Thanks for helping to clarify a somewhat contradictory problem, that of over-production being a by-product of subsidies.
Think of the things that could be done, like research into northern climate year round vegetables and the phasing out of pesticide/herbicide use.

i'm sorry, i'm really confused, and i guess i'm also sorry that i have been pinging my congress-people on this issue of farm subsidies.

i suppose i understand what you are talking about, in general, but it is NOT my field, so maybe i should just shut-up.

however, that opens up the original can of worms for me - and i suspect for MOST people - in trying to be more responsible and in trying to do more "good" in the world, we inadverently do bad because i don't trust most of my elected officials
to do what is "right" all by themselves.

i should have been more suspicious about anything the Bushies liked.... they are devious little monsters, aren't they? being naive and trying to affect government policy is bad, bad, bad....

it's too late for anyone to fix this anyway, isn't it, until 2012??

if i could vote against ADM and the other bad BIG companies, i would, but i can't.

Good column, Tom....

What is generally meant by the term "subsidy" is often confusing to me.  In recent years, I have used the term to refer to, and only to, the "direct payment" to farmers of program crops....a payment that is totally unhinged from whatever the market price for those crops might be.  The old style "deficiency payment" ,that only kicked in when the market price was below the target price, I guess is technically also a subsidy, but it is so different in nature from the "direct payment" that I just don't lump them both into the same term.  I've seen where CRP payments have also been considered subsidies, even though that payment stems from a quid pro quo contractual arrangement.

I wish that this troublesome concept could be better defined, because my position is to do away with the direct payment, but to have the deficiency payment retained and to just sleep until needed, and the CRP program made even more available.  If asked whether I am for or against subsidies, I can't give a simple yes or no answer.

Yikes, as a guy who makes his living selling an agricultural commodity and as an economist who has taught entry level microeconomics for several years, you are going to have to give us a bit more detail on that statement that "subsidies don't lead to overproduction!"  That statement more or less stands many years of empirical evidence on it's head.  Can you qualify that a bit?  

One of the things I would like to see passed in the current farm bill is the provision allowing for state inspected meat to be sold across state lines.  Passage would help restore local food processing infrastructure and allow family farmers to market their livestock as meat.  Of course the big packers are opposed.  But state requirements are the same or more stringent than the federal requirements.  

you're contending that the supply curve for farmers is downward sloping- that is, as price declines they produce more? I really can't say anything more than you're wrong, plain and simple. Your argument defies all logic.

If production subsidies ended we would still produce huge amounts of good because we are good at it, but the total acreage devoted to commodities would drop, although perhaps not by a huge amount. Whatever productivity increases may occur would have with out without the subsidies.

The biggest thing that would drop would be the price of land, since the subsidies are capitalized into land prices. But the environmental impacts would be significant since we wouldn't see production on marginal land and farmers would have greater incentives to diversify.

I'm not saying that ending production subsidies would be a panacea, but sorry, farmers can't defy economic laws- you go out of business if you increase costs when the price for your good is dropping- farmers aren't stupid. As the subsidies disappear the land devoted to the production of commodities will as well- this is uncontestable- the converse is evident in that corn planting has increased due to higher prices and ethanol subsidies.

Farmers are price-takers. they don't set the prices themselves. Unlike ADM or Tyson, who can cut back production or raise prices when they want  to make more profit, farmers have NO such options. thus, they cannot influence the market in the same way. if you read about the 1800s booms and busts in agriculture, there was always overproduction leading to depressed prices, leading to the rise of farmers movements like the Non Partisan League in North Dakota and Populist Parties who advocated for supply management policies with government reserves. lot of these ideas became reality finally during the NEw Deal, which set a price floor for commodities. so overproduction has been in problem in agriculture for WAY longer than the modern subsidy system. that's the empirical evidence.

subsidies (the countercylical ones at least) only kick in at low prices. when prices are low, farmers do not cut back on production. they try to max out production to recapture lost income. when prices are high, farmers again will produce a lot to make money. those high prices then lead to overproduction...which then leads to a crash in prices. this is the vicious cycle farmers face adn why we need a price stabilization policy instead of this "free market" policy that only benefits Cargill and ADM.

Also, see coffee. not grown in the first world. no subsidies. still massive overproduction and depressed prices. During the 1960s, under the threat of "Castroism" the U.S. helped to create the Intl Coffee Agreement, a supply management agreement designed to throw a bone to Latin American peasants. this helped stabilize the coffee price and benefitted many countries, though not perfect. Under Reagan, coffee prices were deregulated and he got rid of the Intl Coffee Agreement in the name of "free markets." the result has been a collapse in coffee prices down to Depression-level prices, and massive impoverishment of the countryside in places from mexico, to nicaragua to Ethiopia.

which is why the Oxfam line on how our cotton subsidies hurt WEst AFrican farmers is not quite right. Our subsidies ARE hypocritical, but they are not what is causing the depressed prices and getting rid of them will not magically make cotton prices increase. Only supply management can do that, so everyone wins.

So the equation is
overproduction --> low prices --> subsidies

it is NOT (as is commonly assumed)

subsidies --> overproduction --> low prices

How you view this equation leads you to diff policy responses.

First, farmers do try to increase income (through increased production primarily) in low price cycles. Tom is absolutely correct. The most absurd contention is that a farmer will not plant a crop in response to low prices. Bills come due all year every year and no farm will simply forgo its annual source of income because prices are low. That is the primary reality of agriculture, and what ultimately does make our business different than other industries.

