Full disclosure: I am a full time farmer in Kansas.
I read a post on the forum (city or country mouse thread) that was talking about a lazy farmer (going to town 4 times a day for coffee) who complained he wasn't making any money while he was receiving hundreds of thousands of dollars in subsidies.
I was wondering what most non-farmers think about government subsidies for agriculture. Do you feel that it's a waste? Do you feel that it keeps food prices low and is therefore acceptable?
I'll give you my opinion. I think these programs are a waste. I firmly believe that as a farmer, my net worth would increase the same amount every year regardless of whether I receive government subsidies or not.
If I receive government subsidies, I make more money. This means that I can afford to pay more to either buy land or cash rent it from those who own land (and my neighboring farmers can do the same). This means that in order to expand my operation I have to spend the extra money that I make through government subsidies to either buy or rent more land. So the thing that government subsidies really do is artificially increase the value of land. I don't really make any more money than I would have if these government programs didn't exist. I just have to do more paperwork to qualify for them.
Agriculture subsidies
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Robert Muir
- Posts: 280
- Joined: Thu Jul 22, 2010 10:15 pm
I'm against them because the subsidies never achieve their stated goal and the unintended consequences create even more havoc.
It's easy to understand how they get started though. "If we don't do something, the farmers will go bankrupt and then we'll have fewer farmers and more expensive crops." Of course more people would get into farming if that were to happen.
It's the same thing with the mortgage interest tax deduction. Since everyone gets it, all it does is artificially boosts the value of houses.
It's easy to understand how they get started though. "If we don't do something, the farmers will go bankrupt and then we'll have fewer farmers and more expensive crops." Of course more people would get into farming if that were to happen.
It's the same thing with the mortgage interest tax deduction. Since everyone gets it, all it does is artificially boosts the value of houses.
What's even more amazing in the U.S. is that not only are we subsidizing our home grown cotton farmers, we are also paying a big chunk of money to Brazilian cotton farmers.
See http://www.npr.org/blogs/money/2011/01/ ... 182/cotton
See http://www.npr.org/blogs/money/2011/01/ ... 182/cotton
I believe agricultural subsidies, as they currently exist, are a total waste of money. If they somehow promoted sustainable agriculture (through land reuse, few waste products, reduced nitrogen fertilizers, etc) I would support them. But that seems very difficult to implement and there are no special interests behind it.
I am interested in the comments that indicate subsidies lead to low priced corn. July 2011 corn was last traded at $7.48 and 1/4 per bushel. This is probably the top 10% that it has ever traded at. Without any government subsidies and average yields I would make record profits if I were able to sell at this price. The only way the government manipulates the price of corn is through their stance on foreign affairs and on ethanol production. Their current stance on ethanol production has driven corn prices to record highs. Foreign affairs don't really seem to be a negative in any significant way at this point.
I stand by my comment that subsidies go directly towards an artificially increased land value. Well, I think it also goes towards creating more pointless government jobs to process all the paperwork associated with the programs...
I stand by my comment that subsidies go directly towards an artificially increased land value. Well, I think it also goes towards creating more pointless government jobs to process all the paperwork associated with the programs...
Well, I studied Social Economics and this was our subject last fall.
Subsidies to farmers in the West, US and Europe totals $1 Billion a day. Which provides Western farmers with incentives to produce to much of certain crops, pushing down the price of these commodities world wide. Farmers in poor countries can`t compete with these crops as they are dumped in Africa and South America. Since farmers are not able to sell their crops because their price is above the market price they sell less they are able to produce.
Economic theory says that farmers needs to be the first to prosper, pushing down the price of agricultural produce, making food cheaper as their efficiency increases (because of mechanization) , resulting in farmers having more capital to purchase capital intensive goods ( machines ) which increases production. Increased production, releases surplus labor, since it now requires less people to produce the same (or more) amounts of food. The surplus labor moves into manufacturing jobs, which are more productive then agriculture.. food is now less expensive, people no longer farm for subsidence, but are able to purchase more goods, including food, as their purchasing power has increased because of productivity in the manufacturing sector.
Farmers has the capital to buy more equipment --> buys more efficient machines --> less people is required in farming sector --> surplus labor is released --> surplus labor finds its way into manufacturing --> produces more productive goods --> farmers buys more equipment, making them more productive --> foods prices goes down --> people are better of.. --> spends money on other goods..
Basically; classical, neoclassical and endogenous growth theory.
In the end, subsidies are for special interests who get special treatment from the government, on the behalf of others who are better of at producing the same goods.
Subsidies to farmers in the West, US and Europe totals $1 Billion a day. Which provides Western farmers with incentives to produce to much of certain crops, pushing down the price of these commodities world wide. Farmers in poor countries can`t compete with these crops as they are dumped in Africa and South America. Since farmers are not able to sell their crops because their price is above the market price they sell less they are able to produce.
