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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
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?
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?
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.
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.
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