Eric

Baerren

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June 8, 2009

How to Keep Agriculture from Becoming the Next Bailout Industry

Who would have thought that the squeezing of global credit markets would force Old Farmer Bill to sell Bessie, his prized milking cow, to the slaughterhouse for hamburger to keep the farm in family hands? The image evokes sympathy, and tugs at the corners of our All-American Hearts. And, why not? What is threatening Bill’s farms is a very American problem.

American agriculture has been built on an image – early-rising, salt-of-the-Earth farmers who work from sunup to sundown. It’s an image that for the last several decades has been at odds with reality. In recent years, what remained true of that image, in fact, has come under increasing pressure by that omniscient presence – the economy of scale.

The belief that bigger and more will inevitably lead to cheaper and better has squeezed out an increasing number of smaller, family farms and led to the growth of agriculture as essentially nothing more than another assembly line industry.

Thanks in large part to the global financial crisis, you can now add at least one element of modern agriculture to the list of industries in peril. The crisis has caused the price of milk to drop precipitously, leaving dairy herd operators burning through reserve cash and retirement funds to make ends meet until things get better. Sound familiar?

If not, that’s perhaps because you haven’t heard the proposed solution – legislation to establish a floor price for milk. The proposal would set the price at just a couple of dollars above what is estimated to be necessary for modern dairy operations to break even.

Price controls are nothing new in American agriculture. They’re as old as the Colonies. Neither are agriculture subsidies, and the United States recently announced other measures to help out American dairy farm operators – export subsidies.

The dairy industry itself receives billions in subsidies every year, which means that the scenario sought by dairy farm operators is to receive federal money to reduce the costs of doing business, while at the same time artificially raising the price for consumers. Is that the sound of a soft bailout you hear in the distance?

To most, the alternative may appear to be a “too big to fail” result. People don’t want to pay a lot of money for food. So it would appear to be sensible that government do what it can to preserve what everyone assumes to be a critical industry.

The reason for that is that old image of the farmer, with his straw hat and favorite milking cow. It’s reasoned, somewhat correctly, that because agriculture produces food we’re hooked to it without an alternative. After all, no one wants to go hungry.

What we get is an industry that remains impenetrable to change.

One of those changes, perhaps the easiest one that would both keep prices relatively low while also helping dairy operators stay afloat is to remove the arcane, complex arrangement of middle men who stand between producers and consumers. During last year’s spike in milk prices, these people ate up much of what would be cash helping to get dairy operators today.

This would mean getting away from regarding agriculture and – in this case – dairy products as just another product to be traded on the global market. Eliminate the middle man, and farmers get to keep more of the money made off milk sales. When you eliminate that person it is tougher for U.S. agricultural products to get to the global market. The question, however, is whether we want a healthy agricultural industry or whether we want to play a dairy-related King of the Hill.

If the answer is that it is better to have sound agriculture, it would mean acknowledging that the economy of scale is not preferable across the board, that there are some things for which the assumptions of bigger and more always leading to cheaper and better do not apply. 

© 2009 North Star Writers Group. May not be republished without permission.

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