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Posts Tagged ‘Agriculture’

Of all the senseless things that happen in Washington, farm subsidies are especially foolish. They are a classic example of “public choice” in action, with a handful of rich (and well-connected) producers getting big bucks by ripping off consumers and taxpayers.

The entire Department of Agriculture should be abolished. Yesterday, if possible.

If we first need a show trial, dairy subsidies could be the main example.

Investor’s Business Daily opines about the program.

In what other industry would you find producers continuing to ramp up production while demand slides, and then stuffing the growing pile of surplus into warehouses, hoping the federal government will buy some of it? What makes the dairy industry different is decades of government efforts to “support” dairy farmers with various subsidy schemes. …By interfering with pricing signals, the effect of these subsidies has been to encourage production, almost regardless of market demand. …Dairy farmers say they need these programs to survive. We doubt that. Like every other industry, they’d learn to adapt to market changes. In the meantime, ask yourself this question: Why should taxpayers hand over their hard-earned money to protect other people’s jobs in a declining industry?

Here’s a one-minute video from the American Enterprise Institute that gives a quick overview of how government doesn’t allow markets to function.

Congress currently is contemplating a new farm bill. As you might expect, there’s pressure from agriculture lobbyists for further subsidies and handouts.

Fortunately, there is also some opposition, including a recent column in the Hill.

Like spoiled milk, market-distorting dairy industry handouts need to be thrown out. …Washington doles out enormous subsidies to the largest conventional animal agriculture industries through the farm bill. …The dairy industry…receives their millions as a straight-up handout, with no strings (or string cheese) attached. The USDA should not pick winners or losers. The government should not distort the market or continually prop up non-competitive businesses. …American taxpayers don’t need to prop up a system of socialized cheese. American consumers deserve to make their choices in a fair and equitable marketplace. This next farm bill should remedy clear instances of government waste and distortion and move beyond funneling taxpayer handouts into conventional agribusiness.

The United States is not the only nation with a corrupt and distorting system of subsidies. Similar handouts exist in Canada and have become part of NAFTA negotiations, as reported by the Wall Street Journal.

U.S. farmers are treated unfairly by the complex “supply management” system that governs Canada’s dairy market, under which the government sets milk prices and imposes quotas on domestic producers to keep supplies in check. As part of this system, Canada limits dairy imports and imposes steep tariffs of more than 200% on products that exceed those limits. President Trump has called Canada’s dairy protectionism a disgrace. …Critics say Canada’s system unfairly limits market access and distorts prices. …Canada’s 11,000 commercial farms hold substantial political sway. The bulk of them are in vote-rich pockets of rural central Canada, especially French-speaking Quebec. …Dairy farming “is a motherhood issue here,” said Jon Johnson, senior fellow at Toronto-based C.D. Howe Institute and former government trade negotiator.

There’s no question the Canadians are guilty, but the United States is hardly in a position to throw stones.

Milk supply in the U.S. has in the past been seen as a national security interest, important to the well-being of babies and children. The U.S. government, for that reason and others, has had a long and historic involvement in domestic dairy farming, with a pricing system whose roots go back to the Great Depression. U.S. dairy imports are restricted through quotas, tariffs and licensing requirements. Prices are regulated through a complex system managed by the USDA, which sets minimum prices. When prices fall below regulated minimums, farmers can apply for federal assistance.

I suppose one silver lining to all this nonsense is that dairy farmers on each side of the border now have an incentive to calculate the subsidies received by their competitors.

…the American government continues to provide massive levels of support to its agri-food sector at federal, state, and local levels. …in 2015, the American government doled out approximately $22.2 billion dollars in direct and indirect subsidies to the U.S dairy sector. …said Mr. Clark. “When it comes to farm support, the U.S. has the deepest pockets; deeper even than the European Union…” in 2015, the support granted to U.S dairy producers represented approximately C$35.02/hectolitre – the equivalent of 73% of the farmers’ marketplace revenue. …While the American dairy industry has repeatedly pointed fingers and demanded increased access to Canada’s dairy market, the extent of subsidies to the U.S. dairy industry is an 800-pound gorilla in the room.

My hope, needless to say, is that taxpayers in both nations look at these numbers and conclude that we follow the example of New Zealand and get rid of farm handouts.

Not just for dairy. Abolish the entire Department of Agriculture.

P.S. It’s a close race, but I suspect that sugar subsidies are even more corrupt than dairy subsidies.

