Defensible farm policy: Help protect farm incomes
Looking toward the 2013 Farm Bill and beyond, we have used the two previous columns to examine two elements of a defensible farm policy: environmental sustainability and human physical sustainability. In this column we turn our focus to the issue of the economic sustainability of the farming sector.
If the farming sector were subject to the same conditions and financial challenges as the typical Main Street business or industrial firm, there would be little or no reason for something called farm policy and the need to talk about the economic sustainability of the farming sector. The needs of farmers could be met through a more generalized set of business and industrial policies.
In fact in the mid-90s there were those who believed that with the advent of modern agricultural practices there was little need for future farm legislation and so when they passed the Federal Agriculture Improvement and Reform Act of 1996, they expected that it would be the last farm bill. Shortly after the legislation was signed into law, crop prices took a downward turn and two years later Congress had to intervene with Emergency Payments to keep the US crop sector from collapsing.
Needless to say, it was not the farm-bill-to-end-all-farm-bills and for good reason. There are a number of characteristics that distinguish the agricultural sector from other economic sectors.
Society as a whole has a vested interest in the agricultural sector because its product—food—is necessary for human life and must be supplied in a timely matter. While we can live through an extended disruption in the supply of most products, the same is not true of food. We need it on a daily basis.
This alone would not be much of an issue if it were not for floods, droughts, and diseases. As we saw last summer in the US, a widespread drought can have a devastating effect on both crop and livestock production, resulting in tight supplies and high prices.
In addition to biological issues, crop production is subject to a different set of economic constraints than most other sectors. Food consumption does not react to economic signals in the same was as other products. When prices increase, most people in highly developed countries such as the US cut back very little on the total amount of food they consume. They may buy less expensive food products, but the total calories consumed responds very little to a large change in price. Similarly when prices are very low, people do not increase their consumption enough to eliminate the surplus food in the market, though they may buy a better cut of meat.
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