This is a good read

http://tinyurl.com/22cz64

Someone smarter than me in the ways of economics, tell me what effect removing farm subsidies will have on people. Will farmers suddenly go bankrupt? Will the country get healthier?

4/27/2007 11:58:43 AM

The problem with farms is that unlike other industries, a farmer cannot control his output. A normal company would achieve the price point of P=MC (in a perfectly competitive market). Farmers face a competitive market, but cannot adjust their outcome, if it's a bad harvest, it's great for the farmer as he only has to gather a few of his products and sell them for a huge amount (as all the other farmers most likely had a bad harvest as well). Now if it's a good season, the farmer is in trouble. He now has more product than he can gather, and would have to hire additional help to gather it all, but the price of the resource gathered doesn't justify the cost of gathering it (as all the other farmers had too much produce as well). This is why you used to see farmers burning food on a good harvest.

Government subsidies help to try and allieviate this problem by buying the excess off a good harvest and selling it on a bad harvest. That's at least the idea, I don't really know if this has become perverted, but it would seem like the perishable foods could control their output thus should not be subject to subsidies.

4/27/2007 1:13:35 PM

As usual, Kris is a century or so late in his analysis. Back then farmers had no choice but to self-insure their crops, planting in hopes of getting a good price. Back then most home owners had no choice but to self-insure their houses (insurance was only available in urban areas). But times have changed, today we have a very extensive and deep risk market capable of alleviating most risks faced by individuals, from home owners to farmers. Many financial service companies offer product insurance, shifting the price risk from the farmer to the bank. Similarly, futures markets have opened, and when combined with financial institutions such as hedge funds, enables farmers to sell their estimated output even before planting.

As for the original post, while farm subsidies are huge, $23 billion or so, it is a tiny fraction of the overall business which is hundreds of billions. As it is, eliminating the subsidies would have a minimal impact. Most damage is done by import quotas which make sugarcane prohibitively expensive. If you want to see economic disruption the eliminate these quotas and watch the price of sugar drop 90%, bankrupting all the corn syrup makers, and American consumers coming to terms with different tastes and cheaper candy.

[Edited on April 27, 2007 at 1:41 PM. Reason : .,.]

4/27/2007 1:39:41 PM

What I don't get, is how for the given amount of calories, candy is always more dense than fresh fruit and veggies...and somehow manages to cost less, too. That defies physics to me.

4/27/2007 2:16:33 PM

^plus it tastes better

Quote :

"But times have changed, today we have a very extensive and deep risk market capable of alleviating most risks faced by individuals, from home owners to farmers. Many financial service companies offer product insurance, shifting the price risk from the farmer to the bank. Similarly, futures markets have opened, and when combined with financial institutions such as hedge funds, enables farmers to sell their estimated output even before planting"

It's not as if it's that easy. By having to buy insurance you're raising costs, subsequently raising price, thus you won't be able to compete with farmers who did not have insurance.
This is one of the many things capitalism doesn't have a really good answer for.

[Edited on April 27, 2007 at 2:19 PM. Reason : ]

4/27/2007 2:19:27 PM

Quote :

"It's not as if it's that easy. By having to buy insurance you're raising costs, subsequently raising price, thus you won't be able to compete with farmers who did not have insurance."

Not flaming, but nowhere in the real world does this exist. My MS deals in one aspect of Ag production. Anyone with just a little education in Ag economics knows that one cannot get financing to cover operation expenses without insurance. Each year, farmers borrow to get the necessary capital to produce their product. No insurance, no financing, just like your car or house, to put it in a way people unfamiliar can relate to.

Quote :

"As for the original post, while farm subsidies are huge, $23 billion or so, it is a tiny fraction of the overall business which is hundreds of billions. As it is, eliminating the subsidies would have a minimal impact. Most damage is done by import quotas "

This is essentially correct, farm subsidies do far more harm to producers than the market as a whole.

