How to Solve the Farm Problem

...It blurs the image of the poor farmer...

...We therefore find ourselves in the curious position of burdening taxpayers with a program that is of doubtful effectiveness in aiding farmers and of certain effectiveness in harming consumers...

...too much labor and steel is used in production of equipment for corn farmers—too little in other manufactures...

...Regardless of the technique used...

...too much land under irrigation is used to raise corn, and too little used for vegetables...

...It hinges upon the response of producers to the support price...

...There would no longer be any reason to measure every wheat field each year...

...8. Land values, all out of proportion now, would tend to adjust to an appropriate equilibrium...

...The range of possible alternative benefits from the use of these funds is wide indeed—and if farm-aid programs are to be retained they should be carefully scrutinized and justified...

...Nevertheless, as a general guide the chart explains quite a lot...

...A parity price level is that price level necessary to maintain the parity ratio at 100 per cent...

...it would be a "progressive" subsidy...

...even if dollar figures were inserted, these would fail to give the whole answer...

...One farmer's gross is now $2,000, the other's is now $20,000...

...Or the funds could have been used for aid to education...

...Let us hope this does not happen in this case...

...Thus, none of the existing programs achieves what we really set out to achieve—a "just" income for farmers...

...The confusion is compounded when it is pointed out that farmers are taxpayers and consumers as well, so the program may not be worth its cost even to the farmer himself...

...It offers further evidence in support of the belief that consumers are relatively impotent as an interest group...

...An acquaintance of mine said that last year he had to plow under 15 acres which had been planted by mistake—a rather common phenomenon...

...The chart tells the story immediately...

...The amount of the loan is determined by the support price...

...The 1910-14 base is virtually meaningless, and the arbitrary choice of the ratio to be maintained is seldom justified in rational terms...

...3. Consumers would pay, and producers receive, market prices for farm products rather than distorted prices, as is now the case...

...Certainly, the farm owner receives the benefit of the Government's payments, but with a smaller volume of commodities to market he may take a more than offsetting cut in income...

...With this direct subsidy, any farmer should be able to make a "living" wage...

...And there is considerable internal disagreement in these organizations...

...A man and his wife living on the farm would have an income of $1,000 a year plus whatever they could make from the farm's operation...

...The Farmers' Union favors rigid price supports and production controls by allotments...

...Assume that one farmer would earn a gross annual income of $1,000 in the absence of price supports, and another farmer $10,000...

...As it is, because of high land prices, too much land on the fringes of urban areas is retained in farms which might otherwise be developed for industrial or dwelling use...

...No one knows how much better or worse off each group is, and there is no way of measuring this even in dollar terms, let alone in terms of satisfaction or dissatisfaction...

...This resulted from the disclosure that, in 1958, some 67 farms each received payments under the Soil Bank program of over $50 thousand...

...If this rise is relatively large, then the income loss incurred from reduced sales is more than offset by the income gain resulting...

...But careful reasoning informs us that the other programs have this same built-in bias in favor of the large and presumably wealthy farmer...

...Mal-allocations of resources of this type would tend to disappear under the direct payment plan...

...Consumers are worse off under the first two programs but better off under the Brannan Plan...

...It has been estimated that although some 8 per cent of the land was placed under the Soil Bank, food and feed output was only 2 per cent lower than it otherwise would have been...

...What good does it do him to know that "prices are being supported at high levels this year" when he has nothing to sell...

...Obviously, imposition of a payment maximum would spoil the intended effect of the program, and is, therefore, unreasonable...

...In fact, of course, elaborate computations are involved in determination of a parity price...

...There are, of course, problems involved in the implementation of such a direct-payment program...

...But if this obstacle proves formidable, ways could be devised to cover up the gift aspect of the program...

...What is this panacea...

...This is a particularly important point to economists...

...But then the interests of taxpayers and consumers are at opposite poles...

...Crispin's Day, 1415, Henry V led his yeomen, armed with longbows, to victory over the French army...

...I like to picture a social gathering at which the Secretary of Agriculture draws from a hat some numbers which, on the following day, are announced as the parity prices...

