Friday, February 18, 2005

Cotton versus Grapes, NYTimes Farm Subsidy

Michael Egan has an interesting article including this:

"most other farmers here [California--Central Valley] in the nation's leading agriculture state who grow fruits, nuts and vegetables - nearly half of all American crops - generally get little or nothing from the government, because they have been viewed as self-sustaining.

But growers of wheat, corn, cotton, rice, soybeans - the big commodity crops in the world market - received the bulk of more than $130 billion given to farmers in the last nine years, a record. The rationale for the payments has been to keep domestic agriculture, or at least one segment of it, stable and competitive."

It's a good article, comparing cotton and grape producers, and pointing out the possibility that, if subsidies were ended, land now devoted to cotton might be used for other crops.

But, there's always a but. Historically (i.e., New Deal) crops subject to the farm programs were those with large acreages, broadly distributed (hence able to attract broad political support) and storable. Grains and fibers, tobacco, peanuts are all storable. Fruits and vegetables are not. The basic economics of agriculture (which include the inelastic demand curve and the large number of farmers compared to the small number of buyers, which makes prices volatile and leads in a free market to surpluses) work particularly when the commodity is storable. A surplus one year gets stored, which means prices are likely to be lower next year, which means that farmers will expand their production to get the same return, and the expanded production further increase the storage. Fruits and vegetables are not stable, just look at the price of grapefruit last fall after the hurricanes. Some of their economics are the same as for the staple crops (inelastic demand, price taking instead of price making) but it depends on the crop--annuals versus perennials in particular. The New Deal adopted different measures for different crops, Section 32 support for potatoes, marketing agreements for many fruits, etc.

The threat of the cotton producer to invade the fruit and vegetable market is half real. The fine print of the Freedom to Farm Act of 1996, which supposedly freed grain and cotton producers to produce anything, included a provision to protect fruit and vegetable growers. So the growers fear the threat. It's only half real because land, equipment, markets and expertise aren't fully interchangeable.

As for the subsidies that grape growers don't get, it all depends on the meaning of the word "subsidy". If it means a government check, that's one thing. Although I remember our making disaster payments to raisin growers in the mid 80's. (If if rains on grapes drying in the sun, is that a natural disaster? Bureaucrats worry about such things.) Grape growers do profit from "indirect subsidies", such as Federally subsidized crop insurance, and research on grape varieties and diseases (592 hits on the Agricultural Research Service site.) Typically the NYTimes, particularly its editorial page, includes indirect subsidies when they attack world spending on agriculture.

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