4/27/2007 2:32:26 PM

Quote :

"It's not as if it's that easy. By having to buy insurance you're raising costs, subsequently raising price, thus you won't be able to compete with farmers who did not have insurance. This is one of the many things capitalism doesn't have a really good answer for."

Wait, what? That IS the answer. If you are capital poor then you pay a portion of your profits to use the capital of others to insure yourself against risk.

It is how we allocate scarce resources with alternative uses. If you cannot make a profit producing corn at the futures price then you should stop producing corn, go do something else.

Quote :

"What I don't get, is how for the given amount of calories, candy is always more dense than fresh fruit and veggies...and somehow manages to cost less, too. That defies physics to me."

The ingredients in processed food, such as corn and wheat, are harvested mechanically. Fruits and vegetables often require some measure of manual labor. Similarly, fresh fruit must be shipped quickly and monitored closely to avoid spoilage. The price of the apple you purchased must also pay for the two that spoiled. Processed food, such as candy, can often be stored indefinitely at room temperature with no loss. Similarly, frozen foods can be shipped and stored at leisure, as long as it is kept frozen. It is this speed and carefulness of processing and shipping that costs so much.

4/27/2007 2:37:28 PM

Quote :

"Wait, what? That IS the answer. If you are capital poor then you pay a portion of your profits to use the capital of others to insure yourself against risk. It is how we allocate scarce resources with alternative uses. If you cannot make a profit producing corn at the futures price then you should stop producing corn, go do something else."

If you were a producer, explain how you could charge the same price as someone who did not pay for insurance.

4/27/2007 4:10:48 PM

Quote :

"The ingredients in processed food, such as corn and wheat, are harvested mechanically. "

And passed through NUMEROUS processing steps. Seems like the subsidies have caused investment into this area such that the costs of all these processing steps have been driven down. I imagine if fair treatment were given to basic farming, then consumers can reap the rewards of fresh produce at lower prices in some fashion.

4/27/2007 4:15:30 PM

Quote :

"If you were a producer, explain how you could charge the same price as someone who did not pay for insurance."

Kris, All farmers insure their crop or they cannot get financing. All farmers must have financing to cover the $millions, yes $millions needed to produce.

Quote :

"And passed through NUMEROUS processing steps. Seems like the subsidies have caused investment into this area such that the costs of all these processing steps have been driven down. I imagine if fair treatment were given to basic farming, then consumers can reap the rewards of fresh produce at lower prices in some fashion."

Automation, at almost every level of food production, decreases cost. Agriculture has always been resistant to technology replacement of labor units. The market has forced the conversion, though. Produce has come a long way in a short time and anyone who actually farms it to make a profit (a lot of produce is farmed soley to break even and keep labor busy enough so they'll be around to harvest the cash crop) has automated about as much as they can. That's the onlky reason food stays so cheap. The next technological gap to overcome is mainly a quality issue. For example, current automation for harvesting damages the product and makes it less desireable to the consumer. Once the crop is out of the field, it is not handled by people again (this is in the case of larger producers). NCSU has an entire department that works on stuff just like this, Ag Engineering, and these guys are at the forefront.

It always amazes me how little people know about the business of farming. I wish more people would go work on a farm in eastern NC and learn a little one summer.

[Edited on April 27, 2007 at 4:43 PM. Reason : fgh]

4/27/2007 4:41:00 PM

Quote :

"Kris, All farmers insure their crop or they cannot get financing. All farmers must have financing to cover the $millions, yes $millions needed to produce."

What kind of insurance are we talking about exactly? I think you're talking about a different type of insurance than I was.

Quote :

"It always amazes me how little people know about the business of farming. I wish more people would go work on a farm in eastern NC and learn a little one summer."

How useful is farming knowledge to most people? Chances are you don't know much about how your computer works, and you probably use that every day.

[Edited on April 27, 2007 at 5:01 PM. Reason : ]

4/27/2007 4:58:28 PM

I spent a summer in a poultry plant. Is that good enough?

4/27/2007 4:59:07 PM

^^ I'm talking about crop insurance, I assumed that is what Lonesnark referenced. Since you replied to him, I assumed you ment what he was talking about.

