Thursday, June 07, 2012

Agro-Scam

Time does not permit us to list the many ways in which American agricultural policy is mistaken.  Suffice it to say that, in the quest for votes from thinly-populated states, generations of Midwestern politicians have steered huge amounts of pork to the farm.  Which is funny, because the pork is supposed to come from the farm, but ... whatever.  Where were we?

Oh, right.  The latest scam is farm insurance.  The Times covers it here; we'll try to simplify.

Remember that farming is a tough way to make a living, and that large portions of North America are not especially fertile.  The Great Plains are like the Amazon rain forest:  seemingly lush, but really made of thin (and on the plains, arid) topsoil which already grows pretty much whatever it can.

For a long time, farmers desperate to squeeze every dollar out of their land would plant in places where the yields were likely to be small indeed.  This exhausted the land, and led to soil erosion -- which in turn poses a threat to the more fertile areas.  So, for years, the government has paid landowners not to farm on marginal land.  It's not a fortune -- about $50/acre/year, but still:  they pay farmers just to own land and not to farm it.  In addition, the government subsidizes private insurance for farmers, to protect them from poor harvests.

This doesn't sound like a great policy, but it's better than the new one working its way through the Senate.

Here's what has happened:  certain crops -- notably corn and soybeans -- have become more valuable over the past few years.  This means that farmers make more money.  This, in turn, means two things:
  • Insurance costs go up -- about $1.2 billion to $7.3 billion since 2000; and
  • The pressure to convert marginal land increases.  That $50/acre doesn't amount to much if you can grow even a few of those newly-precious soybeans on it.
So, basically, farmers -- largely meaning agribusinesses these days -- are doing pretty well because their product is more valuable.  But rather than encouraging them to protect the land, it encourages them to go back to pushing it beyond its natural limits.

And now, our bold and courageous senators propose to change the insurance program.  Instead of paying farmers to keep the marginal land wild, they want to create a $3 billion subsidy for insurance against losses on any land which is farmed.  Which means that even if you have made the stupid and short-sighted decision to farm on lousy land, and if -- as one might expect -- your harvest is not good, you still get paid.

All this creates an evident moral hazard.  Here's the Times:
By guaranteeing income, farmers say, crop insurance removes almost any financial risk for planting land where crop failure is almost certain.
“When you can remove nearly all the risk involved and guarantee yourself a profit, it’s not a bad business decision,” said Darwyn Bach, a farmer in St. Leo, Minn., who said that he is guaranteed about $1,000 an acre in revenue before he puts a single seed in the ground because of crop insurance. “I can farm on low-quality land that I know is not going to produce and still turn a profit.”
Another quote compares it to a bailout -- but one which is repeated every year.

Is this sort of thing dumber than, say, government insurance on beachfront property?  No, because farming really is tough, and because America needs food in a way that it doesn't need, say, private beaches.

But it's still pretty dumb.

1 comment:

Yank lll said...

Anyone who doesn't consider that creating a new era of drought disaster and the destruction of our agricultural system simply doesn't get it.. it's about "fundamentally changing" our nation and its foundations.. how more appropriately to fundamentally change the nations that feeds the world and create world wide strife and famine than to destroy our agricultural foundation. Its not accidental, its intentional.. you cant fix something you consider corrupt and unfair until you first break it.

Yank lll