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Speaking before the National Farmers
Union on September 11, 2006, Agriculture Secretary Mike Johanns
recalled the line in the TV show Dragnet where Sgt. Joe Friday
would "interrupt the person talking to him and say, "Just
the facts, ma'am, just the facts."
The Secretary went on to say,
"Well, here [are] 'just the facts.' In the U.S. five crops
account for 21 percent of our cash receipts in agriculture. Those
five crops receive 93 percent of the subsidy payments, those
crops you know are program crops, the major program crops ---
corn, wheat, rice, cotton and soybeans."
Johanns then spoke about specialty
crops saying, "specialty crops now are equal in value to
the program crops ... . But they ... don't even get a subsidy.
They don't receive anything."
Johanns continued, "Please
note that these aren't insignificant amounts of money. We're
talking about annual allocations of billions of dollars. And
60% of all farmers do not receive a program payment, [they] don't
because they aren't raising one of the program crops."
Statements like that nearly
give us heartburn for two reasons. First, these statements seem
to assume that farm program payments have no purpose other than
to dispense money to farmers whose predecessors in the 30s earned
a fraction of their urban cousins.
If the purpose of farm programs
were simply to disburse money to farmers, it would seem only
right that all farmers ought to get their fair share. It's the
"if" part of that sentence that we need to carefully
examine.
Second, do Secretary Johanns'
numbers provide us with a complete picture of the relationship
of specialty crops to the farm program or is there more to it
than meets the eye? What kinds of payments, policy mechanisms,
and direct and indirect support programs are enjoyed by specialty
crops?
The first statement is like
arguing that we have a problem with health insurance because
sick people generate most of the payouts. Of course they do.
And we are more than happy that we are well enough not to generate
very many health insurance payments.
Are there wellness programs
for all program participants that we can develop to reduce the
number of sick people and thus the cost? Sure, but it doesn't
mean that everyone should get an equal share of insurance payouts.
Farm commodity programs were
not originally designed to be "money dispensing programs,"
rather they were begun because the 11th Secretary of Agriculture,
Henry A. Wallace, understood that neither the total demand nor
the total supply of major crops adjusts much to changes in prices,
especially low prices. As we learned in Economics 101, the adjustments
in response to price are what cause self-correction when things
go awry.
If prices collapse, two things
happen"consumers consume more and producers produce less.
It is the miracle of the market, but it must happen for self-correction
to take place. Thus, in total crop agriculture (not one crop
at a time because another crop just takes its place) with little
response to price on the demand and supply side, agriculture
has virtually no, or at least little, ability to self-correct
in a reasonable time frame.
Traditional farm programs managed
production and inventory so that crop prices allowed farmers
to earn a livelihood for themselves and their families. The approach
we use now is to allow/encourage farmers to produce as much as
possible, irrespective of demand conditions. And, then when prices
plummet, the government makes up the difference with payments.
In and of itself the fact that
five crops account for 21% of cash receipts while garnering 93%
of commodity payments is not a problem, provided that the payment
mechanism helps moderate the original problem. But in realty
it doesn't. The payment mechanisms do nothing to help match production
with demand requirements.
The problem is NOT that everyone
does not get their fair share. The problem is the lack of connection
between crop agriculture's root problem and the policy mechanisms
that trigger the payments.
Policy proposals by the USDA
and others seem to further sever the connection between farm
policy mechanisms and the perennial problem that crop agriculture
faces.
It was our intention to spend
most of this column talking about the second question. But just
as Paul Harvey always had a commercial sandwiched in between
his opening narrative and "the rest of the story,"
we have a week inserted between the two parts of this story.
Next week we will look at "the facts" as we provide
our readers with "the rest of the story."
DARYLL E. RAY is the Director of UT's Agricultural
Policy Analysis Center (APAC). His column is written with
the research and assistance of Harwood D. Schaffer, Research
Associate with APAC.
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