...and a great deal of justification can be found for their complete abolition...

...It seems strange that a nation subjected to inflationary pressures and heavy tax burdens should behave in this masochistic way...

...Specifically, the percentage rise in price must be greater than the percentage reduction in sales volume, if farm income is to rise...

...It is, therefore, not with equanimity that society anticipates the possibility of widespread poverty among farmers...

...If these funds diverted to agriculture had been applied to a reduction of the Federal debt, the result would have been a beneficial lowering of interest rates and interest charges on the debt...

...Something about this seemed a bit unfair...

...Some words of caution are in order, however...

...Another problem, however, which would have to be handled carefully for psychological and sociological reasons is the farmer's response to a system of gifts in which his pride may be injured...

...Removal of allotments coupled with reductions in support prices might, in the long run, lead to either greater or smaller farm income...

...Since there is no certainty that a large rise in price will be forthcoming as a result of a reduction in supplies, one cannot conclude unequivocally that the fanner is better off under crop restriction programs...

...It is more widely used in other countries...

...The third plan, the well-defined program known as the Brannan Plan (named after President Harry Truman's Secretary of Agriculture), is presently used to support the income of wool producers...

...On political grounds, however, the issue is cloudy...

...The ratio of the index of prices received to the index of prices paid is called the parity ratio...

...from the higher price...

...It is important to note that, for a restriction program to be successful, farm commodities must rise in price significantly, to the bane of consumers...

...Does this restriction of output really aid the farmer...

...The burden to the taxpayer is minimized, consumers stand to benefit, and there is no doubt as to its effectiveness in aiding the farmer...

...In doing so he is giving up the income he could otherwise have made by producing crops...

...Furthermore, no surplus problem would arise and only relatively minor distortions of basic price relationships would be brought about by it...

...After all, what farmers now receive are gifts in disguise, and highly inequitable ones at that...

...The answer is simply that no one really knows...

...The fact is that there is practically no justification for the farm proROBERT HANEY SCOTT, a Workshop Fellow at Michigan State University, is working: on a Ph.D dissertation at Harvard in the field of banking...

...Government storage costs currently amount to over $1 million per day for wheat alone...

...Although there is some doubt about this, as was pointed out above, those who champion these programs are being given the benefit of it...

...THE United States Government spent an estimated $5.4 billion on farm price support and related programs...

...If it fails to go higher he can allow ownership of the wheat to revert to the Government...

...But when taken in conjunction with the allotment program the answer is, again, unclear...

...It is quite clear that price distortions will alter the direction of resource allocation not only in the industry directly affected by Government pricing policies, but in related industries as well...

...7. The distortion of relative prices brought about by the present programs would be eliminated...

...but rather, "What is the best way to aid the farmer...

...The primary function of the imposing statistics seems to be their psychological effect upon Congressmen who must carefully rationalize their behavior as "just" or "fair...

...He will, quite naturally, plant acreage on that part of his land from which he would expect to obtain the largest yield...

...Under this program there is no doubt that the producer is better off, and no doubt that the taxpayer bears the burden...

...Under all the programs there are still plenty of marginal fanners, those barely making a go of it...

...They would be much smaller if payments were made only to those farmers whose products are now being sold at support prices...

...Such surplus sales at bargain prices are usually accepted with gratitude by the recipient countries, but our relations with other countries which sell these commodities on the world market suffer appreciably...

...These figures are less than our combined Government payments for storage, Soil Bank and other programs...

...They also have the balance of political power on many issues, and this can be disregarded by most Congressmen only by placing their political future in great peril...

...If the amount supplied is the same under the support price, then the consumer's position is unchanged...

...The hedonistic calculus has never been refined to a degree which would enable one to say that taking a dollar from a taxpayer and giving it to a farmer results in a net increase in the community's happiness...

...What is parity price...

...It is interesting to note that, presently, extensive use is made of the first two programs and only wool is supported under the Brannan Plan...

...Most economists would probably hazard the guess that the farmer is better off, but only the most venturesome would attempt to estimate how much better off...

...Having thus been determined, the support price is maintained by Government purchase and storage of commodities that remain unsold at that price...