^ and ^^ I think that one summer gives you a good background in what it takes to produce the food supply, and that's a lot more than most. Of course, I realize that in a specialized economy we can't all have in depth knowledge of every product's production. I think that a lot of disagreements that exist today are simply a result of poor general education. Math, economics, physics, chemistry, biology, business; basic awareness of all these would raise the level of discourse around here emensly.

4/27/2007 6:30:26 PM

Quote :

"'m talking about crop insurance"

Exactly what does it cover? Does it cover in the case that you produce too much and can't get a good price for your product to justify harvesting it, or does it only cover you in the case that your crops are destroied by some act of god?
The issue here is that in a good harvesting season, farmers may not make enough off of each piece of produce to justify harvesting and processing it should the market be flooded by a good season.

Quote :

"Math, economics, physics, chemistry, biology, business; basic awareness of all these would raise the level of discourse around here emensly."

Well I think a lot of us know something about each one of those, however I don't think the specifics on farming and agriculture are nearly as practically useful.

4/27/2007 7:20:41 PM

Quote :

"If you want to see economic disruption the eliminate these quotas and watch the price of sugar drop 90%, bankrupting all the corn syrup makers, and American consumers coming to terms with different tastes and cheaper candy."

if we didnt use corn syrup(cause we'd use sugar cane since it went down a lot), wouldnt that free up more corn for ethanol?

i dont know about you, but i dont like the price of corn going up...someone told me that the corn feed for beef, poultry, and other food would go up...so like a raise in corn would make all the other prices rise(aiding inflation right?), and with this ethanol push we have right now thats whats happening

but i'm no economist...i most just want the "free up more corn for ethanol" question answered if one of you wouldnt mind

4/27/2007 8:38:06 PM

Quote :

"If you were a producer, explain how you could charge the same price as someone who did not pay for insurance."

Easy: You don't make as much profit as the other guy that year. DuH. It is going to take you a few more seasons to pay off that tractor and buy a new car. Then again, if the crop fails this year then your friend which did not buy insurance is ruined and you don't need to worry about competing with them the following year.

Quote :

"Exactly what does it cover? Does it cover in the case that you produce too much and can't get a good price"

Kris, re-read my first post in this thread. There are two financial instruments available for farmers. The first is insurance which guarantees them against crop failure. The second is futures contracts, which enables them to sell their crop even before they plant it. The price of corn collapses to $2 a bushel? I don't care, I sold futures contracts last year for my crop at $6 a bushel.

4/27/2007 8:41:43 PM

what about mine loneshark?

4/27/2007 8:49:46 PM

Quote :

"Easy: You don't make as much profit as the other guy that year. DuH. It is going to take you a few more seasons to pay off that tractor and buy a new car. Then again, if the crop fails this year then your friend which did not buy insurance is ruined and you don't need to worry about competing with them the following year."

It seems completely possible that he could easily drive you out of business. Now the market would survive in any of these situations, it just wouldn't work as well, and not working well when it comes to our food isn't really acceptable, thus why the government is involved.

Quote :

"The second is futures contracts, which enables them to sell their crop even before they plant it. The price of corn collapses to $2 a bushel? I don't care, I sold futures contracts last year for my crop at $6 a bushel."

You're still going to be getting less as you're going to have to give up immediate money in order to address risk management, thus we run into the same situation where you would lack the ability to compete agianst someone with who doesn't buy the insurance.

Quote :

"i dont know about you, but i dont like the price of corn going up...someone told me that the corn feed for beef, poultry, and other food would go up...so like a raise in corn would make all the other prices rise(aiding inflation right?), and with this ethanol push we have right now thats whats happening"

The market will be able to address this. As the demand for corn increases, more people will enter the market to supply it. Chances are that if people are able to make corn for a price that makes it an effective livestock feed, enough people will enter the market to push it back down to that price.

