Comments on: Against Farm Subsidies

By: Nekliw

Nekliw — Fri, 30 Nov 2012 03:37:42 +0000

“Thus, if you are someone who pays federal income tax, then you essentially break even in this deal. The only people that actually benefit in the end are those who don’t pay any federal income tax.”

People who don’t pay federal income tax, assuming they don’t have huge amounts of assets, qualify for food stamps which is a direct subsidy.

One could argue that farming subsidies may benefit lower middle class and middle class families by reducing food expenditures, though the magnitude may be immaterial.

I agree with Michael Snow on this matter. Most farm subsidies benefit corporate farms. They strong arm the government through lobbyists to ensure that they can out price international competition, specifically those in Latin America and Africa. I don’t think this is another example of wealth redistribution between classes but wealth redistribution between nations. We haven’t moved away from a mercantile system.

By: Michael Snow

Michael Snow — Thu, 29 Nov 2012 19:33:18 +0000

And so the beat goes on, lining the pockets of the big guys who continue to inflate the cost of land as they acquire more and put it beyond the reach of the little guy.

By: Michael PS

Michael PS — Thu, 29 Nov 2012 15:59:18 +0000

Of course, agricultural subsidies and protective tariffs can be introduced, not for economic, but for strategic reasons, as they were in Europe in the aftermath of WWII.

Even Adam Smith approved of the Navigation Acts on those grounds.

By: Michael Snow

Michael Snow — Thu, 29 Nov 2012 05:49:29 +0000

“Unfortunately, the farmer who prefers to make a living without government assistance is left with a choice: be a “taker” or go out of business.”

Wrong! I am a 5th generation family farmer. What government subsidies have done is put lots of money into the pockets of the agribusiness farmers who keep getting bigger and bigger, swallowing up the family farmer.

I can live without the government. The big guys can not.

By: John

John — Thu, 29 Nov 2012 00:33:04 +0000

Adam, I meant inelastic. That was a typo.

For the big farm subsidy, corn, I imagine demand is highly inelastic.

By: Janice

Janice — Wed, 28 Nov 2012 21:58:05 +0000

My family has been in the farming business for well over 100 years and I have yet to see any family farmers becoming wealthy. So much of their ‘wealth’ is tied up in land and machinery which they need to grow crops or maintain livestock. In addition, so many jurisdictions have restrictions on how much land a farmer can sell or subdivide.
Subsidies are a no win situation for farmers.

By: Adam Baum

Adam Baum — Wed, 28 Nov 2012 20:38:33 +0000

“Demand for food is probably inelastic. ”

First of all there is no “food”, there are “foods”. and any agggregation is an arbitrary collection of economically dissimilar goods. When measured, some foods are highly elastic and some are inelastic. Moreover elasticity of demand varies with price. I tend to think, that for many foods-given all of the price promotion we observe- demand is somewhat elastic, since that would mean sellers are hoping to offset a percentage price decrease with a greater quantity increase.

“Halving food prices doesn’t mean you’ll eat double.”

True, but that has nothing to do with the concept of elasticity. Halving food prices will induce income and substitution effects.

“So producers can charge more than if demand is elastic.”

You have stated the polar opposite of the concept of elasticity.

Producers can charge more if demand is INELASTIC, since inelastic demand means sales are insensitive to price changes. If you can charge 10% more, and sell 5% less in quantity, that’s inelastic. It’s Econ 101 that when confronting elastic demand, the producer has less power to affect prices.

By: John

John — Wed, 28 Nov 2012 19:57:28 +0000

That’s literally a Marxist explanation. The price of food isn’t determined by the farmer’s needs but by the market. The linked post acknowledges that. Farmers would like to wash their hands of undeserved profits but have to resort to Marxism to do it. By lowering the cost of production, the subsidies incentivize more farming. Prices fall but quantity increases. Both consumers and producers benefit and the costs are spread across all of society so that producers bear less of the cost. But it’s actually probably worse than that. Demand for food is probably inelastic. Halving food prices doesn’t mean you’ll eat double. So producers can charge more than if demand is elastic. So they actually reap more of the subsides than consumers.

By: Michael PS

Michael PS — Wed, 28 Nov 2012 19:13:57 +0000

Sorry, I should have said their profit will be $95 or $190, with the first 40 bushels covering the cost of production

By: Michael PS

Michael PS — Wed, 28 Nov 2012 19:11:04 +0000

Cbalducc

That is inevitable, given that the cost of production per acre is the same for all producers in the same area, but one parcel of land will produce a higher yield than another. Now, the market price will always reflect the cost of production on the marginal land, that is land that simply covers the cost of cultivation. If the price falls, the marginal land will be taken out of production; if it rises, sub-marginal land will be brought into production. Put another way, the margin will shift.

If farmers on the marginal land are getting 40 bushels of barley an acre and covering their production costs and farmers on the prime land are getting 60 or 80 bushels an acre, then, if the price is $4.75, those on the prime land are going to make a clear profit of $285 or $380 an acre. in other words, the extra yield costs them nothing. That is true, subsidy or no subsidy.

A subsidy simply lowers the cost of production, stimulating production and supply and thereby exerting a downward pressure on prices.