The Economic Way of Thinking

It Was Just A Matter Of Time

Back last October we predicted that farmers would call for bailouts to get their share of stimulus dollars.  Well, take a look at what's going on in Upstate NY's dairy industry. An excerpt:

How bad is the current crisis?

Across upstate, hundreds of dairy farms have already shut down, and conversations that I have had with local farmers makes clear that many more could face a similar fate. Sen. Schumer says without this relief, even bigger farms with relatively healthy finances will have difficulty hanging on for another six months.

The time to act was in April, when Albany’s budget was being put in place. But it’s not too late to help save dairy farming.

The federal stimulus program, which is supposed to create and protect jobs, is the perfect avenue for doing so. Under the stimulus, every state, including New York, has access to discretionary funding to use in ways that will strengthen our local economy. Dairy farming is such a critical part of the local economies of so many Upstate communities that the industry is custom made to fit that profile.

How did we know?  It's called the economic way of thinking.... clear conjectures about a complex world.

ADDENDUM:  The quote is from Cathy Young, a Republican state senator.  More here.

Sugar High

Sugar has been the best performing commodity of 2009, and prices are at 28 year highs.  The chart above shows the steady upward march of prices over the past 10 years.  Here's a story explaining why prices have risen. 

High global sugar prices would seem like one of the easiest rationales for the US to eliminate some sugar protections, but it appears that the two-tiered tariff we place on sugar is not going away any time soon. 

The Perverse Incentives of Ag Regulation

Moderate temperatures and few frosts, which one would normally think of as a nice summertime weather pattern in the Midwest, has meant more cherries than usual and more observable inefficiency in the tart cherry market.  Here's the story in this past weekend's Wall Street Journal.  (The picture above is of a farmer in Traverse City, Michigan who just finished dumping 72,000 pounds of tart cherries into a ditch.) 

Farm Aid For Farm Bailout

Remember this post?

Well, see Farm Aid's recent criticism about the bailout.

The Return of Victory Farms

According to this week’s Economist magazine, rejection of the division of labour victory farms are making a comeback. 

The farms were popular during the FDR era, and Barack Obama is under pressure to turn some White House land into farmland: 

Now a grassroots movement wants Barack Obama to plant another White House victory garden. The new secretary of agriculture, Tom Vilsack, announced recently that his department would create “The People’s Garden” out of a paved area outside their building. And he won’t stop there. Mr Vilsack wants there to be a community garden at each of the department’s offices around the world. 

I have no problem with people voluntarily farming, but when we’re using taxpayer money to farm on the White House lawn on the one hand, while at the same time paying many farmers to farm less, there appears to be a contradiction in current policy. 

Maybe I'm looking at this all wrong: our president pulling weeds and pondering dog breeds and dog names may be a good thing because the alternative use of his time could always be producing more bad policy!

Yes Virginia, There Are Unintended Consequences to Agriculture Interventions

Unintended consequences accompany any policy intervention. Neither consumers nor producers are passive with respect to changing incentives. Any change in policy or regulation that changes incentives is likely to have not only the intended direct effects, but also indirect effects as quantity and price adjustments cascade through markets. Policies to address one objective of the 30-year challenge may affect markets in ways that work against other objectives. Recent events in agricultural commodity markets illustrate the point. Incentives for increased bioenergy production in the United States and many other countries led to unanticipated changes in markets for feedstock commodities and across the full range of markets for agricultural products and inputs. Unintended consequences may even undermine
the targeted strategic objective. For example, increasing publicly held stocks displaces private stocks and food aid typically does not lead to a one-for-one increase in consumption.

From the Farm Foundation's Dec. 4th (2008) report:

The 30 Year Challenge:  Agricultural's Strategic Role in Fueling and Feeding a Growing World.

Okay, So The Pot Farmers Probably Won't Lobby For Bailouts...

http://www.bloomberg.com/apps/news?pid=20601088&sid=aGX6gdeMXlhY&refer=muse

http://www.usnews.com/blogs/the-home-front/2008/6/26/foreclosures-a-boon-to-marijuana-farmers.html

Farm Aid Update

As the crisis rippled its way to China, authorities there have restricted exports :

As shock waves from the credit crisis began to spread around the world last month, China scrambled to protect itself. Among the most extreme measures it took was to impose new export taxes to keep critical supplies such as grains and fertilizer from leaving the country.

And here in the U.S.:

The contrast between the rapid-fire reaction by Western authorities to the financial crisis and their comparatively modest response to soaring food prices earlier this year has triggered anger among aid and farming groups.

There's more in washingtonpost.com, Oct 26.

More Farm Aid Around the Corner

Let me hazard a prediction.  Farmers might soon call for ever greater interventions to support their revenues.  I'm now reconsidering going long on Archer-Daniels-Midland.

Yes, agricultural commodities hit record prices well before the crisis.  I expect, however, that the Wall Street meltdown will soon spread into the hinterlands.  It will gallop well through Main Street and out along its straight-lined and dusty roads of P.O.-box Country. 

Some of my favorite places to drive through.

Falling demands from abroad, tighter lines of domestic credit, and a whole number of other concerns should lead the farming lobby to shout they better not be the forgotten.  And for policy-consistency sake, they might have a politically compelling case, especially when "everyone else" is getting a break.  But let's never forget this:  good politics is rarely good economics, as intervention begets intervention.