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A couple of days ago, I shared a segment from a TV interview about trade and warned that retaliatory tariffs were a painful consequence of Trump’s protectionism.

I also was asked in that interview about the negative effect on farmers. I speculated that farmers (and many other groups) were giving Trump the benefit of the doubt in hopes that this process might actually lead to trade liberalization – sort of like what Trump suggested at the G7 meeting.

While I was depressed and glum in that interview, it turns out that things are worse than I thought.

Instead of keeping their fingers crossed for trade liberalization, farmers may be nonplussed by protectionism because President Trump’s expansion of bad trade policy may also wind up being the pretext for an expansion of bad agricultural policy.

The Wall Street Journal opines on the upside-down logic of Washington.

When pork prices collapsed amid a global trade war during the Great Depression, the Roosevelt Administration in 1933 had an idea—slaughter six million piglets. Put a floor under prices by destroying supply. It didn’t work. Now the Trump Administration may try its own version of Depressionomics by using the Commodity Credit Corporation (CCC) to support crop prices walloped by the Trump tariffs: Hurt farmers and then put them on the government dole.

Given the economic misery of the 1930s, it should be obvious that copying the awful policies of Hoover or Roosevelt is never a good idea.

But that’s not stopping the crowd in Washington.

In 2012 Congress put limits on CCC purchases of surplus commodities and on price supports after the Obama Administration used it for a costly 2009 disaster program without Congressional approval. But then out of the blue this year, Congress lifted the limits on CCC’s power to remove surplus crops from the market to support prices. Republicans made that change because the Trump Administration wants to use the CCC to mitigate the damage to U.S. crop prices from the Trump trade war. In a June 25 USA Today op-ed, Agriculture Secretary Sonny Perdue wrote that the Administration is ready to “begin fulfilling our promise to support producers, who have become casualties of these disputes.” Too bad these U.S. casualties were caused by friendly fire.

And don’t be surprised if today’s handouts wind up becoming permanent entitlements.

The bigger danger is that the need for Mr. Perdue’s “help” is unlikely to be temporary. …With the higher tariff, Beijing will turn even more to Brazil and Argentina for soy and grains; Australia and Chile for fruit, nuts and wine; and Canada and the European Union for some or all. …The CCC is a relic of Dust Bowl America. Today the American farmer is high-tech, productive and eager to compete. Mr. Trump’s trade policy is creating a problem that didn’t exist and next he may create another one to ease the pain he has caused.

In other words, one bad government policy is being used the justify another bad government policy.

This is a classic example of Mitchell’s Law, otherwise known as the lather-rinse-repeat cycle of government failure.

We see it when government over-spending is used as an excuse for big tax increases.

We see it when government-run healthcare is used as an excuse to impose nanny-state policies.

We see it when government drug-war failures are used as an excuse to push for gun control.

And now we’re seeing it when bad trade policy is leading to more bad farm subsidies.

I realize this is pure fantasy, but wouldn’t it be nice to have the reverse approach? How about we simultaneously eliminate trade barriers and get rid of the Department of Agriculture?

Given the inherent corruption of Washington, I won’t hold my breath for that outcome. I’ll have more luck waiting for this fantasy to become reality.

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I may have to change my mind. When asked a few years ago to pick which department in Washington most deserved to be eliminated, I chose the Department of Housing and Urban Development.

And HUD unquestionably is a cesspool of waste, so it certainly should be shuttered.

But the more I read about the bizarre handouts and subsidies showered on big agribusiness producers by the Department of Agriculture, the more I think there’s a very compelling argument that it should be at top of my list.

Indeed, these giveaways are so disgusting and corrupt that not only should the department be abolished, but the headquarters should be razed and then the ground should be covered by a foot of salt to make sure nothing ever springs back to life.

That’s a bit of hyperbole, I realize, but you’ll hopefully feel the same way after today. That’s because we’re going to look at a few examples of the bad results caused by government intervention.

To get an idea of the Soviet-style nonsense of American agricultural programs, a Reuters report on the peanut programs reveals how subsidies and intervention are bad news for taxpayers and consumers. Here’s the big picture.

A mountain of peanuts is piling up in the U.S. south, threatening to hand American taxpayers a near $2-billion bailout bill over the next three years, and leaving the government with a big chunk of the crop on its books. …experts say it is the unintended consequence of recent changes in farm policies that create incentives for farmers to keep adding to excess supply.

