Why gutting commodity subsidies should be the focus of Farm Bill reform efforts 4

Thomas Dobbs is Professor Emeritus of Economics at South Dakota State University, and a W.K. Kellogg Foundation Food & Society Policy Fellow.

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Tom Philpott wrote an article in which he challenged some of the key assumptions underlying Farm Bill reform efforts of the past year ("It's the Agronomy, Stupid"). He contended that gutting commodity subsidies would not solve the U.S.'s long-standing oversupply problems, and that we need the money currently in the "commodity" title to remain available for eventual support of conservation and other measures reformers hold dear.

The following day, a guest post by Britt Lundgren appeared in Gristmill, contending that Philpott missed the real point of the Farm Bill debate. The real point, said Lundgren, is "whether or not the current suite of farm subsidies are actually an effective and productive way to support agriculture in the U.S."

I find myself largely in agreement with the contents of Lundgren's post, but I want to address more directly Philpott's contention that "it's the agronomy" that matters. I disagree. "It's the economics" that matters in assessing the consequences of the U.S. farm program's heavy emphasis on commodity subsidies.

Philpott based his reasoning primarily on a 2003 University of Tennessee report by Daryll Ray, Daniel De La Torre Ugarte, and Kelly Tiller: "Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide" (PDF). There are some extremely valuable insights in the report. I assigned it as a major reading the last several years I taught agricultural policy at South Dakota State University.

Ray, in this report and elsewhere, was one of the first prominent U.S. agricultural economists of recent years to challenge mainstream economic thinking that advocates "free markets" and export trade as the primary solution to oversupply and farm income problems in the U.S. Likewise, he was among the first to call attention to the devastating effect of U.S. commodity subsidies -- especially in their post-1996 form -- on world prices and, hence, on incomes of farmers in poor countries.

The analyses of Ray and colleagues led them to advocate a very different set of farm policies than are currently in effect or being proposed by most American agricultural economists. In the 2003 report cited by Philpott, they recommended a return to supply controls, emphasis on price support through non-recourse loans, and government sponsored but farmer-owned commodity reserves to support and stabilize crop prices. In the opinion of Ray and colleagues, this set of policies could simultaneously maintain farm incomes at reasonable levels and dramatically reduce government-funded commodity subsidies.

There are both strengths and weaknesses in the analyses and policy recommendations of Ray and colleagues (hereafter, simply referred to as Ray). A major weakness, in my view, is one on which Philpott rested most of his argument. Ray, and by extension Philpott, argued that elimination of commodity subsidies would have little impact on supplies of agricultural commodities. (Philpott, in fact, says farmers would actually increase production in attempts to make up for lost subsidies and maintain farm incomes.) The weakness in this argument is that it represents a "short run" perspective.

In the short run of just a few years, farmers sometimes do behave in the manner described by Ray. It is also true that other forces, particularly the force of technological change, continue to expand agriculture's production capacity. The noted University of Minnesota agricultural economist Willard Cochrane long ago described this process as a "technological treadmill."

But if we take a "long run" perspective, it is not just agronomy that matters. Economics matters a lot. Farmers will not continue to invest in capital and yield-increasing technologies if it is not profitable to do so. It is undeniable that decades of subsidies for just a few major crops have increased the extent of commodity specialization and chemical intensification that evolved over the last half of the 20th century. Ray contended that changes in prices and subsidies have little impact on the amount of land that stays in agricultural production. While that is true, Ray and Philpott do not take adequate account of the changes that would occur over the long run in the mix of crops and livestock produced, and in methods of production.

If we were to permanently alter U.S. farm policy by eliminating or drastically reducing the system of commodity subsidies over time, we could eventually see a return to more biologically diverse crop and livestock systems, more ecologically sustainable crop production systems, and livestock systems that are less dependent on feed grains and oilseed crop protein supplements.

It might take a decade for changes to be noticeable, because farmers, quite rationally, will hold on to existing production systems for some time, counting on a reversal of farm policy to the "old" commodity subsidy programs. That's what happened with the 2002 Farm Bill. After a modest beginning to break from some of the old commodity programs in the 1996 Bill, Congress reversed direction in 2002 by reinforcing remaining commodity subsidies and restoring one of the old ones (in modified form and with a different name) that had been eliminated in 1996. Remembering such reversals, many farmers no doubt will hold on to their existing crop systems until they are convinced that a fundamental change in policy direction is permanent.

Although Ray and colleagues emphasized the tendency for production levels to remain high, their report actually contained examples of agricultural policy reforms in other countries that led to major changes in the mix of crop and livestock produced. Major reductions in farm subsidies in Canada had little effect on total cropland in production, but did lead to significant changes in the mix of crops produced. Wheat production declined and oilseed production expanded. In Australia, the reduction in wool subsidies led to a major decline in sheep inventories. Ray and colleagues stated that "sheep farmers converted significant pasture acreage to crop production."

My point in citing these examples is not that these particular shifts were necessarily good or bad from a sustainability perspective, but rather, that farmers do respond to new economic incentives brought about by fundamental changes in farm policy. Economics matters!

I don't want to oversimplify. Restoring more ecologically diverse and sustainable crop and livestock systems will not be easy or quick. It will take more than eliminating commodity subsidies. A much stronger and better-funded set of agri-environmental programs emphasizing agriculture's "multifunctionality" also is needed (see Thomas Dobbs and Jules Pretty, "Agri-Environmental Stewardship Schemes and Multifunctionality," Review of Agricultural Economics, Vol 26, No 2, 2004). On this, Tom Philpott and I seem to be in agreement.

I am not confident, however, that we will ever be able to put enough money into agri-environmental programs to fundamentally alter present directions in U.S. agriculture, as long as the current commodity subsidies remain in place. These subsidies offer too much money and risk protection for most farmers in the major "farm states" to shift to more biologically diverse and sustainable crop rotations. Therefore, reform of the commodity subsidy system simply has to be at the heart of Farm Bill reform efforts!

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