Economic theory says that farmers needs to be the first to prosper, pushing down the price of agricultural produce, making food cheaper as their efficiency increases (because of mechanization) , resulting in farmers having more capital to purchase capital intensive goods ( machines ) which increases production. Increased production, releases surplus labor, since it now requires less people to produce the same (or more) amounts of food. The surplus labor moves into manufacturing jobs, which are more productive then agriculture.. food is now less expensive, people no longer farm for subsidence, but are able to purchase more goods, including food, as their purchasing power has increased because of productivity in the manufacturing sector.
Farmers has the capital to buy more equipment --> buys more efficient machines --> less people is required in farming sector --> surplus labor is released --> surplus labor finds its way into manufacturing --> produces more productive goods --> farmers buys more equipment, making them more productive --> foods prices goes down --> people are better of.. --> spends money on other goods..
Basically; classical, neoclassical and endogenous growth theory.
In the end, subsidies are for special interests who get special treatment from the government, on the behalf of others who are better of at producing the same goods.
I believe agricultural subsidies, as they currently exist, are a total waste of money. If they somehow promoted sustainable agriculture (through land reuse, few waste products, reduced nitrogen fertilizers, etc) I would support them. But that seems very difficult to implement and there are no special interests behind it.
There is just such a program. It's called the Conservation Stewardship program (CSP). The problem with such a program is that it's impossible to regulate in a manner that is simultaneously fair and fiscally responsible. For example, the program encourages no-till techniques that reduce soil and wind erosion. It pays a significant amount of money to farmers that are going to convert to these techniques. However, there are farmers that have already been doing these things for years and if they did not pay these farmers for what they are doing, it would not be fair to them. The farmers who had been doing a poor job from an environmental standpoint would all of a sudden have a financial advantage over the farmers who had been environmentally responsible for years. To solve the problem of being unfair, they pay farmers who are already doing it, and they pay farmers who are switching over to it.
In our example, we go in to the NRCS office, fill out a bunch of paperwork, and change one thing about our operation (you have to do one thing to qualify for the program) and because of all the conservation practices we already do, we are going to receive probably more than the average family makes per year for the next five years in subsidies from the CSP program. The one thing we are changing is extremely small and easy to implement and we probably would have done it even without the CSP program in effect.
Agriculture is way too complex of a thing to regulate in a manner that is both fiscally responsible and fair to all involved. My opinion is that it would be far better to let the chips fall where they may. The long and the short of it is that land that's treated poorly performs poorly and land that's treated well performs well. Over the long run, those who are not responsible from a conservation standpoint will not be profitable and those who are will be. I say let the chips fall where they may.
There is just such a program. It's called the Conservation Stewardship program (CSP). The problem with such a program is that it's impossible to regulate in a manner that is simultaneously fair and fiscally responsible. For example, the program encourages no-till techniques that reduce soil and wind erosion. It pays a significant amount of money to farmers that are going to convert to these techniques. However, there are farmers that have already been doing these things for years and if they did not pay these farmers for what they are doing, it would not be fair to them. The farmers who had been doing a poor job from an environmental standpoint would all of a sudden have a financial advantage over the farmers who had been environmentally responsible for years. To solve the problem of being unfair, they pay farmers who are already doing it, and they pay farmers who are switching over to it.
In our example, we go in to the NRCS office, fill out a bunch of paperwork, and change one thing about our operation (you have to do one thing to qualify for the program) and because of all the conservation practices we already do, we are going to receive probably more than the average family makes per year for the next five years in subsidies from the CSP program. The one thing we are changing is extremely small and easy to implement and we probably would have done it even without the CSP program in effect.
Agriculture is way too complex of a thing to regulate in a manner that is both fiscally responsible and fair to all involved. My opinion is that it would be far better to let the chips fall where they may. The long and the short of it is that land that's treated poorly performs poorly and land that's treated well performs well. Over the long run, those who are not responsible from a conservation standpoint will not be profitable and those who are will be. I say let the chips fall where they may.
Subsidies to farmers in the West, US and Europe totals $1 Billion a day. Which provides Western farmers with incentives to produce to much of certain crops, pushing down the price of these commodities world wide.
Still looking for the ways that these subsidies are reducing commodity prices. What would you say the price of corn would be without subsidies? Let's say that without subsidies the price of corn would be $15/bu (about twice what it is now). I'll say for sure that if corn is $15/bu without subsidies, you will be amazed at how much corn the United States would produce. Let's produce a simple crop budget for me in my poor yielding area of the country:
Corn yield - 90 bu/acre
Corn price - $7.50 per bu
Corn income - (90)(7.5) = $675/acre
CSP subsidies - $35/acre
Direct and counter-cyclical subsidies - $13/acre
Insurance subsidies - $20/acre
Gross Income - $743/acre
Total expenses ~$350/acre
Net income ~ $393/acre
Now the reality is that when the nearby board is trading at $7.50 per acre, December corn (which is what harvest price is based on) is trading at $6.62. Then the local elevator has to charge for transportation and storage costs, etc so their current bid if I were to contract corn for harvest is $6.04. Still very high from a historical standpoint. Then you have to account for the fact that, as with any marketing decision, most people spread their risk and therefore I've sold a fair amount of my corn already back when prices were much lower to protect myself from prices going lower (which was obviously a bad move) but that's how things go. Now I'm hesitant to sell more because if I do and am unable to produce the crop, I could go bankrupt trying to buy expensive corn to fill my contracts. So I'll probably be waiting to contract more corn until I'm sure I'll be able to produce a crop. By that time the market may have gotten back down to normal levels and my profit won't look nearly as rosy.