[Edited on April 27, 2007 at 8:57 PM. Reason : ]

4/27/2007 8:53:58 PM

there is something inherently wrong in this country when two hamburgers from mcdonalds cost the same or less than two tomatoes from the grocery store

[Edited on April 27, 2007 at 11:54 PM. Reason : .]

4/27/2007 11:54:06 PM

Quote :

"I say chuck em"

Isn't that a little severe?

4/28/2007 12:11:02 AM

Quote :

"It seems completely possible that he could easily drive you out of business."

Not at all. As it is, he has already set his price such that he sells all he has produced, we all have. And at this price my farm made a profit large enough to cover the insurance. However, the demand for food is not inelastic. As such, reducing his prices will do nothing more than create a shortage, in response to which I am very unlikely to reduce my prices (I am still selling all I produced).

Quote :

"You're still going to be getting less as you're going to have to give up immediate money in order to address risk management, thus we run into the same situation where you would lack the ability to compete agianst someone with who doesn't buy the insurance."

Maybe I will face losses for a few years; I would not be the first farmer that went into debt. People do not farm in the interest of breaking even; they expect a return on their investment in excess of their capital and labor input, otherwise they would put their capital in the bank and go to work in a factory. In the end, such an expense can come out of this return such that instead of bankruptcy the farmer just builds a smaller home or waits to buy a new car.

Quote :

"Now the market would survive in any of these situations, it just wouldn't work as well, and not working well when it comes to our food isn't really acceptable, thus why the government is involved."

Again, not necessarily. If the farmer without insurance has been in operation long enough to drive me out of business then perhaps I should go out of business. After-all, they are obviously located in a safer area with a more reliable climate. Perhaps it has nothing to do with no insurance, maybe they just have cheaper insurance. For the good of customers they should expand and consume my market share: their farm is a more efficient use of resources than mine. As such, I'll sell him my tractor and harvestor and take a job at the Ford Motor Plant.

Quote :

"there is something inherently wrong in this country when two hamburgers from mcdonalds cost the same or less than two tomatoes from the grocery store"

Why? A tomato is expensive. That hamburger contains less tomato than a whole tomato. Your statement is similar to proclaiming "There is something inherently wrong when two gold rings from Wallmart cost the same or less than two pounds of gold from the jews."

[Edited on April 28, 2007 at 12:24 AM. Reason : .,.]

4/28/2007 12:19:44 AM

The tariffs/quotas on sugar are absolutely insane.

We waste a ridiculous amount of money. For each job in the sugar industry we protect it costs us about $270,000 per year.


We could remove the quota and tell every single worker in the industry to sit at home and watch Opera while giving them a $260,000/year severance check and our economy would be better off.

4/28/2007 12:18:21 PM

Quote :

"And at this price my farm made a profit large enough to cover the insurance."

Assuming there are still people willing to buy your product over your competitors cheaper product.

Quote :

"Maybe I will face losses for a few years; I would not be the first farmer that went into debt. People do not farm in the interest of breaking even; they expect a return on their investment in excess of their capital and labor input, otherwise they would put their capital in the bank and go to work in a factory. In the end, such an expense can come out of this return such that instead of bankruptcy the farmer just builds a smaller home or waits to buy a new car."

Most likely the farmer would reduce his output next year, as he would not have enough money to invest in his crops for the next year, and that's still hoping he isn't driven completely bankrupt.

Quote :

"If the farmer without insurance has been in operation long enough to drive me out of business then perhaps I should go out of business. After-all, they are obviously located in a safer area with a more reliable climate."

Or they've just gotten lucky.

4/28/2007 2:22:11 PM

Quote :

"Assuming there are still people willing to buy your product over your competitors cheaper product."

At $1.50 a bushel both he and I are selling all of our 100 bushels (200 total). He arbitrarily reduces his prices to $1.25, and what? The customers are suddenly going to only buy 100 total bushels instead of the 200 they bought at $1.50? Try again.

Quote :

"Most likely the farmer would reduce his output next year, as he would not have enough money to invest in his crops for the next year, and that's still hoping he isn't driven completely bankrupt."

