Farmers this season have seen insanely high prices for their corn grain. Although a new higher-than-expected estimate of corn acreage has driven corn prices down from their high of $8 per bushel in June to around $6.20, corn producers are still sitting pretty. (For comparison, when I started writing my thesis a year ago, corn was at around $4.80 per bushel!)
This is certainly great news for farmers, and they deserve it after a rough, wet spring that saw countless acres of good farmland underwater from record-breaking flooding. However, with corn prices nearly doubling, maybe this is a little too good, especially considering the amount of money farmers pull in every year from government coffers. TIME Magazine recently published an article aptly titled "Want to Make More than a Banker? Become a Farmer!" which discusses the resurgence in agriculture in terms of its profits. The article cites various experts who claim that these high prices are not an anomaly; with increasing wealth and preference for meat in countries like China and India, farmers can count on high prices from here on out.
A new Farm Bill is currently being written. In part, these bills help determine how much money goes to farm price supports such as counter-cyclical payments and direct payments. These high corn prices beg the question: how much do tax payers owe to farmers? Especially in this time of fiscal crisis, should we as a nation be handing over our dear government revenues to farmers who, by all accounts, are doing fine on their own?
A new poll has been started; you can see it on the top right portion of the main page. Feel free to vote and let us know the extent to which Uncle Sam -- and, by extension, you -- should be supporting our agricultural producers.
Showing posts with label ag subsidies. Show all posts
Showing posts with label ag subsidies. Show all posts
Sunday, July 10, 2011
Friday, June 17, 2011
More action on farm, ethanol subsidies
This week has seen a flurry of attacks on farm subsidies. First, as we documented on Monday and Tuesday, the Senate voted to reject a bill that would strip the tax credit for ethanol producers. On Thursday, however, they reversed their stance and voted against the subsidy while maintaining their support for a bill that would fund expansion of flex fuel pumps. Also defeated was a bill that would lower the maximum amount of subsidies an individual farmer could receive in a year.
While both of these bills have either failed or will fail as the legislation moves to higher levels, the fight over the budget has led to expenditure-cutting efforts to programs that are traditionally considered sacrosanct.
The numbers are pretty impressive, however. Getting rid of the ethanol subsidy would save about $6 billion, while the various and sundry cuts to conservation programs and commodity payments would save over $3 billion per year over ten years. That's pretty good when one considers the fact that a lot of this money is -- arguably -- wasted. In Tuesday's post on ethanol, we described how removing the subsidy on ethanol wouldn't have a huge effect on prices given the blend wall. The benefits to society from commodity payments are also somewhat questionable. As a friend from my department wisely pointed out, the value of agricultural land is driven largely by the income it generates. Mathematically, if we take V as the value of land, r as the rental rate, and i as the interest rate, the value of farmland V is
and y is a vector of all other characteristics. If V is increasing in income, a reduction in income will decrease the rental rate farmers pay for the land, leaving farmers about as well off. Of course, landowners would be hurt by such an action, but at the end of the day, there's a lot of money that goes into farm subsidies; I shudder to think of what we could do with spending that much money on R&D or education.
Sorry for the math; sometimes it makes things more clear than words can. Especially if you're a geek. The point is, I'm very impressed that this type of legislation is being pursued. Sure, the whole budget thing is somewhat reactionary politics, but the fact that these subsidies are even being considered for cuts signal to me that our politicians have some guts -- so long as they don't have to face their detractors on stage during the Republican debates. (I'm looking at you, Pawlenty. That was just sad.)
While both of these bills have either failed or will fail as the legislation moves to higher levels, the fight over the budget has led to expenditure-cutting efforts to programs that are traditionally considered sacrosanct.
The numbers are pretty impressive, however. Getting rid of the ethanol subsidy would save about $6 billion, while the various and sundry cuts to conservation programs and commodity payments would save over $3 billion per year over ten years. That's pretty good when one considers the fact that a lot of this money is -- arguably -- wasted. In Tuesday's post on ethanol, we described how removing the subsidy on ethanol wouldn't have a huge effect on prices given the blend wall. The benefits to society from commodity payments are also somewhat questionable. As a friend from my department wisely pointed out, the value of agricultural land is driven largely by the income it generates. Mathematically, if we take V as the value of land, r as the rental rate, and i as the interest rate, the value of farmland V is
V = (r / i) or r = Vi where V = f(income, y)
and y is a vector of all other characteristics. If V is increasing in income, a reduction in income will decrease the rental rate farmers pay for the land, leaving farmers about as well off. Of course, landowners would be hurt by such an action, but at the end of the day, there's a lot of money that goes into farm subsidies; I shudder to think of what we could do with spending that much money on R&D or education.
Sorry for the math; sometimes it makes things more clear than words can. Especially if you're a geek. The point is, I'm very impressed that this type of legislation is being pursued. Sure, the whole budget thing is somewhat reactionary politics, but the fact that these subsidies are even being considered for cuts signal to me that our politicians have some guts -- so long as they don't have to face their detractors on stage during the Republican debates. (I'm looking at you, Pawlenty. That was just sad.)
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