However, from this example, you can see that if subsidies are holding corn prices down so that other countries can't compete, and the subsidies that I experience were taken away (total of $68/acre in subsidies) do you really think that would bother me if taking that subsidy away made the price of corn go up even $1/bu? I would make an extra $90 per acre and my profit would increase.
This is why I believe subsidies have absolutely nothing to do with decreasing commodity prices as they are currently structured. In fact, I believe government regulations currently increase the price of corn through the push for ethanol. The reason corn is cheap relative to other countries (if that's even the case) is because farmers here have the right environment and the right infrastructure to produce corn at those prices and still maintain healthy margins. We can make a lot of money without government subsidies, so anything the government adds on to what we already make just increases the value of land.
Still looking for the ways that these subsidies are reducing commodity prices. What would you say the price of corn would be without subsidies? Let's say that without subsidies the price of corn would be $15/bu (about twice what it is now). I'll say for sure that if corn is $15/bu without subsidies, you will be amazed at how much corn the United States would produce. Let's produce a simple crop budget for me in my poor yielding area of the country:
Corn yield - 90 bu/acre
Corn price - $7.50 per bu
Corn income - (90)(7.5) = $675/acre
CSP subsidies - $35/acre
Direct and counter-cyclical subsidies - $13/acre
Insurance subsidies - $20/acre
Gross Income - $743/acre
Total expenses ~$350/acre
Net income ~ $393/acre
Now the reality is that when the nearby board is trading at $7.50 per acre, December corn (which is what harvest price is based on) is trading at $6.62. Then the local elevator has to charge for transportation and storage costs, etc so their current bid if I were to contract corn for harvest is $6.04. Still very high from a historical standpoint. Then you have to account for the fact that, as with any marketing decision, most people spread their risk and therefore I've sold a fair amount of my corn already back when prices were much lower to protect myself from prices going lower (which was obviously a bad move) but that's how things go. Now I'm hesitant to sell more because if I do and am unable to produce the crop, I could go bankrupt trying to buy expensive corn to fill my contracts. So I'll probably be waiting to contract more corn until I'm sure I'll be able to produce a crop. By that time the market may have gotten back down to normal levels and my profit won't look nearly as rosy.
However, from this example, you can see that if subsidies are holding corn prices down so that other countries can't compete, and the subsidies that I experience were taken away (total of $68/acre in subsidies) do you really think that would bother me if taking that subsidy away made the price of corn go up even $1/bu? I would make an extra $90 per acre and my profit would increase.
This is why I believe subsidies have absolutely nothing to do with decreasing commodity prices as they are currently structured. In fact, I believe government regulations currently increase the price of corn through the push for ethanol. The reason corn is cheap relative to other countries (if that's even the case) is because farmers here have the right environment and the right infrastructure to produce corn at those prices and still maintain healthy margins. We can make a lot of money without government subsidies, so anything the government adds on to what we already make just increases the value of land.
In Jacobs home country Denmark they produced sugar. Its not really suited to produce there, since its a relatively cold country. Produced further south, say around the equator, they could probably produce it 2-3 times a year.
Instead the Danish government gave Danish sugar farmers subsidies for producing this crop. They even manufactured goods from this, and sold it cheaper then African countries could produce their own sugar. The Danish farmers called it "white gold". I don`t know if they still do this, as the program I watched is a few years old by now.
The basic cost to me, for allowing the government to subsidize the farming sector is small, but overall very expensive. And you cant forget you push poor farmers in third world countries further into poverty, just to protect one part of the economy. Producing crops in very temperate climates could produce 2 or 3 crops a year, instead of producing one crop in the middle of the US. This would bring the price down, making food even cheaper, meaning people could spend their money on other goods, increasing their standards of living.
Instead the Danish government gave Danish sugar farmers subsidies for producing this crop. They even manufactured goods from this, and sold it cheaper then African countries could produce their own sugar. The Danish farmers called it "white gold". I don`t know if they still do this, as the program I watched is a few years old by now.
The basic cost to me, for allowing the government to subsidize the farming sector is small, but overall very expensive. And you cant forget you push poor farmers in third world countries further into poverty, just to protect one part of the economy. Producing crops in very temperate climates could produce 2 or 3 crops a year, instead of producing one crop in the middle of the US. This would bring the price down, making food even cheaper, meaning people could spend their money on other goods, increasing their standards of living.