Again, that is why we call it going into debt. Either way, if he does slightly reduce his output the next year then the price will be slightly higher, holding everything else constant, such that he is once again making a profit. Or, as I said, if instead his less-insured competitor boosts production then yes, I am destined for bankruptcy to the benefit of customers everywhere.

Quote :

"Or they've just gotten lucky."

Perhaps. Either way, the negative effects upon consumers will be mitigated by the any number of market mechanisms, not least the concept of speculative production. Just because a farm loses money every year does not mean it shuts down; it merely means the owners are speculating that, eventually, overproduction is receed and make their investment profitable.

Some big companies that wish to speculate in an industry just buy futures contracts; others buy struggling producers.

4/28/2007 5:21:36 PM

Quote :

" Assuming there are still people willing to buy your product over your competitors cheaper product."

Yeah dude this is just an incorrect application of price taking theory.

No farmer is going to sell his bushel for $1.25 when he can get $1.50 for it. That's just dumb. I mean really, think about that for a second.

Everyone is going to sell their crop at the same price. Thats how the market operates.

The farmers who didnt have insurance will make larger profits THAT YEAR. That doesn't mean the insured farmers won't be profitable. The uninsured farmers will eventually have a disastrous year that will either even things out or perhaps ruin them.

4/28/2007 5:55:26 PM

Quote :

"At $1.50 a bushel both he and I are selling all of our 100 bushels (200 total). He arbitrarily reduces his prices to $1.25, and what?"

The idea is that since he can sell produce more cost effectively, he'll increase output (or others who enter the market) in order to eat up your market share.

Quote :

"Or, as I said, if instead his less-insured competitor boosts production then yes, I am destined for bankruptcy to the benefit of customers everywhere."

The competitor will boost production, because as you said earlier, there is a shortage. And although it would be to the short term benefit of customers right now in the long term, not so much. This is another example of capitalism's lack of foresight, thus why the government steps in.

Quote :

"Either way, the negative effects upon consumers will be mitigated by the any number of market mechanisms"

As much as I think "things will just work out somehow" is a great arguement, I'll have to disagree with you.

Quote :

"Just because a farm loses money every year does not mean it shuts down; it merely means the owners are speculating that, eventually, overproduction is receed and make their investment profitable."

If price drops below average total cost, they'll shutdown.

Quote :

"No farmer is going to sell his bushel for $1.25 when he can get $1.50 for it."

It depends on cost. The farmer can sell more at a lower price, thus he makes the most by basing his output and price upon cost. Thus if one farmer can reduce cost, he can increase profit by lowering price and increasing output. This is basic microeconomics. A company will expand output and lower price untill P=MC. That's the basic pricing function.

Quote :

"Everyone is going to sell their crop at the same price."

Not neccesarily, it really depends. If one farmer can grow the same amount for a lower cost, he'll lower his price and produce more in order to eat the market share of other producers who cannot compete.

4/28/2007 6:22:34 PM

Quote :

"As much as I think "things will just work out somehow" is a great arguement, I'll have to disagree with you."

As much as I enjoy the "I'll just ignore the explanation you gave and pretend you didn't give one" argument, I'll have to disagree with you.

Quote :

"If price drops below average total cost, they'll shutdown."

Or, not; Kris, life is more complicated than you pretend. Firms regularly operate at a loss year after year in hopes of a turn around. Even if my farm goes bankrupt, the land is still there; the tractor and harvester still exist; all that has left the market is the owner (Me). In the event of a market turn-around (prices go back up) a new producer can purchase the land and machinery at auction and restart production. Only now, the new firm is not burdened with debt since it purchased all the inputs at distressed prices. Historically, such firms have often out-perform their rivals.

[Edited on April 29, 2007 at 12:35 AM. Reason : .,.]

4/29/2007 12:26:26 AM

Quote :

"As much as I enjoy the "I'll just ignore the explanation you gave and pretend you didn't give one" argument, I'll have to disagree with you."

You didn't explain anything, you said " some magical market forces will take care of it".

