Yes, and sometimes it’s possible for them to work too good too.
What happens if there is no government oversight and one year everyone decides that corn is the best crop based on last year’s price?
This year most farmers spend their money on a corn crop. They put a lot of money into it, and when harvest time comes around, this is when everyone finds out.
This year the sales price of corn drops to 25% of what it was the previous year, because of an over abundance.
Overnight 40% of the farmers in the U. S. can’t get a decent price for their crop and they are bankrupt.
The next year, there are not corn crops. The price of corn skyrockets and supplies are not sufficient.
The next year, it starts all over, folks hoping to make a great profit off of corn since there’s a big need, based on the previous year.
If you have a solution to this, I’d be glad to hear it.
I admit I fudged the figure to make my point, but this argument isn’t without merit.
People are paid not to grow certain crops to avoid this.
And what if forty percent of that corn crop was NOT used for ethanol?
There would be the opportunity to reward family farms and create a disincentive for huge agri-businesses if you want to play that policy game.
But—corrupt politicians have figured out how to maximize their utility abusing the system while making your policy argument.
That is not a flaw in your argument—that is just the way the real world works.
Farmers do not exist in a vacuum. They actually talk to each other and they know a lot better then bureaucrats what grows well and what sells well.
Small farmers, who quite often are too small for the government to bother with, are perfect examples of what can be done. Somehow despite no government nanny running things farmers markets are filled with a variety of produce.
Not everyone is going to grow corn because not every place is good for growing corn.
And corn is not like lettuce, if you don't sell in one year you actually can hold it over until the next year.
The idea of "paying people not to grow something" is a hangover from FDR's stupidity and resulted in the last time American actually starved.
Government controls are actually what results in "boom bust cycles"
You see this in the dairy industry.
What if all manufacturers in the US decided tomorrow to make cellphones because there is so much money in them. The price of cellphones collapses, but we no longer have cars or airplanes or kitchen appliances.
Makes about as much sense...
Why would a soybean or wheat or potato farmer suddenly drop everything and switch to a new crop?
I do believe that govt subsidies over the long term are counter productive. But I also believe they should be phased in (over maybe 5 years); thus, giving farmers the ability to adjust. Remember the overwhelming majority of "farmers" are big corporations.
Markets do not work good or bad. The have no conscience or morality. The function of a market is to allow for the exchange of goods and services. The exchange can be free, fair, rigged, profitable, or unprofitable.
Thats not unique to corn or anything else in the marketplace. Why are farmers given a pass on supply and demand economics?. Too much crops and too low a price is called a signal. It signals that some of you need to quit growing this crop or lower your costs. The market is sending the signal but our governemt keeps overiding it because farmers want to their gibmedats.
Look wjhat happens in oil and gas. Want to prop up the low prices in that market?
I'd like $230 million a year..
Some less than I make now...
Big guy, I’m guessing you’re not a farmer.
Therein lies the flaw. You rely on the funder to make your choice. The government as a funder is usually lazy and makes poor choices. If left to their own devices, farmers would make their own choices. The ones who make good choices will succeed. Those who make bad choices, will fail. The market weeds out the incompetent whereas the government enables them.
“If you have a solution to this (individual crop choices unbalancing prices), I’d be glad to hear it.”
The bottom line is that prices and markets are are sent much more out of balance by central planners than they are by free markets with lots of individual choices. That is the moral of the story, in the article about the real experience in New Zealand.
Farmers don’t just dumbly bump along like lemmings, planting what everyone else plants - they think, worry and research long and hard on how prices might go, and what their best options are. Poor decision makers get weeded out over time. When New Zealand’s Government dropped their central planning and subsidy efforts, the individual decisions resulted in better growth, efficiency and profits. Nowadays, much more info is available to farmers to make better decisions.
Government planners are not playing with their own money, and are more motivated by political factors than economic factors - they always will be.
As in other areas of economics, the left promises (lies) to remove all the risk from life, if everyone will just put all the money into their hat and give them all the power to dole it out. They just skim off unnecessary overhead, skew incentives out of whack, and mis-allocate resource worse than professional farmers doing their best to make the best possible decisions in each of their cases.
For some time they can cover their inefficiencies with more more money mis-allocated from other people and industries - until they finally run out of other people’s money to spend, and the inefficiencies grow so big as to crash the whole economy (see the example of every centrally planned socialist experiment in history).
The issue is not production or periodic droughts.
The issue is concentration in distribution of grain.
ADM, Continental and Cargil own the global grain distribution system.
The only time there is a good price for production? When there is none.
Otherwise the slam everyone else. It is just how it is.
Government programs are a pain in the A. In most cases not helpful at all.
My family has owned/operated farms in this county since 1889. Only way to survive is stay out of the banks. Be lucky enough to have a little oil production. Have some cattle to feed surplus grain to when the bottom falls out of the market. Don’t put all your eggs in one basket. The years you hit, you have to buy equipment for the long haul.
Also smart to have a non-farm job to supplement.
Get past that? It is a pretty good life. Especially if the Fed Bureaucraps would leave us alone. They won’t.
nope
Diversification.
Don’t put your eggs all in one basket.
You need to read what wasn’t said.
As soon as the subsidies were removed the farmers started to innovate. What wasn’t said is that the subsidies had caused production to stagnate. Government subsidies cause stagnation. Your hypothetical scenario is more likely when there is government subsidies, not the other way around.
The article also points out that the farmers are now more EFFICIENT (the article says “produce what people really wanted”). What wasn’t said was that subsidies are inherently INEFFICIENT. Farmers now respond better to fluctuations in demand than they did while on subsidies. So again, your scenario is more likely under government subsidies.
Finally the core of what you are asking is centralized planning which we know doesn’t work. But we do know you mean well ... comrade ;)
Are you sure you are on the right forum? This is Free Republic, not D.U.
Have the farmers declare what they are planting. Then other farmers can see if one crop is being over planted and grow something else. If planting totals were declared the over/under planting of crops would be reflected in the futures market and farmers could adjust.
Apparently, this boom and bust cycle wasn’t much of a problem in New Zealand, and if the US treated subsidy elimination like New Zealand did, then impoverished farmers on the low end of such a cycle would qualify for AFDC, food stamps, etc.
With the information technology that's at everyone's fingertips nowadays, there's absolutely no need for bloated, "old school", big government, subsidized solutions to agricultural challenges.
In general, the government needs to just stay out of the way, and if New Zealand has shown that this is possible in the 21st century with respect to ag subsidies, there's no reason that the United States couldn't take a look at new approaches as well.
Vote Trump!