I appreciate your comments. I'll take this one part at a time.
Anytime something is subsidized you are creating an artificial winner and loser, and although some of the subsidies aimed at farmers are genuinely offered as a fix for a particular problem, like all free money soon become a neccesity.
I agree that there is an artificial winner here, as well as an artificial loser. I would argue that any government subsidy to agriculture makes land owners in to artificial winners. They would be winners without the subsidies, but they are moreso with the subsidies. Let's say that I feel like I can make a living if on average I make $50 per acre in profit. Now the government gives me and all of my neighboring farmers another $10 per acre. This does not mean that corn is worth more. It means land is worth more. I, and all of my neighbors can afford to pay $10 per acre more than we used to for land every year and still be able to make a living. This means that land has an artificially higher productive capacity than what would be natural. The losers in this scenario are the tax payers and the farmers. The tax payers, because they have to foot the bill, and the farmers, because if they don't take the money, their neighbor will and they won't be able to compete, and taking the money requires extra paperwork that is non-productive in a real sense but is productive in an artificial sense. Basically I'm saying I could spend my time doing much more productive things if I didn't have to do all the paperwork necessary to receive the handouts. I could just say no, I don't want the handouts, but then my neighbors would have a financial advantage over me and I'd eventually go out of business because I couldn't afford to pay the prices they pay for land.
You make the point yourself that farmers are using the excess funds to buy/lease more land when possibly the money could be used for better purposes.
This is not an accurate reflection of reality. Land cost is a business expense for a farmer. To farm, you have to have land. It is a very clear cut requirement. Without land, you cannot farm. Very simple. So a farmer does not use excess funds to buy or rent land. A farmer is required to use operating funds to pay for the cost of land. Even if you buy land with your profits, you are paying for that land every year in the form of opportunity cost. You could use the money you have in land and invest it elsewhere and possibly make more or less money depending upon your investing abilities and luck.
Let's say two farmers are willing to keep farming for a living if they can make $40,000 per year. They both have 800 acres of land, they both have a net income of $100 per acre per year. This means that they can afford to pay the land owner $50 per acre per year. Now the government pays them $10 per acre as part of a subsidy package.
Farmer A says, hey, cool, I'm making $8,000 more per year. Farmer B is smarter and says, I can farm twice as many acres and still have plenty of free time if I work efficiently I'll pay the land owner $60 per acre now and that way I'll be able to out-bid farmer A and have all of his land as well. Then I'll be making $80,000 a year.
Farmer B offers $60 an acre to his landlords and $60 an acre to Farmer A's landlords. Fortunately for farmer A, his landlords talk to him about it and give him the chance to pay more per acre. Farmer A grudgingly goes up to $60 an acre. Now farmer A and farmer B are both still making $40,000 a year, and the taxpayer is paying the land owners for the land that farmer A and B farm about $16,000 a year. This artificially inflates the value of the land because it has an artificially higher productive capacity.
Notice that neither farmer A or farmer B expanded in acreage. The people that benefited were the landowners and the people who got the shaft were the farmers (awkward negotiations with land owners and unproductive paperwork to qualify for the money) and the taxpayers.
The way a farmer makes more money than a competitor is not through government programs, it's through being competitive. If you can reduce your costs and maintain the same income, or if you can increase your income and maintain the same costs or if you can increase your acres while spending the same amount of time working then you have a competitive edge and you will be able to pay the going rate for land rent in the area and make more money than your competition. A government program does not cause you to make more money than your competition. It causes land values to inflate.
I watched a show on a farm being auctioned off and the machinery alone went for over a million.
You didn't mention whether the auction was a result of a bankruptcy or whether it was the result of a retirement or something like that. Farm auctions are very common for profitable farmers that are just retiring. An auction is not necessarily a reflection of living beyond your means.
That raises a ton of questions on my part: does it require that much capital to farm?
To get started it does not require that much capital if you are resourceful and conservative and hard working and willing to live on much less than the average salary. That is what it takes to compete with a farmer who has the size to take advantage of the economies of scale. For example, if you farm 10,000 acres you can buy your fertilizer, herbicides, seed, etc in bulk and get substantial savings. Our fertilizer comes to our farm by the semi load. I think we took somewhere around 40 to 50 semi loads of fertilizer this year. If you want to take advantage of economies of scale so that you can have a higher standard of living, then yes, it does take that much capital to farm. If you want to make barely enough to survive, then no, it does not take that much money to farm.
