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573-547-2244 • FAX 573-547-5663 The MidAmerica


Farmer Grower


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2• MidAmerica Farmer Grower / April 14, 2017 Perryville, MO 63775


pennings


∆ Contact Dr. Harwood D. Schaffer or Dr. Daryll E. Ray at the UTʼs Agricultural Policy Analysis Center by calling (865) 974-7407,faxing (865) 974-7298, or emailing hdschaffer@utk.edu or dray@utk.edu. For more info, visit: www.agpolicy.org


Early Farm Program Proposals Are Found Wanting


A


year away from the expiration of the 2014 Farm Bill, we don’t see a lot in the way of concrete compre-


hensive proposals for commodity pro- grams. We have heard discussions coming


out of the northern plains about a 3-4- year land idling program to increase crop prices. There are hints that serious thought


is being given to strengthening the tar- get price, Price Loss Coverage (PLC), program as the Agricultural Risk Cover- age program is not performing well in the current sub-$4.00 corn price period. Despite prices, and thus revenue in-


surance coverage levels, it would be foolish to underestimate the likely in- fluence of the crop insurance industry in the writing of the 2018 Farm Bill. Adding to the lack of clarity is the slow


confirmation process for the next Secre- tary of Agriculture and the lack of state- ments by the administration about its view of the direction it wants to take in the setting of farm policy. As we think about farm policy, we


need to keep in mind the economic characteristics of food and farm policy, especially the response to low prices. Consumers do not respond to low crop


prices in the same way that do for other products. With low crop prices, people do not go from eating 3 meals a day to eating 4 or 5. They may eat a better cut of meat or more highly processed food, but the aggregate amount of food con- sumed basically remains the same. But let the price of large flat screen televi- sions drop and watch people move to re- place their older and smaller televisions, relegating the old TV to a less used part of the house. This response to low crop prices on


the behalf of consumers is called the low price elasticity of demand. Similarly, when crop prices are low,


crop farmers do not significantly reduce their production of crops. They may switch from one crop to another to min- imize their losses but they use all their land all the time. As long as the price or hoped-for price is above the variable cost of production they have every in- centive to make up for lower prices with increased production. This response to low crop prices on


behalf of producers is called the low price elasticity of supply. As a result, in response to low crop


prices, neither an increase in the quan- tity demanded nor a decrease in the quantity supplied is sufficient to result


LETTERS TO THE EDITOR Letters to the Editor are requested and encouraged. Please include the writer’s name, ad- dress and daytime phone number. Letters should be sent to: Editor, MidAmerica Farmer Grower, P.O. Box 323, Perryville, MO 63775; faxed to 573-547-5663 or e-mailed to editor@mafg.net. Letters will be edited for space and clarity.


ARTICLE REPRINTS For reprints of an article, copies of past issues or to obtain permission to reproduce material from MidAmerica Farmer Grower, call 573-547-2244 or email publisher@mafg.net


DR. HARWOOD D. SCHAFFER


Adjunct Research Assistant Professor, Sociology


Department, University of Tennessee and Director,


Agricultural Policy Analysis Center


in a timely return to farm profitably. Thus, farmers experience long periods of low prices, punctuated by short peri- ods of high prices. Any farm program policy will be suc-


cessful only to the extent that it takes into account the low price elasticity of both supply and demand – other issues like the environmental impacts of crop and livestock production will require other criteria. With that in mind, let us look at the three proposals we described above. A 3-4 year land idling program does respond to the low price elasticity of


DR. DARYLL E. RAY


Emeritus Professor, Institute of Agriculture, University


of Tennessee and Retired


Director, Agricultural Policy Analysis Center


supply by paying farmers to idle a por- tion of their cropland – most likely land with some negative environmental im- pact. But unless an adequate amount of land is taken out of production over a much longer period of time, the price impact may be short lived. And, without a crop reserve, con-


sumers are not protected in the event of a repeat of the 2012 drought across the Midwest that resulted in significantly reduced corn production. It takes more than a land idling program to provide price stability for crop producers and CONTINUED ON PAGE 15


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