Quote :

"Or, not; Kris, life is more complicated than you pretend. Firms regularly operate at a loss year after year in hopes of a turn around."

In microeconomics, it is that simple. There's a difference between "operating at a loss" and "P<ATC". If price is less than average cost, then you're essentially giving the product away for less than it costs you to make one unit. You're better off financially if you don't make anything, this is known as the "Shutdown Point".

4/29/2007 1:14:38 AM

http://tinyurl.com/27bfnz

Lets buy all our wheat from China.

4/29/2007 4:30:13 AM

Quote :

"You didn't explain anything, you said " some magical market forces will take care of it"."

No, I said: "negative effects upon consumers will be mitigated by the any number of market mechanisms, not least the concept of speculative production" and then I went on to explain what speculative production is and how it acts to prevent shortages from occurring.

Quote :

"There's a difference between "operating at a loss" and "P<ATC". If price is less than average cost, then you're essentially giving the product away for less than it costs you to make one unit. You're better off financially if you don't make anything, this is known as the "Shutdown Point"."

Yes, and in the classroom life is just that simple. But as I explained, producers often continue producing even below this shutdown point. This is called speculative production, as I explained earlier. I even explained why shutting down is not the end of the story; production can be restarted with a moments notice, either by a new firm or by the same old firm. Just because economics professors call it the shutdown point does not invalidate the concept of object permanence.

4/29/2007 10:07:20 AM

Quote :

"The farmer can sell more at a lower price"

Incorrect.

Farmers are price takers, not price makers.


Until you understand this basic point you're going to keep giving incorrect responses.

That's pretty much all there is to it.

4/29/2007 5:54:01 PM

The farmer's would go bankrupt and end up selling their land to some Rural housing community.

But, this wouldn't be nothing because an increasing population could eat more of someone else's farm!

The sad part is I'm surprised people going to nc state don't know this.

4/29/2007 6:18:01 PM

Quote :

"But as I explained, producers often continue producing even below this shutdown point."

Theres absolutely no reason they would, your example of speculation would work in a case where the company operates at a loss, but not that much of a loss.

Quote :

"I even explained why shutting down is not the end of the story; production can be restarted with a moments notice, either by a new firm or by the same old firm. Just because economics professors call it the shutdown point does not invalidate the concept of object permanence."

I never said that they couldn't start back, so don't imagine I did, but after operating at a loss, and being forced to shut down because one operates at a higher cost.

Quote :

"Farmers are price takers, not price makers."

Depends, I assumed there was a competitive market, but assuming there isn't, sellers can still set a price lower which increases the quantity demanded, they simply cannot set a price higher.

Quote :

"Until you understand this basic point you're going to keep giving incorrect responses."

You don't seem to understand basic microecon.

4/29/2007 11:20:31 PM

What's you point? That farms sometimes shut down? Shit, proven beyond a doubt. So what? My point was that today's financial markets have a long array of mechanisms to prevent food shortage from developing, regardless of how many farms shutdown. In addition to speculative production we have futures markets to direct investment towards potentially scarce products, product substitution to shift consumption away from scarce products, and price rationing to eliminate wasteful uses of scarce products. None of which you have argued against, so your point cannot be that such mechanism are ineffective; otherwise you would have said so.

[Edited on April 30, 2007 at 12:20 AM. Reason : .,.]

4/30/2007 12:16:32 AM

Quote :

"What's you point? That farms sometimes shut down? Shit, proven beyond a doubt."

No, my point is that insurance or speculation adds additional cost that keeps a producer from being competitive in the seller heavy market of farming.

Quote :

"My point was that today's financial markets have a long array of mechanisms to prevent food shortage from developing, regardless of how many farms shutdown. In addition to speculative production we have futures markets to direct investment towards potentially scarce products, product substitution to shift consumption away from scarce products, and price rationing to eliminate wasteful uses of scarce products."

We already have a method of preventing food shortage that has been proven to work fairly well, government subsidies. We've yet to see the market depend on any of the ones you've posted.

