Resolved: That the United States should substantially change its federal agricultural policy.
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|Source: Business Week, June 28, 1999 i3635 p32.
Title: LET THE MARKETS DO THEIR JOB.(U.S. agricultural policy)(Brief
Full Text COPYRIGHT 1999 The McGraw-Hill Companies, Inc.
Three years ago, Congress began a bold experiment in agricultural policy. Ending 60 years of micromanagement, a landmark 1996 bill gave farmers the freedom to plant what they wanted, when they wanted. But it also swept away much of the financial safety net of price supports for U.S. crops. With prices rising and global demand soaring, lawmakers and farmers were happy to exchange the bureaucratic rulebook for the Invisible Hand. But the move raised a troubling question: The next time agriculture hit a downdraft, would Washington really let the market work? Dumb question. In 1999, Uncle Sam will dole out some $14.4 billion to farmers--nearly double the $7.3 billion it provided in 1995. That includes a $6 billion emergency relief package that Congress passed just in time for 1998's midterm elections. And farm and banking groups are now making the rounds on Capitol Hill and at the White House asking for up to $8 billion in extra emergency aid. Some senators, such as Pat Roberts (R-Kan.), want to boost remaining subsidies. When the 1996 bill passed, ``everyone said `Hallelujah! Amen! We can plant what we want,''' says Cornell University agricultural economist Andrew M. Novakovic. ``But the first time prices go in the toilet, it's back to Washington for help.'' This is no way to run farm policy. The basic problem, says agricultural economist Jerry R. Skees at the University of Kentucky, ``is that Congress wants to take the risk out of agriculture. You can't do it.'' Indeed, it's a simple law of economics that the prospect of bailouts in times of trouble leads farmers to take more risks, such as planting additional, marginal acres. That makes the system less efficient and more vulnerable to shocks. The problem with bailouts has surfaced before: Remember the savings-and-loan debacle.
PULLING WEEDS. Moreover, subsidies prevent market forces from weeding out less adept farmers. Indeed, the riskier world brought by the '96 bill has created two groups, says Alan States, a farmer and bank president in Hays, Kan.: ``Those who have adapted and those who haven't.'' States has boosted his income by adjusting the crops he plants and hedging on the financial markets. So ``let's not throw out the most dramatic reform of farm policy in 60 years at the first signs of stress,'' he adds. That's not to say Washington should turn its back on farmers. ``Except for water, there is no more important commodity than food,'' says agricultural economist Barry Flinchbaugh of Kansas State University. ``And as long as we use food as a diplomatic tool, the government has the responsibility to protect farmers'' from trade actions that affect demand for crops. Part of the solution should be an improved and expanded system of crop insurance, so farmers can buy the protection they need. But Uncle Sam must stick with the spirit of the 1996 farm bill. In the long run, America would have a stronger, more competitive farm economy if Congress would give the free market a better chance of working.