How does the government paying farmers to leave portions of their farmland fallow help them and us. I understand that it has something to do with keeping up the current value of the crops that they do produce, but how does it help the American public to spend money destroying something which we could use to increase our GNP?
This must be one of those counter-intuitive aspect of economics which caused me to run screaming from the lecture hall.
YOU did economics and you DON’T understand the mechanism at work here? I hope to god you didn’t pass the course, 'cos I’d hate to think that you were responsible for the running of the economy…
It’s the very VERY basic tenet of Supply and Demand.
When something is in ample supply, the price goes down.
When the supply of that commodity is limited (or restricted as in the case of the US govt. destroying crops), the price per bushel, tonne, whatever goes UP.
Thus, there are greater returns per kilo when there is a shortage of the said commodity, and for the individual farmer, it makes sense to take a ‘grant’ from the govt. to destroy the crop compared to the lousy returns that would come from harvesting and selling on the international market.
IN THIS WAY DOES THE US AGRICULTURE DEPT MAINTAIN A MONOPOLY AND CONTROL OF WORLD COMMODITY SUPPLIES AND PRICES, TO THE DETRIMENT OF THE TRADING RETURNS OF THE REST OF THE WORLD.
That is all…:mad:
Another theory is that land can only be used so much before it loses it’s potency. Think of the great loss of the thickness of the fertile soil that has occured on the Great Plains in the past 2 centuries.
So farmers who live a year to year existence with the dangers of losing their farm with a bad year or two are prone to using all of their land all of the time to try and gain some buffer between themselves and bankruptcy. By having farmers leave some land fallow the farmers benefit by still keeping income without having to work too hard for it, and the nation benefits by assuring that the land will retain it’s potentency for more years ensuring a steady food supply in the future.
Farming can be a very destructive force for the land. And many farmers have done this throughout history without government funding.
Here’s one farm that does it. I don’t know whether they are paid to leave their feilds fallow but they talk about why they do it.
Lundberg Farms does it
You’ve also got to remember that the farm lobby is extremely powerful. That is also the reason there are price supports for products that are over produced in the U.S.
Thus shifting ‘supply and demand’ to ‘oversupply and not as much demand, but we will get paid what we think it’s worth anyway.’
One argument is that artificially sustaining an effective oversupply in ‘good’ years helps prevent famine in ‘bad’ years. If all farmers grew all they could, then the oversupply during unusually good growing seasons would depress prices to the point that many farmers would be bankrupted. Then, during a year where growing conditions were poor, the remaining farmers would be unable to produce enough to feed the nation. By maintaining a phantom market, the government is trying to keep food production capacity in place for famine years.
Secondary to being a price support, some crop reduction programs are used to restore native grasslands. A friend in Oklahoma is in the CRP. He had to establish a native grassland within X number of years or else pay back what he owed.
In economic terms, the grassland reclamation does address a long-term surplus, and the hardier ground cover will help reduce loss if we have another dust bowl.
Recent related commentary: Why is milk more expensive than gasoline?