4/30/2007 1:56:30 AM

Quote :

"No, my point is that insurance or speculation adds additional cost that keeps a producer from being competitive in the seller heavy market of farming."

In a seller heavy market, assuming what that means, it doesn't matter what the costs are, some farms are operating at a long-term loss and should shut down; they are wasting resources after-all.

Quote :

"We already have a method of preventing food shortage that has been proven to work fairly well, government subsidies. We've yet to see the market depend on any of the ones you've posted."

You are aware that only five out of four hundred agricultural products receive subsidies, right? And as designed, the mechanism used operates more as a safety net for existing farmers, not a bulwark against shortages. Existing farmers suffer when prices collapse, not potential output, thanks to object permanence. Once the price starts back up production can be resumed on all shut farms by new owners which purchased land and machinery at distressed prices.

It is the markets use of futures contracts which prevents present over-supply from preventing next years supply by making it aparent what prices can be expected next year and allow farmers and consumers to lock in next years price today, and so we figure out today whether next year there will be a shortage, giving old and new farm owners alike a good barometer for whether production should be increased or reduced, regardless of supply conditions today.

4/30/2007 8:36:23 AM

Quote :

"sellers can still set a price lower which increases the quantity demanded, "

Not if they want to eat!

4/30/2007 8:56:01 AM

Quote :

"some farms are operating at a long-term loss and should shut down; they are wasting resources after-all."

That's obvious, of course a few are going to shut down, what does that have to do with anything?

Quote :

"You are aware that only five out of four hundred agricultural products receive subsidies, right?"

I know it's far more than four.

Quote :

"And as designed, the mechanism used operates more as a safety net for existing farmers, not a bulwark against shortages."

It does both.

Quote :

"Not if they want to eat!"

Sure they can, it doesn't cost them as much to make the product, so they can make more money by increasing output and lowering price down to the point that the marginal change in cost for an additional product is equal to the price of the product.

They make more money by pushing the price down so they can sell more.

[Edited on April 30, 2007 at 9:01 AM. Reason : ]

4/30/2007 8:58:42 AM

I see no evidence, not even a single argument, to be gleamed from your post. I assume you have some evidence or perhaps just an argument as to why we should accept your statements as fact when they are contradicted by the reasoned arguments of others?

4/30/2007 10:53:22 AM

You've yet to provide evidence for anything you've posted.

But I'll go ahead and start
The Agricultural Acts (http://www.nationalaglawcenter.org/assets/farmbills/glossary.html) provides subsidies for far more than 4 commodities.

4/30/2007 12:14:19 PM

who said four? I said there were only five which received enough subsidies to have a measurable impact upon the market. Even then, quite a bit goes to pay people not to farm on land they wouldn't be farming anyway (they've already built housing developments, shopping malls, etc).

So, give me a reasoned arguments as to why all the mechanisms I have mentioned are insufficient to feed American citizens?

4/30/2007 1:24:39 PM

Quote :

"who said four?"

My bad, five.

Quote :

"I said there were only five which received enough subsidies to have a measurable impact upon the market."

I'm looking at exactly what you said, and you certainly didn't say all that. You said there were five that recieve subsidies, and I've proven that to be wrong.

Quote :

"So, give me a reasoned arguments as to why all the mechanisms I have mentioned are insufficient to feed American citizens?"

I've already done that here:
No, my point is that insurance or speculation adds additional cost that keeps a producer from being competitive in the seller heavy market of farming.

Now do I still have to remain as the only one who has to post evidence, or would you mind gracing us with some of your own?

4/30/2007 1:49:31 PM

Quote :

"No, my point is that insurance or speculation adds additional cost that keeps a producer from being competitive in the seller heavy market of farming."

And I responded: "In a seller heavy market, assuming what that means, it doesn't matter what the costs are, some farms are operating at a long-term loss and should shut down; they are wasting resources after-all."

I guess this is where the discussion broke:

Quote :

"That's obvious, of course a few are going to shut down, what does that have to do with anything?"

