person, farmer or otherwise needs to think ahead in terms of having a poor year. It is always good to reinvest in the business, but in all reality business persons should be saving for a rainy day. Or in the farmers case, no rain.
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A question in general for everyone: Why should the US taxpayer be subsidizing a producer to compete with a global market? With ethanol booming this may change. But not considering ethanol wouldn't it be smarter to reduce production to keep the price high enough so the US producer can make it without subsidies? I think I know why, although some of you may disagree. The reason is because politicians want low food prices. In all reality, the US taxpayer is subsidising the small farmer enough to get by, the large farmer enough to do more than well all in order to keep the cost of food low. So technically, the consumer is the one being subsidized (by themselves, makes sense huh? :yuck: )
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Edward, I didn't look at the link (yet) but most people have no idea how much money the USDA hands out to people that have nothing at all to do with agriculture.

 

[Art]

I'm still struggling to understand how small farms can be more efficient than large farms. How are you measuring efficiency? Yield per acre? Cost of crop per tonne? Do you have any sources to support this contention?

As for the idea of reducing output to push up prices, how is that supposed to work? All that would do is suck in cheaper imports.

 

[Averagesupernova]

I'm still struggling to understand how small farms can be more efficient than large farms. How are you measuring efficiency? Yield per acre? Cost of crop per tonne? Do you have any sources to support this contention?

As I said before, it's difficult to explain. I guess my source would simply be living around it. It's pretty obvious really when you figure the costs. It's always the cost of crop per unit of crop. Acres figures in by how much a farmer is paying per acre in rent or how much is paid in interest on a loan and how many dollars per acre were paid in a purchase. The value of the land is pretty high all across the ag belt right now. As I said before, you have to figure labor into it as well. Who is willing to work for how much and for how long?

As for the idea of reducing output to push up prices, how is that supposed to work? All that would do is suck in cheaper imports.

So you are saying raising all the product we can possibly grow at or near a loss which is what we are doing now is better? By the time you take off the subsidies that is exactly what we are doing. As I stated in my last thread why do we need to compete in a world market? Why are US taxpayers subsidizing (themselves) in order to be able to compete in a market with the foreign competition that raises the product at a much lower standard of living? The US should worry about the US concerning food supply and many other things for that matter.

 

[loseyourname]

Why is it desirable that a particular industry remains a viable option for individuals? We don't do this for mining or forestry. Why is it important for farming?

In part because farmers have usually had a fairly good lobby and it's desirable to keep powerful blocs of voters happy, at least from the perspective of the politicians that put and kept subsidies in place. At the time the subsidies were originally created, small farmers didn't have much in the way of alternate job options, either. If they lost their farms, about the only thing they could do was become agricultural workers, taking a rather extreme wealth loss. The country didn't want to create millions of new poor people for no good reason. Another reason is that corporate farms have had somewhat of a history of putting out less healthy food products. Efficiency isn't necessarily the primary concern when it comes to a national food supply, given the primacy of nutritional quality to general citizen wellness. We can see with the craze for organic foods lately that people are willing to pay more to be healthier when they're educated about nutrition.

Of course, corporate farms easily can and already have started to put out a better product. Most of it probably is nostalgia. There still exists the Jeffersonian ideal of self-sufficient farm owners working the land and that old John Wayne rancher image, even if both were mostly myths from the beginning. There are a lot of sad tales out there of families that have been in the farming business for centuries losing everything, but I suppose it was once the same for doll makers and book transcribers and every other form of individual artisan replaced by mass production.

 

[Bitter]

I'm still struggling to understand how small farms can be more efficient than large farms. How are you measuring efficiency? Yield per acre? Cost of crop per tonne? Do you have any sources to support this contention?

As for the idea of reducing output to push up prices, how is that supposed to work? All that would do is suck in cheaper imports.

Well, One way to look at it how much it cost to run a farm to home much you make in return. A corparation would find it hard to do large cattle operations because of the land needed. They would have to pay workers to tend the cows, maintain the land, transfer the cattle, and various other jobs. Plus when bad weather comes, extra procautions are needed.

It generally is easier for a family to take care of 200 cows and a few bulls than it would be for a corparation to do so. A family can work every day for a week and run more effectively and at a lower cost. It is one of the few fields that the industry has yet to take over in farming.

 

[Art]

Well, One way to look at it how much it cost to run a farm to home much you make in return. A corparation would find it hard to do large cattle operations because of the land needed. They would have to pay workers to tend the cows, maintain the land, transfer the cattle, and various other jobs. Plus when bad weather comes, extra procautions are needed.

It generally is easier for a family to take care of 200 cows and a few bulls than it would be for a corparation to do so. A family can work every day for a week and run more effectively and at a lower cost. It is one of the few fields that the industry has yet to take over in farming.

My understanding is corporations are far more efficient in this area because they use confined animal feeding operations CAFO though corporations wouldn't be interested in a couple of hundred cows precisely because at those numbers it would be inefficient and by definition would not qualify as large scale.

There are arguments over the effect of CAFOs on the ecology but disregarding those it is a far more efficient system than the small farmer can implement.

Here's a good overview on US farming in relation to subsidies from 2006 a key point being the number of farms in the US has decreased enormously as small farms have gone under to be amalgamated into bigger farms because of the greater efficiencies in large scale production.
http://www.abareconomics.com/publications_html/trade/trade_06/us_ag.pdf

 

[Anttech]

As I said before, it's difficult to explain

Dont you mean impossible? I think every economist, or even someone with a slight interest in how business are run could tell you "mass production = more savings/unit produced." This carries through to mass production of food stuffs

Although I despise this whole keep farmers rich BS, I am afraid I can't agree with your argument.

 

[russ_watters]

Money flows out rather than in.

So what? Why is preferable for money to flow in rather than out?

Again, where is the harm? Everyone takes it as a given that a "deficit" is a bad thing, but no one can explain why!?

 

[russ_watters]

Those are good question Russ. I don't think that we would go hungry, but we would definitely be eating a lot of food and food ingredients that comes from countries which do have subsidies.

As far as what would happen if we did away with farm subsidies, I don't think that anyone knows for sure. The subsidies work in a complex way and I sure don't know the formula the government uses.

The subsidies originally were meant to stabilize prices and act as a safety net for small farmers. They now seem to be going to the most wealthy farmers, especially corporate farms. I think that it is time to overhaul the whole situation, but we have to leave American farming in a competitive position.

When it comes right down to it I really have a problem with the fact that a good portion of the subsides go to pay farmers not to grow a certain crop, or not to produce over a certain amount of milk.

Below is an interesting link on people who are not farmers, yet are paid not to grow a crop.

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html

We are more or less in agreement. I'd probably lean toward getting rid of them completely, but like you say, the situation gets complicated since they are so intrenched. A slow pullback/overall, giving time to evaluate what happens, would be how I'd approach it.