...Any stored goods could be used to stabilize farm commodity supplies and prices by evening out commodity flows to the market, and to serve as a protection against drought, war or other catastrophies...

...There is some doubt that it actually achieves a reduction in output because farmers, quite naturally, retire their poorest land and devote more time and greater intensity to cultivating the remaining land...

...Let us examine this argument in greater detail...

...The upshot is that Government agents must measure every wheat field each year...

...At Agincourt on St...

...A summary of the argument to this point is aided by reference to the chart below...

...In order to obtain a loan on his wheat, the farmer must have a marketing card which he receives when he is given an allotment on his land which tells him the number of acres of his land that can be planted in wheat...

...CR PP & S BP Farmer B? B? B Taxpayer W B W Consumer W W B In filling in the chart, it has been assumed that the farmer is, in fact, better off under both the crop-restriction and parity price programs...

...Thus, there is no way of determining whether this program is worth its cost...

...One of the drawbacks of our democratic system seems to be that things are left to reach a stage of crisis before remedial action is taken...

...The small independent farmer is helped, but imperceptibly...

...4. There would be no surplus problem...

...What would be the benefits of this program...

...But surely the necessary administrative techniques would be less difficult to work out than those now being used...

...Give $500 a year to every family worker on the farm...

...The American Farm Bureau tends to favor programs suggested by the Department of Agriculture which include long-run gradual removal of controls altogether...

...If this year goes like last, there will soon be 1.5 billion bushels of wheat in storage...

...The large and powerful farm, likely to be managed by city-dwelling farmers, tends to grow larger and more powerful...

...Inside the chart is placed a "B" if the group being considered is better off, and "W" if it is worse off, under the relevant program...

...A wheat farmer, for example, will deposit his wheat in an elevator and obtain a loan on it from the Commodity Credit Corporation...

...As it is now, dollar costs do not reflect true costs because no account can be made of the effect of the various programs on prices...

...Or perhaps taxes would have been cut...

...One thing is certain—that the reduction in output, if any, is not proportionally as great as the proportion of land retired from production...

...It explains, for example, why farmers cannot make up their own minds in favor of one program or the other...

...Again some "fair" price is selected and the Government buys all that is produced at this price and then resells it all at "what the market will bear...

...Under the Soil Bank, farmers are paid by the acre for retiring some part of their land from production, which is supposed to reduce the output of farm commodities...

...With a reduction in the amount of food products supplied to the market, a rise in food prices should result...

...Now suppose that commodity prices are supported at a level 100 per cent higher, that is, prices are doubled...

...On the other hand, if the percentage rise in price is less than the percentage reduction in sales, farmers face a net reduction in income...

...2. Poor farmers would benefit relatively more than rich ones...

...In developing an answer to this question it is useful to look separately at three essentially different farm programs, all now being employed by the U.S...

...Let us examine this proposition a little more closely...

...To the extent that the consumer is better off, the taxpayer is worse off because of the greater differential between the "fair" price and the market price...

...These associations are usually silent on the issue in predominately agricultural states...

...At times, the Government can recoup some of its expenditure by selling a portion of the surplus holdings...

...They have society's sympathy...

...If, however, suppliers expand their output, it probably can all be sold only at a lower market price with the advantage accruing to the consumer...

...A second program, which may be called "parity price and storage," is the source of the much-discussed farm commodity surplus problem...

...Another example is that of the farmer who loses his crop from hail or drought...

...First, there are "crop-restriction" programs such as the Soil Bank...

...Let the three farm programs be represented along the top: crop-restriction (CR), parity price and storage (PP and S) and Brannan Plan (BP...

...For the sake of argument let us assume not only that it is politically expedient to aid the farm community, but that society as a whole really feels that farmers should be subsidized in one way or another, and that their occupation should be supported as a way of life—as an example for society to emulate...

...Since then, the farmer has enjoyed a highly respected place in society...

...When corn prices are high, too little corn is fed to pigs and pork prices rise...

...grams on strictly economic grounds...

...A dollar burden on the community of a similar amount is probably also involved, though hidden from open view, which takes the form of consumer expenditures for farm products at prices higher than they would be on an unsupported market...

