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Economist says farm policy coming from wrong premise

"I would argue that we have returned to the failed farm policies of the most recent past," says Ray — the "most recent" being from 1996 forward. He’s been getting a growing number of nods and agreements via e-mail regarding his views.

From his Blasingame Chair of Excellence in Ag Policy as director of the Agricultural Policy Analysis Center at the University of Tennessee, Ray dispenses his oft against-the-grain prescriptions in weekly columns.

A sampling of headlines from his weekly columns reads: Top Ten Reasons to Start over on the Farm Bill; Cost of avoiding real issue: $17 billion a year; Conservation programs are not a substitute for commodity programs.

He believes the problem lies in the perception that agriculture responds to supply and demand like other industries. He feels that high prices could hurt farmers in the long-run just as much, if not more, than low prices. He believes the perception problem is with both the general public as well as his ag economist colleagues at large.

A central Iowa farm-boy-turned economist, Ray comes to his job influenced by a traditional view that agriculture is different from other industries. In short, agriculture on the whole doesn’t respond to the same supply and demand dynamics as other industries. (Southern crops such as cotton and rice are the exceptions) And he preaches those differences he learned as a youngster growing up on a Midwestern farm. "After all these years, agriculture hasn’t changed after all."

Ray cites a "number of problems" with the new farm bill. Farm policy lacks the backing of society in general because of large disaster payments and subsidies reported in the media.

"I argue that these payments are going to people who are buying cheap grain," Ray says. He believes livestock companies and agribusiness are the ones benefiting from the payments. "I don’t understand why we shouldn’t require agribusiness and cattle, livestock and poultry to pay the full cost of grain and soybean meal because that’s what they’d have to expect to do for other things.

"I don’t think we’re recognizing that agriculture is going to produce no matter what," Ray says. Because farmers produce full-out, prices are low for agribusiness. "But farmers could receive the same income as now from the market with other programs such as short-term land retirement. The government checks go to the farmers’ addresses, but it’s agribusiness and grain users that really receive the benefits."

The other real problem, Ray says, is the lack of "buffer stocks." That makes the markets subject to high prices in the event of an extreme yield reduction. "We don’t have a mechanism to put a top on prices."

While grain farmers would love to see prices double, Ray argues that "ratcheting up prices too fast" would do as much damage as low prices. Skyrocketing commodity prices in the 1970s provided the impetus behind Brazil’s initial grain expansion.

"It’s foolish to be worrying about raising the loan rate by 25 cents while we don’t have a mechanism to deal with the problems that could be caused by short-falls in production," Ray says.

Ray would create a farmer-owned grain reserve to have a "moderating effect on a yield event. "The price of soybeans can go up to $6 before there’s a tremendous impact. If you get up into the $8 to $10 neighborhood, that wouldn’t be good."

The economist calls for a set-aside, not aimed at individual commodities, but at the major cropland base. "Then farmers could produce whatever they wanted to after they had met that reduction," Ray proposes. "Try to get the prices above the loan rates so we could do away with the LDP. At least there would be a larger share of the total production costs not borne by the taxpayers."

On an as-needed basis, Ray would go for rolling a disaster program into farm legislation, if production fell below 75 percent of the normal. He favors giving the farmer an equivalent of the loan rate to "allow him to know exactly what he would get if he had a disaster. If they want more, they could buy crop insurance — but not rely on crop insurance for the entire thing."

Ray says his written-in disaster program would eliminate the need for emergency legislation.

Changing economic circumstances — either positive or negative — could be addressed.

Growing up on a diversified crop and livestock farm in central Iowa, Ray learned the ethic of getting up early and working late. To that he adds with a chuckle, "keep your head down and don’t worry too much, because you don’t have control over much of what happens."

Ray says he might still be back on the farm had it not been for his interest in academic work. He sort of backed into economics through a winter course in farm operations. That led to a two-year degree and eventually a B.S. from Iowa State.

"I had the good fortune of meeting the right people in the ag economics area," Ray says. He got hooked up with Earl Heady, an expert in policy, farm management and production economics. Heady was the founder of the Center for Agriculture and Rural Development at Iowa State.

"From the very beginning, he lobbied me and almost assumed that I would get a Ph.D.," Ray says. "I went from a winter quarter program to getting a Ph.D. in a relatively helter skelter way."

His economics go back to a time before what he calls the "aberration of the 1970s." He learned about ag economics from the likes of Willard Cochran of Minnesota, author of "The City Man’s Guide to Farm Policy"; and Dale Hathaway of Michigan State and others who had the same understanding that agriculture is different from other industries.

Ray says the shift started to occur in the 1970s, when economists made the mistake of extrapolating an explosion in export demand into the future. "People kind of backed away from the traditional understanding of agriculture and tried to frame it in the same way you would talk about other industries.

"There were some logical arguments to support that and it’s what everybody wanted to believe anyway," Ray figures. "Many folks in graduate school didn’t have any practical farm experience and did not see the aberration in the 1970s. We had a generation of folks who wanted to believe that the economic response of agriculture would be like any other industry. But food is not batteries. Food is different and we must understand that when we talk about farm policy. That’s one of the things I press home in my writings and talks."

Ray says exports and free trade have been oversold.

After all these years, "we have learned that the characteristics of agriculture haven’t changed after all," Ray says.

"Farmers will continue to grow crops as long as they can get the planter out of the shed or until their banker doesn’t lend them any more money," Ray says. "…Then another farmer will farm the land."

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