108 – Why do we have Farm Program Payments?

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Was asked to defend Farm Program payments.  No problem was asked that question all the time for 8 years.  People in Commercial Production Agriculture have been getting beat up over these payments for years.

2 Reasons

1.  Food Security and Cheap Abundant FoodWhy do we have farm subsidies?

2. Agriculture Economic Security

Politically people on both the left and right “hate” these farm program payments.

General public just does not understand how much weather cycles affect agriculture.  And, they sure don’t understand how economic cycles affect agriculture.  Things like the value of the U.S. dollar value can make or break ag markets.

All kinds of businesses get economic incentives.  Tax breaks, tax credits, economic grants, enterprise zones, infrastructure support are just a few examples.

We as farmers also do a dis-service to ourselves when we brag about how few of us there are.  Agriculture employs lots of people.  Just look at how many jobs a farmer supports/creates by doing business in a local community.  Lots of areas in the rural Midwest if the business is not related to agriculture it is just not there anymore.

Food processors, transportation industry, vets, feed mills, implement dealers, grain elevators, input suppliers, seed companies, sales reps, etc all support farmers and ranchers in business.  And, they make a very good living off “supporting” farmers and ranchers.

Government Programs, in other words government dollars, smooths out the ups and downs in the weather and price cycles and keeps American Agriculture moving on.

Back to Food Security.

Do you want to depend on a foreign country to provide food to you ???

I want to produce as much as possible inside these United States.  Water then Food are about as basic as it gets.

Cheap Food

Government Payments to farmers and ranchers helps to keep food prices down.

There is a risk to farming and economically those risks have a cost that eventually would have to be covered with higher food prices if we did not have farm program payments to help offset that risk.  In the long run agriculture would need higher prices to carry the risk to pay for poor yield or price.

Remember, most farmers and ranchers are not price makers, but price takers.

Government payments encourage production on marginal acres which increases the total food supply and keeps food cheap.

Actually taxpayers are getting a bargain for their investment in agriculture through Farm Programs.

So what does the future hold?  Farm Programs for years have been a 3 legged stool.

1.  Food Aid (food stamps)

2. Conservation – Hook and Bullet crowd along with water quality, etc.

3.  Traditional farm support programs. These are what provides food and agricultural economic security.

Food Aid is about 80% of the “Farm” program budget.  So the actual farm program payments after conservation payments are taken out are a small percentage of the overall agricultural budget.

Critics from both the left and right are trying to knock one of the legs off the stool, which could mean that the whole thing comes down.  Maybe what some on the right are wanting.  The “no spending” crowd.

After recording this and reading my show notes I needed to add some stuff.

Requirements for participation in most farm program payments are.

1. Conservation compliance

2. Sod and swamp busting provisions (basically prevents farmers from taking “virgin” ground and putting it into production)

3.  Acreage reporting requirements – basically farmers have to report what they planted, where they planted it, and when they planted it, and if they did or did not harvest it.  Powerful information for the government to know.

Competition

Last but not least, since farmers for most commodities they produce are price takers, which everybody gets basically the same pricing opportunities, means if your neighbors and other producers of what you are producing (actual competition) are taking farm program payments.  You are at a huge economic disadvantage if you try in this very thin margin business to go without the payments when everybody you are in competition with are taking them.  So even if you do not agree with the programs you are really forced into taking them to stay competitive.

3 Comments

  1. guest said:

    Government payments are capitalized into higher land prices or costs. Government income guarantees guarantee the largest a distinct competitive advantage. Risk removal schemes tend to produce narrower margins of profitability.

    April 26, 2015
    Reply
    • Bill Graff said:

      You are correct. By removing risk government lowers the cost of food to consumers, which is what they want in the long run. A cheap abundant food supply. Consumers can then spend their dollars on other “stuff”. Through out history one of the main ways governments fall internally is when people can no longer acquire food or get the food at an affordable price. One of the reasons the U.S. gives out foreign food aid to “friendly” governments around the world. Appreciate your comments.

      April 27, 2015
      Reply

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