And here’s a description of the perverse and contradictory interventions that have been created in Washington.

First, the U.S. Department of Agriculture (USDA) is paying farmers most of the difference between the “reference price” of $535 per ton (26.75 cents per lb) and market prices, now below $400 per ton. A Nov. 18 report to Congress estimates such payments this year for peanuts exceed those for corn and soybeans by more than $100 per acre. Secondly, government loan guarantees mean once prices fall below levels used to value their crops as collateral, farmers have an incentive to default on the loans and hand over the peanuts to the USDA rather than sell them to make the payments.

Gee, what a nice scam. Uncle Sam tells these farmers welfare recipients that they can take out loans and then not pay back the money if peanut prices aren’t at some arbitrary level decided by the commissars politicians and bureaucrats in Washington.

In other words, assuming the peanut lobbyists have cleverly worked the system (and unfortunately they have), it’s a license to steal money from the general population by over-producing peanuts. And we’re talking a lot of peanuts.

Through forfeitures, the USDA amassed 145,000 tons of peanuts from last year’s crop, its largest stockpile in at least nine years, according to data compiled by Reuters. …That stockpile is enough to satisfy the average annual consumption of over 20 million Americans – more than the population of Florida – and puts the administration in a bind. …As peanut carryover inventories are forecast to hit a record of 1.4 million tons by end-July 2016 and as loans begin to come due next summer, farmers are expected to fork over more peanuts to the USDA.

Moreover, because the perverse interaction of the various handouts, there’s no solution (other than…gasp!…allowing a free market to operate).

Storing the peanuts in shellers’ and growers’ warehouses comes at a cost. Selling them could depress the market further and in turn would add to the price subsidy bill.

Now let’s shift gears and look at another sleazy and corrupt example of agricultural welfare.

The Des Moines Register is reporting that corn growers and other beneficiaries of the ethanol program are working to cement their place at the public trough.

Iowa’s billion-dollar ethanol industry is turning up the heat… America’s Renewable Future, a bipartisan political group backed by top Iowa elected officials and people in agriculture and the ethanol industry, is in the midst of a million-dollar ad campaign to exert pressure on candidates ahead of the Iowa caucuses, supporting candidates who back the Renewable Fuel Standard and criticizing those who denounce it.

Ethanol is a particularly evil handout, encompassing regulatory mandates, special tax preferences, trade barriers, and other forms of subsidies.

All this is necessary because it makes no economic sense to turn corn into fuel. But with the right amount of goodies from Washington, dumb things suddenly become “profitable.”

And to maintain the flow of undeserved loot, the moochers are applying pressure.

Patty Judge, co-chair of America’s Renewable Future and a former Iowa agriculture secretary, said the group has signed up 45,000 people who have pledged to look closely at how the candidates stand on the Renewable Fuel Standard when they vote in the Iowa caucuses. …Iowa is the nation’s largest ethanol producer, churning out 3.9 billion gallons in 2014.

While the stories about peanuts and ethanol make for grim reading, now it’s time to get really depressed.

That’s because we’re going to take a look at a New York Times story on how Washington is dealing with ag subsidies.

In April, Republicans newly in control of Congress celebrated their agreement on a plan to save $5 trillion — that’s trillion, with a “T” — and balance the budget in a decade. …Yet as the year closes, Congress instead is planning to repeal one of the few spending cuts it has passed into law since approving that budget resolution: $3 billion over a decade from subsidies for crop insurers. …Republican leaders agreed to hold a vote next month to delete the savings after lawmakers from agricultural states complained…the agriculture committees, like most others, had no intention of turning budget-balancing numbers into policy reality by voting for cuts that would anger constituents, contributors and influential interest groups — not the $20 billion that the budget resolution recommended, nor even the $3 billion reduction from crop insurers, a cut that administration officials and Republican leaders tucked into the bipartisan budget deal Congress passed in October.

By the way, to get further depressed, this means that the terrible agreement to bust the spending caps just became even worse.

So now you’ll understand why the Department of Agriculture deserves to be eliminated.

P.S. You probably won’t be surprised to learn that the disgraced and convicted former House Speaker, Denny Hastert, had his filthy hands in the ethanol business.

P.P.S. And don’t forget that the wasteful food stamp program is part of the Department of Agriculture, largely to create an unholy alliance of rural moochers and urban moochers.

P.P.P.S. Last but not least, the clowns in Washington not only muck up how food is produced, they also can’t resist interfering in how food is consumed.

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