The government does do a few good things to help beginning farmers get started. You can get low interest loans that are essentially co-signed by the government for probably up to a half million dollars. These are only available to you for something like the first 6 years of your farm career. I guess the government figures that if you aren't established by then, you probably aren't very competent and they can spend their money more wisely elsewhere. If you are established then you don't need the help anymore anyways.
was this a case of a farmer foolishly overextending his credit
If he was having an auction because he was bankrupt, then yes. This happens in all businesses. If you owned a dirt moving company and had a couple of bulldozers, a backhoe and a few skid steers, you would have a million dollars of equipment as well. If didn't have your i's dotted and your t's crossed you would go bankrupt and have an auction just like that. There are many business that have high capital requirements. Farming isn't any different, although I'm not sure that it would be quite as easy to get the funding to start early on with something other than agriculture unless you had rich parents to co-sign.
did these government programs allow him to sink himself in too much debt
A business with government subsidies is just like a business without government subsidies, except with extra income that artificially skews something. If you fail to keep your expenses lower than your income, you are going to fail, regardless of whether you have extra income or not. I would imagine if this farmer failed with government help, he was probably going to fail without government help as well. Those government dollars probably went to someone other than the taxpayer though, so you have something somewhere that has an artificially inflated value.
Has the consolidation of the farming conglomerates forced farmers to live this way or are they drunk on all the free wine available to them, similar to easy credit for home loans a few years back. Let me know what you think.
I'm not quite sure what a farming conglomerate is. It seems everyone has a different definition. My family farms a little over 6000 acres. The people who make a living off of this are my mom, my dad, my wife and myself. Sometimes we have an employee that's making a living off of this as well. My parents drive a 99 Buick Park Avenue with over 350,000 miles on it. I drive a 2005 Honda Civic with over 140,000 miles on it. My parents live in an 80 year old house with an unfinished basement, no central air or heat, probably worth $40,000 to $60,000? My house is similar. It's older but does have central air and heat that was added on in a renovation. As you can see, we're not living like kings. We don't have a mega corporation with hundreds of employees (although we are incorporated). We have a net worth that is far larger than the average American but we put our money back in to the business and work hard rather than putting it in to personal spending. This has resulted in significant success on paper but if you saw us driving through your neighborhood you wouldn't think it by looking at us. Are we a farming conglomerate?
There are farmers who live off of less acres. There are farmers who live off of significantly more acres. The farmers with more acres have more employees and are therefore supporting more families.
These farm auction bankruptcies that you're appear to be referring to are not common. Those are a result of poor business management. Many (if not most) farms are run by multi-generation farm families that operate in the same conservative and responsible manner that has allowed them to become what they are. We will continue to make money with our without government subsidies because we push a sharp pencil and we work hard. Spectacular failures like what you're referring to will continue to happen because people are people and they make mistakes from time to time. A certain percentage of people make very serious mistakes. It's just how the world works.
I'm not really sure I answered all your questions satisfactorily. If you have more questions, feel free to ask.
Anytime something is subsidized you are creating an artificial winner and loser, and although some of the subsidies aimed at farmers are genuinely offered as a fix for a particular problem, like all free money soon become a neccesity.
I agree that there is an artificial winner here, as well as an artificial loser. I would argue that any government subsidy to agriculture makes land owners in to artificial winners. They would be winners without the subsidies, but they are moreso with the subsidies. Let's say that I feel like I can make a living if on average I make $50 per acre in profit. Now the government gives me and all of my neighboring farmers another $10 per acre. This does not mean that corn is worth more. It means land is worth more. I, and all of my neighbors can afford to pay $10 per acre more than we used to for land every year and still be able to make a living. This means that land has an artificially higher productive capacity than what would be natural. The losers in this scenario are the tax payers and the farmers. The tax payers, because they have to foot the bill, and the farmers, because if they don't take the money, their neighbor will and they won't be able to compete, and taking the money requires extra paperwork that is non-productive in a real sense but is productive in an artificial sense. Basically I'm saying I could spend my time doing much more productive things if I didn't have to do all the paperwork necessary to receive the handouts. I could just say no, I don't want the handouts, but then my neighbors would have a financial advantage over me and I'd eventually go out of business because I couldn't afford to pay the prices they pay for land.
You make the point yourself that farmers are using the excess funds to buy/lease more land when possibly the money could be used for better purposes.
This is not an accurate reflection of reality. Land cost is a business expense for a farmer. To farm, you have to have land. It is a very clear cut requirement. Without land, you cannot farm. Very simple. So a farmer does not use excess funds to buy or rent land. A farmer is required to use operating funds to pay for the cost of land. Even if you buy land with your profits, you are paying for that land every year in the form of opportunity cost. You could use the money you have in land and invest it elsewhere and possibly make more or less money depending upon your investing abilities and luck.
Let's say two farmers are willing to keep farming for a living if they can make $40,000 per year. They both have 800 acres of land, they both have a net income of $100 per acre per year. This means that they can afford to pay the land owner $50 per acre per year. Now the government pays them $10 per acre as part of a subsidy package.
Farmer A says, hey, cool, I'm making $8,000 more per year. Farmer B is smarter and says, I can farm twice as many acres and still have plenty of free time if I work efficiently I'll pay the land owner $60 per acre now and that way I'll be able to out-bid farmer A and have all of his land as well. Then I'll be making $80,000 a year.
