Bacon's Rebellion

Democracy Thrives in Sunlight

Creeping Socialism in Virginia Agriculture

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by

James A. Bacon
in

The steady transformation of the United States economy from a predominantly market-driven economy to a rent-seeking economy proceeds apace. Nowhere is this more evident than in the agricultural sector where, despite rising commodity prices, government accounts for an increasing percentage of industry receipts.

The chart above, showing government payments as a percentage of Virginia gross farm income, comes from a recently published report, “The Economic Impact of Agriculture and Forestry on the Commonwealth of Virginia.” (Click on the image to see a larger, clearer version of the chart.)

Who, or what, benefits from this wealth transfer? Are consumers any better off? Are Virginia farms becoming more environmentally sustainable? Are agriculture products more competitive in the global economic arena? Are we at least contributing to Ray Hyde’s retirement fund? Across the board, the answer appears to be no.

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15 responses to “Creeping Socialism in Virginia Agriculture”

  1. Anonymous Avatar
    Anonymous

    Jim,
    I hate to say this, but you’ve got it backwards.

    In the United States, the only time socialism is acceptable is when it’s for the rich. That’s what the late, great John Kenneth Galbraith said.

    WIth COngress about to approve the $700 billion bailout, he’s right.

    Peter Galuszka

  2. Anonymous Avatar
    Anonymous

    It’s too often true that the bigger the business, the more likely it is hooked on some form of direct or indirect government subsidy. Compensation for such companies ought to be limited to the GS and SES schedules.

    TMT

  3. Anonymous Avatar
    Anonymous

    Yep. I don’t recall the exact figures, but something like 8% of farms earn 90% of all the farm “profits”. And of that 90% is from subsidies or other payments.

    In Fauquier just ten farms account for 90% of all government payments received.

    To my mind the question is whether we believe farms are (or will be some day) so valuable it is worth our while to keep the stock of farms from depleting. If they are, then the money should be spread around more, and you might need a lot more of it.

    If they are not, then what do you do with them?

    I actually beleive that consumers ARE better off. The biggest, most businesslike and most productive farms get the biggest subsidies. It keeps food costs down compared to letting them go under. And go under is what they would do without the subsidies. Being businesslike they need to see a reasonoble return on their investment – not just on their operating costs. That return simply isn’t there without the subsidies.

    We have the cheapest food anywhere, and our farmers get teh smallest part of the production, preparation and distribution pie. Our products are not competitive in some foreign markets because we allow genetically modified products, which are frowned on in some other countries. They are not competitive in other places because THEIR farms get even higher subsidies, as part of their land use and preservation policies.
    And yet we are competitive in the poorest places. Some poor African farmers cannot grow food as cheaply as we can sell it to them, but they have no ready cash with which to buy.

    No, the government is not contributing to my retirement fund through agricultural payments. But I am contibuting to several other people’s retirement fund. Like many small and part time farms, I basically break even or take a small loss. That means that all the money the farm (makes and then) spends goes right out into (usually local) businesses and contributes to their retirement plan.

    I’m working for them for basically nothing, and paying extra taxes to boot. It is no wonder people say we need to save the farms: it is so we can continue to suck them dry. I would simply stop and do nothing (or something else more profitable) except that the act of stopping would trigger a whole bunch (more) negative subsidies. Overall, if there is a wealth transfer, I’d say it was from the farms, not to the farms – in spite of the agricultural subsidies.

    That is why we see fewer and smaller farms every year and not more and bigger. Inflation adjusted incom is down, “Moreover,
    suburban and exurban residents may be expected to place additional zoning and other regulatory burdens on farms”. As a result employment is down and land under cultivation is down.

    Gee, I can’t imagine why.

    The study says that forestry and agriculture account for 10% of Virginia jobs, but it doesn’t say (at least in the same opening paragraph what percent of Virginia payroll that is. I’d bet it isn’t much. If you divide the gross recepts of $2.7 billion by the number of employees you come up with a gross number of something like $7500 per employee. That isn’t much to run a business on.

    The study explains its use of input output analysis to study the effects of the sector and it includes secondary or indirect impacts. I have recommended here that similar methods are applicable to analyzing such things as Chesapeake Bay expenditures and credits. You have to look at the whole system and the sytem’s immediate economic neighbors in order to see the true effects.

    Otherwise, the study was pretty uninformative: the farm census gives a lot more information. Frankly, I’d rather see government study money directed in such a way that the people being studied will get some use out of it: “Should I be switching to nursery crops as the megalopolis encroaches?”

    Also, there is a website out there which publishes exactly who gets public ag money, and how much.

    RH

  4. Anonymous Avatar
    Anonymous

    “The House of Representatives on Wednesday approved a $25bn package of low-cost loans to help hard-pressed carmakers and their suppliers finance plant modernisation at a time of restricted access to public capital ­markets.”

    Just to keep socialism in perspective.

    RH

  5. Anonymous Avatar
    Anonymous

    Spending on clothing has declined from 11% of disposable income in 1929 to less than 4% today.

    Spending on food and clothing has declined from 39% of disposable income to less than 13% today.

    Now, where did all that extra disposable money wind up? One way or another it went to Wall Street, and all that excess money sloshing around led to (a bunch of new and better products and services never dreamed of in 1929) and the troubles we have now.

    It would appear that we could avoid a lot of conspicuous consumption and wall street shenanigans by just paying our farmers enough to live on! Please vote me a raise.

    If the farm paid me enough to live on, I wouldn’t have to push stocks on speculators for a living.

    ;-).

