Tuesday, May 31, 2011

Thurow blog on US farm subsidies

Here is an article from Roger Thurow about cutting US farm subsidies. He makes the familiar argument that these subsidies enable farmers to produce grain at a loss, and thus drive prices down for farmers in the rest of the world. I left a comment at the bottom of the article, which I'm reproducing below:

"I am not sure if the prognosis of cutting subsidies is appropriate. What about retooling them to the system of price supports and supply controls prevalent in the US before the 1970s? Basically the government was a guaranteed last-resort buyer when prices fell below a certain level, and sold off stored surplus when prices rose. This stabilized prices and grain supply, for the US and presumably for the rest of the world too. Farmers and consumers benefited from a predictable, stable price and supply. Starting in the 1970s, this system changed such that the government simply paid farmers for any price shortfalls, as opposed to actually buying low-priced grain from farmers. Hence the government spends the same amount or more as it did before, but without serving as a buffer to grain supply and prices. Farmers have a permanent incentive to overproduce, driving prices lower, world supply higher, and costing ever more to the government. The main groups that benefit from the present modality of US farm subsidies are food traders and processors, who don't want stable, reasonable commodity prices. Processors want low prices, and traders want unstable ones.

"To summarize, I would argue that the problem with US farm subsidies isn't their amount but rather their way of functioning."

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