Farmer B offers $60 an acre to his landlords and $60 an acre to Farmer A's landlords. Fortunately for farmer A, his landlords talk to him about it and give him the chance to pay more per acre. Farmer A grudgingly goes up to $60 an acre. Now farmer A and farmer B are both still making $40,000 a year, and the taxpayer is paying the land owners for the land that farmer A and B farm about $16,000 a year. This artificially inflates the value of the land because it has an artificially higher productive capacity.
Notice that neither farmer A or farmer B expanded in acreage. The people that benefited were the landowners and the people who got the shaft were the farmers (awkward negotiations with land owners and unproductive paperwork to qualify for the money) and the taxpayers.
The way a farmer makes more money than a competitor is not through government programs, it's through being competitive. If you can reduce your costs and maintain the same income, or if you can increase your income and maintain the same costs or if you can increase your acres while spending the same amount of time working then you have a competitive edge and you will be able to pay the going rate for land rent in the area and make more money than your competition. A government program does not cause you to make more money than your competition. It causes land values to inflate.
I watched a show on a farm being auctioned off and the machinery alone went for over a million.
You didn't mention whether the auction was a result of a bankruptcy or whether it was the result of a retirement or something like that. Farm auctions are very common for profitable farmers that are just retiring. An auction is not necessarily a reflection of living beyond your means.
That raises a ton of questions on my part: does it require that much capital to farm?
To get started it does not require that much capital if you are resourceful and conservative and hard working and willing to live on much less than the average salary. That is what it takes to compete with a farmer who has the size to take advantage of the economies of scale. For example, if you farm 10,000 acres you can buy your fertilizer, herbicides, seed, etc in bulk and get substantial savings. Our fertilizer comes to our farm by the semi load. I think we took somewhere around 40 to 50 semi loads of fertilizer this year. If you want to take advantage of economies of scale so that you can have a higher standard of living, then yes, it does take that much capital to farm. If you want to make barely enough to survive, then no, it does not take that much money to farm.
The government does do a few good things to help beginning farmers get started. You can get low interest loans that are essentially co-signed by the government for probably up to a half million dollars. These are only available to you for something like the first 6 years of your farm career. I guess the government figures that if you aren't established by then, you probably aren't very competent and they can spend their money more wisely elsewhere. If you are established then you don't need the help anymore anyways.
was this a case of a farmer foolishly overextending his credit
If he was having an auction because he was bankrupt, then yes. This happens in all businesses. If you owned a dirt moving company and had a couple of bulldozers, a backhoe and a few skid steers, you would have a million dollars of equipment as well. If didn't have your i's dotted and your t's crossed you would go bankrupt and have an auction just like that. There are many business that have high capital requirements. Farming isn't any different, although I'm not sure that it would be quite as easy to get the funding to start early on with something other than agriculture unless you had rich parents to co-sign.
did these government programs allow him to sink himself in too much debt
A business with government subsidies is just like a business without government subsidies, except with extra income that artificially skews something. If you fail to keep your expenses lower than your income, you are going to fail, regardless of whether you have extra income or not. I would imagine if this farmer failed with government help, he was probably going to fail without government help as well. Those government dollars probably went to someone other than the taxpayer though, so you have something somewhere that has an artificially inflated value.
Has the consolidation of the farming conglomerates forced farmers to live this way or are they drunk on all the free wine available to them, similar to easy credit for home loans a few years back. Let me know what you think.
I'm not quite sure what a farming conglomerate is. It seems everyone has a different definition. My family farms a little over 6000 acres. The people who make a living off of this are my mom, my dad, my wife and myself. Sometimes we have an employee that's making a living off of this as well. My parents drive a 99 Buick Park Avenue with over 350,000 miles on it. I drive a 2005 Honda Civic with over 140,000 miles on it. My parents live in an 80 year old house with an unfinished basement, no central air or heat, probably worth $40,000 to $60,000? My house is similar. It's older but does have central air and heat that was added on in a renovation. As you can see, we're not living like kings. We don't have a mega corporation with hundreds of employees (although we are incorporated). We have a net worth that is far larger than the average American but we put our money back in to the business and work hard rather than putting it in to personal spending. This has resulted in significant success on paper but if you saw us driving through your neighborhood you wouldn't think it by looking at us. Are we a farming conglomerate?
There are farmers who live off of less acres. There are farmers who live off of significantly more acres. The farmers with more acres have more employees and are therefore supporting more families.
These farm auction bankruptcies that you're appear to be referring to are not common. Those are a result of poor business management. Many (if not most) farms are run by multi-generation farm families that operate in the same conservative and responsible manner that has allowed them to become what they are. We will continue to make money with our without government subsidies because we push a sharp pencil and we work hard. Spectacular failures like what you're referring to will continue to happen because people are people and they make mistakes from time to time. A certain percentage of people make very serious mistakes. It's just how the world works.
