Defensible farm policy: Help protect farm incomes
Similarly, from one production period to the next farmers tend to produce on all of their acres whether prices are high or low. With high fixed costs, it is in the economic interest of farmers to produce a crop as long as the expected crop price is above the variable cost of production. In addition, given the risk of crop failure somewhere else, no farmer wants to take land out of production and miss what could be once-in-a-lifetime prices.
Farm policy was instituted to address this lack of price responsiveness on the part of both farmers and consumers for a product that is essential for human life. To provide for a stable supply of food for consumers we need an economically stable agricultural sector. And farm policy needs to be designed to meet both of these goals.
Farmers can experience an economic loss due either to a crop failure, like the one we saw last summer when a widespread drought scorched millions of acres, or low prices like the ones we saw from 1998-2001. A defensible farm policy should protect farmers against actual losses in both of these cases. Where we get into trouble is when we have a policy that provides payments to farmers who have no actual losses and then fails to provide protection when prices are well below the cost of production.
By providing farmers with protection against actual losses, farm policy provides farmers with the financial stability they need to obtain financing and make investments in their farming operation.
Since the adoption of the Morrill Act of 1862—and subsequent expansions—which established a set of Land Grant institutions of higher education, making public research available to farmers has been an essential part of farm policy. In a time in which budgets are tight, a defensible farm policy would direct research dollars toward meeting the needs of those who do not have alternate sources of reliable information.
Despite the increase in farm size that we have seen over the last half century, we still have about 2 million farms. At the other end of the food spectrum we have over 315 million people in the US who depend on the production of those farms. In between the two we have an agribusiness sector in which a handful of firms often controls a significant portion of various essential activities like grain marketing, livestock slaughter, and grocery retailing. A defensible farm policy needs ensure a balance of economic power between producers and consumers on the one hand and the marketers, processors, and retailers on the other.
In ensuring economic sustainability, a defensible farm policy provides farmers with the opportunity to wrestle a livelihood from the land. It should not guarantee them success, nor should it stack the deck the other way.
SourceE: Daryll E. Ray and Harwood D. Schaffer, Agricultural Policy Analysis Center, University of Tennessee