When they shut down prices will rise slightly and restore profitability to the market, regardless of what the costs are: be they new equipment or buying insurance. Now, I guess I should restate my question: so prices fluctuate over time, this does not mean people are starving. You have yet to present a means by which society is harmed by the closing and opening of agricultural firms. The firm owners are ill served by price falls, but society as a whole is better off: cheaper food. Meanwhile, thanks to object permanence, consumers do not need to fear a price-fall induced shortage.

Now, I will conceed other markets suffer this bust-boom cycle; such as oil. But food is just not one of them. This is because supply turn-around for food production is fairly short, at most a year, and most forms of grain lend themselves well to long term storage. Plus, demand is easily predicted with a few variables such as population growth. And on this time-range, futures markets do a passable job accurately predicting such prices a year out. However, oil firms and consumers must operate on a five to ten year time-range and are not determinable with easy to track variables. As such, oil futures markets do a horrible job predicting prices only a month out, much less the five to ten years needed to operate effectively. Yet we spend billions stabilizing agricultural markets that could be better spent stabilizing the oil market. Explain that to me, Krissy.

4/30/2007 2:10:18 PM

I love anything Pollan writes

4/30/2007 4:11:57 PM

Quote :

"And I responded: "In a seller heavy market, assuming what that means, it doesn't matter what the costs are, some farms are operating at a long-term loss and should shut down; they are wasting resources after-all.""

The problem is that the cheaper farm that doesn't operate at a loss didn't operate at a loss because they didn't take advantage insurance and speculation.

Quote :

"Now, I guess I should restate my question: so prices fluctuate over time, this does not mean people are starving. You have yet to present a means by which society is harmed by the closing and opening of agricultural firms."

It's not the closing and opening that hurts society, it's that the market selects agianst companies that take measures to ensure a steady output. This creates a problem when natural events cause large amounts of over or under production resulting in the starvation of the farmer or the consumer respectively.

Quote :

"The firm owners are ill served by price falls, but society as a whole is better off: cheaper food. Meanwhile, thanks to object permanence, consumers do not need to fear a price-fall induced shortage."

You're ignoring the other extreme case, a bad season, which cases prices will skyrocket, this is great for the farmer, but terrible for the consumer.

Quote :

"Now, I will conceed other markets suffer this bust-boom cycle; such as oil. But food is just not one of them. This is because supply turn-around for food production is fairly short, at most a year, and most forms of grain lend themselves well to long term storage."

There's a big difference between these two, and this difference is exactly why one is subsidized by the US, EU and Japan. We need food to survive.

4/30/2007 5:34:58 PM

how many times is he going to have to say the same thing over and over before you understand it.

I dont think you're even reading his posts.


How could you have possibly missed the ones addressing the futures markets?

4/30/2007 6:01:50 PM

futures markets falls into the same category as any others because it increases cost

4/30/2007 6:05:28 PM

Quote :

"futures markets falls into the same category as any others because it increases cost"

Not necessarily, especially not from the farmers perspective. The grain had to be traded on the market anyway with the requisite fees. The only difference is that the contract was post dated to harvest time.

Quote :

"it's that the market selects agianst companies that take measures to ensure a steady output"

All the market is doing is making the farmers face the true cost of their activities. If the agricultural firm is large enough then it will most likely self-insure its own harvests. All the availability of insurance does is allow mom-and-pop firms to take advantage of capital security without actually having capital. And this comes out of the firms profits, as it should. Does this mean small farms are less efficient and therefore less profitable than large farms? Absolutely.

Quote :

"This creates a problem when natural events cause large amounts of over or under production resulting in the starvation of the farmer or the consumer respectively."

Farmer cannot starve; they have land and equipment they can sell, and just like any other worker should have maintained sufficient savings to deal with temporary unemployment.

Combine that with a slew of mechanisms to prevent shortages: "In addition to speculative production we have futures markets to direct investment towards potentially scarce products, product substitution to shift consumption away from scarce products, and price rationing to eliminate wasteful uses of scarce products."

No one starves in a sufficiently free market.

4/30/2007 6:35:14 PM