I'm not really sure I answered all your questions satisfactorily. If you have more questions, feel free to ask.
The basic cost to me, for allowing the government to subsidize the farming sector is small, but overall very expensive. And you cant forget you push poor farmers in third world countries further into poverty, just to protect one part of the economy. Producing crops in very temperate climates could produce 2 or 3 crops a year, instead of producing one crop in the middle of the US. This would bring the price down, making food even cheaper, meaning people could spend their money on other goods, increasing their standards of living.
The concept that subsidizing farmers is decreasing the cost of commodities is prevalent it appears. It is also quite confusing to me. I have yet to see anyone post an example of how farm subsidies reduce commodity prices. I have posted examples of how they do increase land costs. Can someone explain to me why I am wrong? Does the United States government buy corn from the United States farmers for $7.50 a bushel and then sell it to the rest of the world for $3.50 a bushel? I really have seen any evidence that happens. If it did happen, then yes, definitely you would be hurting the farmers in other countries at the expense of U.S. taxpayers while very significantly benefiting farmers. This is not what is happening though. Like I explained, farmers will make the same profit whether there are government subsidies or not. Corn prices are a function of supply versus demand. The government subsidies do not increase the supply. Instead, they increase land values.
The concept that subsidizing farmers is decreasing the cost of commodities is prevalent it appears. It is also quite confusing to me. I have yet to see anyone post an example of how farm subsidies reduce commodity prices. I have posted examples of how they do increase land costs. Can someone explain to me why I am wrong? Does the United States government buy corn from the United States farmers for $7.50 a bushel and then sell it to the rest of the world for $3.50 a bushel? I really have seen any evidence that happens. If it did happen, then yes, definitely you would be hurting the farmers in other countries at the expense of U.S. taxpayers while very significantly benefiting farmers. This is not what is happening though. Like I explained, farmers will make the same profit whether there are government subsidies or not. Corn prices are a function of supply versus demand. The government subsidies do not increase the supply. Instead, they increase land values.
I think this is the key to the subsidy increasing land value versus the subsidy decreasing a commodity price:
If commodity prices were low enough that farming was not profitable even with zero land cost, then subsidies could increase bushels produced and thereby artificially suppress commodity prices.
That scenario is not a reflection of reality though. Commodity prices are high enough to support extremely high land prices, as well as a good income for farmers. If you add subsidies to that, the farmers will still want their good income, and the rest will go to increase the value of land even more.
Low commodity prices are not something that have existed for quite some time. If we have commodity prices that can support $10,000 per acre land prices in Illinois then I think that commodity price should surely be something that someone in a third world country could live off of. The problem with them is that they do not have the infrastructure to get their product to the market. It really has nothing to do with the supply and demand picture.
If commodity prices were low enough that farming was not profitable even with zero land cost, then subsidies could increase bushels produced and thereby artificially suppress commodity prices.
That scenario is not a reflection of reality though. Commodity prices are high enough to support extremely high land prices, as well as a good income for farmers. If you add subsidies to that, the farmers will still want their good income, and the rest will go to increase the value of land even more.
Low commodity prices are not something that have existed for quite some time. If we have commodity prices that can support $10,000 per acre land prices in Illinois then I think that commodity price should surely be something that someone in a third world country could live off of. The problem with them is that they do not have the infrastructure to get their product to the market. It really has nothing to do with the supply and demand picture.
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George the original one
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From what I've seen, subsidies are usually used to create a "floor" for the farmer with the idea being that a guaranteed minimum price will ensure there is no drastic shortage of certain commodities.
As dpilot83 says, in the US this usually works to the landowner's advantage. Sometimes it has helped the consumer, too, by avoiding severe shortages of a commodity in any particular year becuase farmers have a reason to plant the crop, but more often it means slightly inflated prices for the consumer.
[weather has finally warmed up in Oregon City to where I'm now planting the EARLY corn crop in the garden... two weeks later than normal for me]
As dpilot83 says, in the US this usually works to the landowner's advantage. Sometimes it has helped the consumer, too, by avoiding severe shortages of a commodity in any particular year becuase farmers have a reason to plant the crop, but more often it means slightly inflated prices for the consumer.
[weather has finally warmed up in Oregon City to where I'm now planting the EARLY corn crop in the garden... two weeks later than normal for me]
I consider government policy towards sugar/ethanol imports (high tariffs) to be a subsidy of domestic corn.
dpilot said "If commodity prices were low enough that farming was not profitable even with zero land cost, then subsidies could increase bushels produced and thereby artificially suppress commodity prices. That scenario is not a reflection of reality though."
