Farm program considerations: Part 6

In this series of columns, we have argued that a) governmental farm program programs are necessary because of the inability of aggregate agriculture on both the supply and demand sides to adjust to low prices in the short-to-medium run, b) current farm programs are ineffective in dealing with the price/income problems that result from extended periods of low prices, c) current farm programs are more expensive than alternative policies that treat the cause of these low price periods, and d) a government supply management program that puts the relatively small amount of a crop that is in excess of current demand into a reserve deals with the cause of chronic low prices (for a fuller discussion of these and related ideas, see www.agpolicy.org, columns 845 to 850). Early on in the supply management program in the US, when farmers forfeited the portion of their crop used as the basis for a government crop marketing loan in lieu of paying off the loan plus accumulated interest, the ownership of that portion crop was transferred to the Commodity Credit Corporation (CCC), a government entity. The farmer was not able to sell the crop until a release price was reached at which time the farmer was could sell the crop and use the proceeds of the sale to pay off the loan plus interest. The farmer would be able to keep the difference between the sale price and the loan payoff. Now let’s look at the difference between the two ways of holding the reserve. When the CCC held the reserve, if the price was not reached, even if it was just a nickel or a penny away from that level, the crop was not sold. The interest of the government in this program was to provide a reasonable, predictable, stable price band that benefitted both producers and crop consumers and was not in receiving the immediate profit. Crop users may have wanted to gain access to the crop, but until the release price was reached it remained in storage.