Farm bill should address price decline

Testifying before the U.S. House Agriculture Committee recently, a University of Tennessee economist argued that any new farm bill should address the reasons for the decline in farm prices.

“Left to itself, crop agriculture will continue its downward spiral, bankrupting farmers, forcing bank foreclosures and, in general, wreaking devastation on all rural areas,” said Daryll E. Ray, an economist with the UT Agricultural Policy Analysis Center.

Short, long-term

He said that before writing a new farm bill, Congress must know whether the problems we're seeing in crop agriculture are short-term aggravations or serious, lifelong ailments. “Are we talking about the Asian flue or emphysema?” the economist asked.

Ray said the 1996 farm bill is based on four assumptions:

  • Growing exports, especially to China, will propel crop agriculture into a new era of prosperity.

  • Farmers will respond to market signals, planting less when prices decline and more when prices increase.

  • Consumption increases when prices are low.

  • Crop markets will correct in a reasonable time without devastation.

“None of these has proven to be true since the farm bill took effect,” Ray said.

Under the present bill, farmers have no incentive to reduce production as prices decline. “Each farmer produces too little to affect total supply and price,” he said. “So any reduction only means less revenue.

Consumption of food will only increase to a point because of low prices. “Once we have enough,” Ray said, “we won't buy significantly more food, no matter how far the price drops.”

As for crop markets, the supply grows rapidly, while exports are relatively flat. Both supply and demand have been unresponsive to price changes, Ray said.

In denial

“We're in denial that anything long-term is to blame for the devastatingly low prices and low market incomes in crop agriculture,” Ray said. “We're more willing to blame agriculture's problems on the Asian Crisis, exchange rates, energy prices or anything else that comes along.”

The economist concluded, “My analysis suggests that we're dealing with long-term chronic issues that have shaped agriculture's response to the current farm bill and to previous farm bills.”

What should be done?

“Any new policy needs to keep these characteristics of crop agriculture in mind,” Ray said. “It will need to deal with agriculture the way it really is and not how we wish it to be.”

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