Agriculture is unique. In what other sector of the economy can you bet on demand not affecting price?
Precisely. You can't.
At the heart of what was wrong with Freedom to Farm was the use of the same logic that applies to other industries. Likewise, downturns in agriculture can't always be attributed to blips overseas, such as the Asian downturn of the late 1990s.
“If you go in with the wrong assumptions about how agriculture works, you're going to come out with the wrong policy,” says Daryll E. Ray, University of Tennessee agricultural and rural economist.
Farm policy of the last five years, in effect, has been trying to force a square peg into a round hole.
It built a new era of prosperity in agriculture on a foundation of speculation that agriculture works like other industries.
“To avoid the same situation happening again, we need to look at the data before we look at ideology and make policy based on how the markets really work and not how we want them to work. The last farm bill was based on how people want the markets to work, not how farmers operate.”
To avoid the same situation happening again, “we need to look at the data before we look at ideology and make policy based on how the markets really work and not how we want them to work,” Ray says. “The last farm bill was based on how people want the markets to work, not how farmers operate.”
Farmers do not have the ability to influence their prices and profits by adjusting industry output in the short-run or industry capacity in the long-run, Ray says. “Farmers have no incentive to reduce production as prices decline.”
Further, Ray says, “our response to the subsequent downward spiral of crop agriculture suggests that we are in denial.
“Farm policy based on transition and emergency payments, revenue insurance, farm savings accounts and so on works best if price and income problems are short-term and if on average prices and incomes are ‘Ok,’” Ray told the House Ag Committee. “There's no reason to believe that prices and incomes will average to ‘Ok.’”
Prices, he says, will be a chronic problem for agriculture. “This is not a short-run problem.”
While acknowledging that something must be done to stop the downward spiral of agriculture, Ray says, “What might work is different than what is politically feasible.”
He believes acreage reduction programs are off the table, “but we have to do something about the excess acreage.” He points to non-food crops — “whether it's ethanol or switchgrass — that could be used as energy sources as a possible option. Ray refers to these as “green payments.”
“The question is, are there some alternatives that won't create surpluses?” Ray asks.
He also believes the nation should create a strategic grain reserve for stability.