People will make the most profitable use of any land. If a landowner can make $50/acre as farmland or $55/acre as a parking lot, he will make a parking lot. If the government then gives a $10/acre subsidy for farmland, that parking lot will become farmland (ignoring conversion costs). Therefore, subsidies cause more land to be used for farming than otherwise would be. More land used for farming causes greater supply. Greater supply generally results in lower prices. I'm not an economist, and haven't thought through this as thoroughly as dpilot, but this seems to make sense.
dpilot said "If commodity prices were low enough that farming was not profitable even with zero land cost, then subsidies could increase bushels produced and thereby artificially suppress commodity prices. That scenario is not a reflection of reality though."
People will make the most profitable use of any land. If a landowner can make $50/acre as farmland or $55/acre as a parking lot, he will make a parking lot. If the government then gives a $10/acre subsidy for farmland, that parking lot will become farmland (ignoring conversion costs). Therefore, subsidies cause more land to be used for farming than otherwise would be. More land used for farming causes greater supply. Greater supply generally results in lower prices. I'm not an economist, and haven't thought through this as thoroughly as dpilot, but this seems to make sense.
@ dragoncar
When you increase demand (ethanol subsidies) you will experience increased prices. Supplies will increase in response to that demand increase unless you are in an inelastic market. Prices should eventually stabilize at a similar price to what they were before the change in demand. This really hasn't happened with corn. Corn is still significantly higher in cost than it was before the ethanol subsidies even after several years of record crop sizes. If I may be so bold, I believe artificially low food costs will be the least of our concerns in the not so distant future. I believe we are quite close to the inelastic portion of the supply and demand relationship.
When you increase demand (ethanol subsidies) you will experience increased prices. Supplies will increase in response to that demand increase unless you are in an inelastic market. Prices should eventually stabilize at a similar price to what they were before the change in demand. This really hasn't happened with corn. Corn is still significantly higher in cost than it was before the ethanol subsidies even after several years of record crop sizes. If I may be so bold, I believe artificially low food costs will be the least of our concerns in the not so distant future. I believe we are quite close to the inelastic portion of the supply and demand relationship.
Now you are switching the topic from farm subsidies to ethanol subsidies. Yes, subsidizing ethanol increases demand for corn and drives the price up. But it's not a farm subsidy, and not really relevant.
Subsidies for growing corn would not increase demand for corn. They would increase supply, driving the price down.
Subsidies for growing corn would not increase demand for corn. They would increase supply, driving the price down.
Think like this:
Subsidies are cut --> farmers receive less for their crops --> farmers who cant compete go under --> thousands loose their job --> total production falls --> drives prices for produce up --> increased price for commodities entices further expansion in farming --> competitive/smart farmers expand --> they earn more money --> more people wants to farm --> more farmers produce more food --> food prices goes down --> we achieve "equilibrium" price in the long run..
Subsidies creates waste, since unproductive farmers who would never be able to compete in a free market ( either because of work ethic, wrong climate, poor soil type, not industrious enough) are able to sell their produce at a higher price then the market would buy if they are faced with a "correct" price.
Worse even still, is that farming is one of the only sectors poor third world countries have a comparative advantage ( more efficient to produce, i.e better climate ), can`t compete with the low prices the over-production in first world countries. Since they cant find buyers of their own crops, because people buy the cheaper imported stuff, they go under, or just produce enough for subsistence. Which wont do any good, if that country is to achieve a higher standard of living.
Subsidies are cut --> farmers receive less for their crops --> farmers who cant compete go under --> thousands loose their job --> total production falls --> drives prices for produce up --> increased price for commodities entices further expansion in farming --> competitive/smart farmers expand --> they earn more money --> more people wants to farm --> more farmers produce more food --> food prices goes down --> we achieve "equilibrium" price in the long run..
Subsidies creates waste, since unproductive farmers who would never be able to compete in a free market ( either because of work ethic, wrong climate, poor soil type, not industrious enough) are able to sell their produce at a higher price then the market would buy if they are faced with a "correct" price.
Worse even still, is that farming is one of the only sectors poor third world countries have a comparative advantage ( more efficient to produce, i.e better climate ), can`t compete with the low prices the over-production in first world countries. Since they cant find buyers of their own crops, because people buy the cheaper imported stuff, they go under, or just produce enough for subsistence. Which wont do any good, if that country is to achieve a higher standard of living.
Now you are switching the topic from farm subsidies to ethanol subsidies. Yes, subsidizing ethanol increases demand for corn and drives the price up. But it's not a farm subsidy, and not really relevant.
Subsidies for growing corn would not increase demand for corn. They would increase supply, driving the price down.
I was reading too quickly and just read the word ethanol and the tariff part didn't click with me. I honestly don't know anything about tariffs for sugar and ethanol. If you're interested in enlightening me, I'm interested in learning.
Subsidies for growing corn would not increase demand for corn. They would increase supply, driving the price down.
I was reading too quickly and just read the word ethanol and the tariff part didn't click with me. I honestly don't know anything about tariffs for sugar and ethanol. If you're interested in enlightening me, I'm interested in learning.