Farm Fiasco: A Way Out

October 31, 1955

The so-called farm “crisis,” as I pointed out here last week, is not primarily economic but political. It exists chiefly in Washington. And politicians, instead of considering how to extricate the government from its price-support fiasco, talk of even bigger and more harmful subsidies.

It is true that certain farm groups, such as hog raisers, today face special difficulties. But realized gross farm income was running in the first half of this year at the annual rate of $33.7 billion, compared with an average annual income of $33.8 billion in the preceding nine, years (which include the Korean-war boom years). This hardly indicates a crisis.

Regardless of such comparisons, the whole farm subsidy program is wrong in principle. In the long run it must work more harm than good to the farmers themselves. The chief problem today is to extricate the government from the present fiasco. Let us look at some ways in which this might be done.

1—The whole notion of a price “parity” that ought to be perpetually maintained between farm and non-farm prices is ridiculous. But the parity formula is at least being made a little less preposterous than it has been. Instead of taking the 40-year-old period from 1910 to 1914 as the basis, we are now transferring to a rolling average of the relationships between prices paid and prices received by farmers for the ten years preceding each crop year.

2—A more important step (if we assume that it is politically impossible to get rid of the price-support program altogether) would be to lower the price-support level, not to a point where it would assure the farmer a so-called “fair” income, but to the point where it would protect him against out-of-pocket loss. The reason for this should be obvious. Wherever a surplus already exists it is fantastic for the government to offer a support price to encourage the farmer to grow a still greater surplus. Rather the effort must be to prevent the farmers from repeating the collective error that led to the problem. Government estimates indicate that farm production expenses are usually about two thirds of realized gross farm income. On this basis the government support level should not be 90 percent of “parity,” or even 75, but only about 67 percent.

3—Even assuming that some price-support program is to continue, there is no justification for offering the farmer or any other producer a one-way speculation against the taxpayer in which the taxpayer takes all the losses and the producer only the profits. Instead of its present “nonrecourse loans,” the government should buy outright, and be free to dispose as it wishes of what it holds.

4—There is a possible way in which the government could get out from under its present enormous holdings of crop surpluses, and in the process perhaps solve several problems at once. This would be to offer to sell its holdings, at a price slightly below estimated cost of production, back to the farmers themselves. Each farmer might be allowed to buy an amount proportionate to that of his own production of that commodity in the preceding year. The government would doubtless take a big loss on this—but not as big as it ultimately would by continuing its present program. The farmers who bought the commodities would be free to sell them in the market at the best price they could get.

Under such an arrangement a farmer could have a good part of one year’s crop, say, without the usual work and risks of raising it. He would almost certainly be able to sell it at a profit. Few farmers, knowing in advance that this carry-over would be thrown on the market, would plant the same crop for the new year. (Any such government plan should of course be announced a month or so before the normal planting season.) In this way most of the surpluses now held by the government could be worked off in a short period.

The farm price-support program has been growing like a cancer. Only a drastic surgical operation seems likely to curb it now.