...And yet $325 million a year is spent on this program...

...But again, for the sake of argument, let us assume that the actual output of farm commodities is significantly lower under the Soil Bank than it otherwise would have been...

...If it is "a way of life" we are trying to maintain, these programs operate in the wrong direction...

...But here, unlike the other two programs, consumers are at least as well off as they would be in the absence of any program, and may be much better off...

...In this age of enlightenment, however, a tactful handling of the program could overcome this obstacle...

...How much would be paid...

...The Grange favors not one but a system of parity prices which would be different for the consumer's market, the feed market and the international market...

...This includes $325 million for the Soil Bank program, $1.7 billion for purchases of commodities for storage, and a whopping $1 billion merely to store the mounting surplus quantities of wheat, cotton, corn, eggs, etc., in various elevators, bins, caves and other receptacles throughout the countryside...

...6. We would know, at least in dollar terms, just how much the farm support program costs...

...A break in these programs is bound to come sooner or later, and the longer we wait the more difficult it will be...

...Under the programs now in force the situation is bound to get much worse before it can possibly get better...

...1. It would cost the taxpayer significantly less than he is now paying...

...No longer is the question, "Should we aid the farmer...

...Farmers, taxpayers and consumers are represented along the side...

...Wealthy farmers are being greatly benefited by support prices...

...Taken by itself, it may be said that the farmer is unequivocally better off under the parity price and storage program...

...the largest payment amounted to $278 thousand...

...But a different plan which would engender a great deal of support from professional economists, is, for some strange reason, seldom offered as a possibility even though it is superior on all counts...

...By his moral standards, his perseverance against the elements, his constancy, his stabilizing conservative-ness and the way of life he represents, he continues to this day to command the respect of his city neighbors—and rightly so...

...Finally, it satisfies our basic sense of justice...

...It is simply a system of direct "lump-sum" payments to farmers...

...But administrative costs are high as well, partially because there is a crop restriction aspect to the parity price program...

...Once more it seems strange that a program which results in a tremendous burden on the taxpayer, higher than necessary food costs to the consumer, and of uncertain benefit to the farm community, should continue to be renewed year after year after year...

...Second, the categories used are not mutually exclusive—that is, one individual may appear in more than one category...

...The chart explains why taxpayer associations are against farm supports in all those areas where farmers contribute a relatively small proportion of the tax bill...

...Based on 1910-14 as 100, this ratio has run in the low 80s in the recent past, implying, in a sense, that farmers are living at about 80 per cent of par with their 1910-14 relative standard...

...The point is that someone decides that the proper support prices should maintain the parity ratio at 75 or 90 or some other per cent...

...If, in subsequent months, the price goes higher, the farmer may sell his wheat and pay off the loan...

...It could be called an incentive payment, or the payment could be tied in with the first units of product offered on the market by those authorized to receive them...

...If a farmer has that much land and retires it all from production, he is complying with the intent of the program—restricting crops...

...This would cost around $2 billion...

...giving it to family and hired farm workers (not including seasonal workers) would cost around $2.5 billion...

...Some questions to be answered, for example, would be: Who will be eligible to receive benefits...

...5. Elaborate farm controls would be abolished along with the concomitant administrative expense...

...In fact, however, the Government may not handle the goods themselves, but merely pay the producer the difference between the "fair" price and what he received from its sale on the market...

...This has been done to a limited extent under aspects of the foreign aid programs (Public Law 480...

...poor farmers are still poor...

...the economic results are the same...

...Farmers are thought to be better off under all programs...

...Taxpayers are worse off under all programs...

...First, "B" and "W" have not been assigned numerical values...

...Otherwise, they would have been instrumental in tilting the balance in favor of the Brannan Plan long ago...

...Examples of such distortions are numerous...

...Last year it was suggested in Congress that a maximum be established on support payments to any one family...

...If a choice must be made from among these three possibilities, then the overall argument strongly suggests the Brannan Plan...

...The relevance of the statistics is rapidly obscured...

...Data are collected on farm costs and farm commodity prices...