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Let's not waste lessons of Freedom to Farm

For years, farmers were told that if only U.S. agriculture was freed to produce for the market all their problems would be over.

In 1996, Congress passed legislation that removed acreage controls, permitted growers to freely switch crops and provided transition payments to wean agriculture away from price supports. So, why aren't farmers better off than they were five years ago?

That's the question Daryll E. Ray has attempted to answer in an article in the monthly "Policy Matters" newsletter published by the University of Tennessee's Agricultural Policy Analysis Center.

The reason Freedom to Farm hasn't brought prosperity to American farmers, he says, is that the underlying concept behind the legislation is flawed.

"By its design, the 1996 farm legislation provides a real-time public policy experiment where the farm economy is the laboratory and agricultural producers and consumers are the test subjects," he said.

"The hypothesis under test is this: Without planting restrictions, price supports and other government program interventions, grain producers and grain users will respond to price signals sufficiently to overcome market disturbances and inventory imbalances. For the last seven decades, we could only speculate about how this would work."

Unfortunately, the experiment has shown that what agricultural economists have theorized is true; that is, the price responsiveness of the grain markets is not sufficient to keep supply and demand in balance.

Ray notes that while prices of the eight major commodities declined by 15.5 percent between March 1997 and March 1999, harvested acreage of those crops declined by only 1.5 percent. And, even with depressed prices, growers appear to have increased their plantings in 2000.

As the economist has outlined in previous issues of the newsletter, there's a simple reason why farmers cannot voluntarily reduce acreage when confronted with low prices: Until U.S. agriculture completely goes belly-up, someone is going to farm the land.

Thus, unless weather intervenes, farmers will plant every acre they can and crop surpluses will continue to build despite the low prices of recent years.

"Over time, some of the least productive land will go out of production," says Ray. "But this land produces very little, and much of it is already in the Conservation reserve Program. So, it is doubtful a `let them fail' course of action advanced by some would solve the economic problem in the short to immediate run.

"It would probably take a decade of extremely depressed prices to reduce the total crop acreage sufficiently to make agriculture profitable in the open market. The economic damage inflicted on the farming and rural communities during this period would be staggering."

If the value of Freedom to Farm is to be judged on the basis of lessons learned, then it hasn't been a total loss, according to Ray. "Freedom to Farm appears to be reaffirming the basic assumptions of traditional agricultural economics that the price responsiveness of the grain markets is not sufficient to bring about a timely self-correction in those markets."

If that is the case, Congress should be thinking about the alternatives before they saddle farmers with another seven years of a program that doesn't work.

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