Still, the need for reform in current federal ag policy is clear for many reasons----including the very largest operations receiving unjustified sums at the expense and to the detriment of the mid-size and small farms, the environment and natural resources, and the food supply and marketplace.  But, for this very reason, I can not understand how the enviro-org reformers Tom identifies can accept and worse yet promote and expand an element of USDA's Environmental Quality Incentives Program (EQIP) that provides $450,000 for the construction and expansion of concentrated animal feeding operations (CAFO).  This is the single worst example of directly subsidizing the foundational costs of corporate factories in all of federal agricultural policy (and using "environmental quality" dollars of all things).  Considering the documented environmental destruction, the documented economic consolidation and farm losses, and the documented market disruption and domination all created by CAFO and their vertically integrated corporate ownership structure, it is astounding and offensive that some enviro "reformers" would enshrine this worst example of unjust subsidization.

great, this is all good information and i have been doing some of my own research for the past couple of days - i've been slightly upset that i REALLY had hold of the wrong end of the stick! but,  Farm Bill Girl and Tom you are not quite right. it IS complicated, and the Farm Bill needs to go farther,
but subsidies have to go away from our various farm scenario's here in America, and i hope they do (however, i'm not holding my breath that they will. i still don't trust congress to do what's right)

i feel better now....

In Jason's link, scrolling down to the list of the ill effects of farm subsidies, the writers seem to say that subsidies simultaneously cause high commodity prices and low commodity prices.  That's a good trick.

Subsidies are also said to cause Farmer to Farmer resentment, that they will inevitably feel that their neighbor has maybe received a better subsidy.  In my experience, farmers can find many other things (wives, hunting dogs) to covet that set off more sparks than do the imagined size of one's neighbor's subsidies.

Mr. Scorcese needs to think independently about the subject of supply curves.  I think economists generally refer to this situation as a backward sloping supply curve.  A farmer's supply curve depends on the cultural and political framework the farmer labors under--ie. expectations.  If the farmer has to try to survive because prices have generally been low, then the farmer surely isn't going to cut back production and may even roll the dice to increase production (backward sloping supply curve).  If prices became very low and there were no backup subsidy system, the farmer would go broke, and so would a lot of others.  But then the land would return to production by other farmers able to buy the assets at a lower value and able to get bigger machinery etc.
If the farmer has been surviving because of subsidies and along comes a new craze--the ethanol boom, then of course the farmer might shift to greed as a motivator and try to increase production to make some quick bucks to make up for all the years of penury.  That's defintely a forward sloping supply curve.  The environment will help pay for the greed and the possible bust when all the farmers around the world respond to the hype of good prices in in the forseable future.  
On the other hand, if there was a policy--that is a transparent policy--of a price support system that raised prices above they supposed freemarket level with a non-recourse loan and supply managment, the farmer might think, "Well, hell, I don't have to destroy my farm to make a living, maybe I'll cut back on production and take a little more time for the family. (Again a backward sloping supply curve.)  If we had a Secretary of Agriculture who could project the farmers and societies interest, he/she would encourage such behavior as good stewards of the land along with family values.  The Secretary would also make it clear that higher corn and oilseed prices (the main ingredients in industrialized livestock feed would result in higher livestock prices, so "All you young farmers out there interested in raising livestock extensively with hay, pasture and small grains, go to it.  We might even allow some of the land in CRP or other soil conserving programs be grazed or hayed for small operations to bring back small family farm livestock production."  
But all the good things that could happen won't happen as long as farmers live under what Secretary Ezra Taft Benson (Eisenhower admin) said farmers needed, "the spur of insecurity" ie. the free market.    
 

Returning to the list of the ill effects of farm subsidies, one of the 7 items refers to the "...fact that most subsidy money passes quickly from farmers to farm suppliers, processors, and other related sectors, again negating the intended effect of supporting farmers."

I don't understand what is objectionable about a farmer using his money to pay his bills.  If a subsidy assists in that regard, how is this not supporting farmers?  Would financing a vacation be more in line with the "intended effect"?  Is it because it "passes quickly"?  Does he think that farmers are not adequately stalling in paying their creditors?  Very peculiar......

So the equation is
overproduction --> low prices --> subsidies

overproduction --> low prices --> ...
... --> subsidies --maintains--> overproduction

The argument on capping subsidy payments to a total ceiling amount is that if the feedback effect involves producers getting pushed to the edge, its better for that impact to fall on the big producers. On the argument of this entry, that would seem to fall in line with the investment in cost cutting argument ...

overproduction (supply/demand not clearing at a sustainable price)
... --> low prices
... --> investment in cost cutting technology
... --> overproduction (outward shift of supply schedule).

... however, the question I have regarding the investment in cost cutting argument is, when is it ever not in the interest of big agribusiness to invest in cost cutting? Is this a question of where the corporate strategic focus lies, or something along those lines?

One:

overproduction-->low prices-->direct payment subsidy-->unchanged production-->unchanged prices

Two:

overproduction-->low prices-->price support subsidies hinged on production limits-->lower production-->higher prices-->no subsidies

Three:

lowered production-->higher prices-->increased costs to agribusiness interests-->higher cost of living indices-->increased possibility of interest rate increases -->resistence from multiple fronts(governmental, agribusiness, and financial interests) and pressures to increase production and lower prices.