American Agriculture Needs A Free Market System

2110 words - 8 pages

American Agriculture Needs a Free-Market System

The words to the famous old children’s song “Old MacDonald Had a Farm” are due for a revision. The new lines should read “Old MacDonald had a farm . . . with a lawyer here, and an accountant there, and everywhere a new federal program and regulation.” Not quite as poetic, but definitely more appropriate. The current state of agribusiness consists of an incredibly complex mix of subsidies, price supports, and bureaucratic regulations that could confound the most knowledgeable business minds. Underlying this tangled web of rules and regulations are political battles that pit normally allied groups against each other, and bring normally adversarial groups into allegiance. One bizarre outcome of federal farm policy is that consumers and tax-payers (usually one and the same) are set at cross-purposes. In this paper, I will highlight some of the unusual policies that exist today and will try to present some rational alternatives to alleviate the nightmare that is U.S. agribusiness. E...I...E...I...Ohhhhhhh.....

The United States Government and agriculture have had a working relationship for most of the twentieth century. In 1916, Congress established the Federal Land Bank to provide farmers with easier access to credit. Then, during the Great Depression, many New Deal programs came to the aid of the farmer (Rapp, 1988). A system of price supports and production quotas was established to ensure price stability. For the first time, farmers were being told not to grow as much as they could. After World War II, the government found that prices were a very difficult thing to stabilize, so it focused its attention on income supports. That is, it attempted to guarantee a farmer a certain amount of income. This was accomplished through Congress allocating direct payments to farmers to make up the difference between the prevailing market price and some established “target price.” At first, payments to farmers were a small percentage of their income, averaging 10% in the early 1960s. However, by the late sixties and early seventies the percentage had climbed to 20%, and in 1987 direct payments totaled 30% of net farm income (Rapp, 1988).

Now, most economists will tell you that government control of prices simply does not work. Artificially high prices provide an incentive for an efficient producer to undercut the price to grab a larger share of the market. This wasn’t the only problem. Besides trying to control the power of the free market, the government faced another uncontrollable force: the weather. Agriculture, being entirely dependent on the whims of Mother Nature, and therefore an industry where accurate forecasts of production are nearly impossible, is not suited to long-range price-fixing schemes. Thus, the 1950s saw the abandonment of price-supports and the introduction of income supports.

Early in the twentieth century, our leaders believed that the vitality of...

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