    RH

  6. Anonymous Avatar
    Anonymous

    My wife owns a 1/5 share in a small farm in NW Ohio. Her brother rents the land to a neighbor and splits the financial results. It usually just about breaks even each year, but when there is a loss, she cannot deduct it from her other income. I guess it just increases her basis.

    TMT

  7. Groveton Avatar
    Groveton

    There is no basis for the government to provide farm subsidies.

    There is no basis for the government to bail out carmakers.

    There is no basis to provide money to Chesapeake Bay watermen when the crab harvest is low.

    If the banks only controlled their own business and employees – there would be no basis to bail them out either. But a credit market can collapse quickly and that will tank the whole economy. It will tank healthy and sick businesses alike. Like it or not, the banks have to stay in operation. Which is why they should be regulated. Which is why no bank should have too much of the market. Which is why we should all be asking out so-called political leaders how they let the banks become unregulated behemoths.

    Also, Mr. Bacon, is this guy one of yours:

    “A group of GOP lawmakers circulated a less government-focused alternative. Their proposal would have the government provide insurance to companies that agree to hold frozen assets, rather than have the government purchase the assets. Rep Eric Cantor, R-Va., said the idea would be to remove the burden of the bailout from taxpayers and place it, over time, on Wall Street instead.”.

    Hmmmm…..

    Ask businesses to buy toxic assets but provide government supplied insurance to those businesses in case the toxic assets turn out to be… well… toxic. Then what? Oh yeah … then the government indemnifies the businesses for the risk. The business holds the upside and the government holds the downside. Kind of like … Fannie Mae and Freddie Mac.

    Let me guess – this guy is some kind of lifelong politico/lawyer who has never actually run a business.

    No wonder the Republican Party is dying in Virginia.

    Well … at least he got his name in the paper.

  8. Anonymous Avatar
    Anonymous

    TMT

    I think she she cannot deduct it from her other income because this arrangement is a passive investment. She shoul get straight land rent, so much a year, and let the operator absorb the risk.

    Her loss does not increase her basis, to do that you would have to invest more in the farm. Anyway, you would rather make money and pay taxes than lose money and avoid taxes.

    Check with a tax professional.

    RH

  9. Anonymous Avatar
    Anonymous

    “But a credit market can collapse quickly and that will tank the whole economy.”

    It sounds like you are saying that banks get special treatment because they provide a public benefit.

    The government could deide that they will need more farmland in the future, and it is a public benefit to keep them operational until then. Or the government could decide that farms provide a public benefit due to the fact that “suburban and exurban residents may be expected to place additional zoning and other regulatory burdens on farms”. The purpose of such regulation being to provide public benefits at no cost, and the government could act to repair this market failure.

    The basis to bail out carmakers could be to avoid the cost of having to pick up or insure all those failed pensions.

    Crab harvesting is a little different, I think. You don’t create things like farmers, automakers, or even bankers: you go into it knowing that it is an opportunistic enterprise. You provide a service (catching crabs) but if there are none to catch, you are a cabbie without fares. You need another business.

    Even so, there might be a circumstance in which the government determines that there is a public benefit worthy of protection.

    It seems to me that if you want less of something you tax it, and if you want more of something you support it. Right now we want more healthy banks because we are afraid they might disappear.

    With our money.

    It all comes down to property rights and how much we are willing to pay for them, and how much we are willing to protect them once paid for.

    RH

  10. Anonymous Avatar
    Anonymous

    “Like most other fisheries in the world, Alaska’s halibut fishery was overexploited—despite efforts of managers. Across the oceans, fishermen are caught up in a “race to fish” their quotas, a race that has had tragic, and environmentally disastrous, consequences over many decades. But in 1995 Alaska’s halibut fishermen decided to privatize their fishery by dividing up the annual quota into “catch shares” that were owned, in perpetuity, by each fisherman. It changed everything.

    In the halibut fishery the change in incentives that came from ownership led to a dramatic shift in behaviour. Today the halibut season lasts eight months and fishermen can make more by landing fish when the price is high. Where mariners’ only thought was once to catch fish before the next man, they now want to catch fewer fish than they are allowed to—because conservation increases the value of the fishery and their share in it. The combined value of their quota has increased by 67%, to $492m.”

    The Economist

    RH

  11. Groveton Avatar
    Groveton

    How does a new fisherman enter the Alaskan halibut market if all of the “catch shares” are owned in perpetuity by existing fisherman?

  12. Anonymous Avatar
    Anonymous

    Good question. I imagine you would have to buy your way in. But here is the thing, if we beleive that natural resources like the environment belong to all of us, then why are only the fishermen granted ownership in catch shares?

    If we are all granted shares. Then some people would take the cash and sell out, and some people would sell their shares to conservation groups, so that they cannot be used. Then there would be a bigger market for new fisherment to buy their way in.

    Practically speaking though, there aren’t enough fish to keep the existing fishermen engaged.

    The article went on to describe how a similar plan could be used in the Chesapeake bay with the crab fishery.

    RH

  13. Anonymous Avatar
    Anonymous

    “I grow apples in the Northwest. A few years ago I took advantage of low interest rates and federal farm-loan subsidies to borrow money to clear land and plant apple trees. Trouble is, so did lots of other apple-growers. Now we have so many apple trees out here producing fruit that the price of apples is depressed, and so is the price of my new orchard. I’m not making enough selling my apple crop to cover my loan payments, and I can’t sell my orchard for a high enough price to pay off the loan.

    In retrospect, I obviously made a mistake planting those trees. Now what? Until last week I thought my only two options were: I bear the loss and keep up the loan payments somehow, or my lender bears the loss by renegotiating the loan or having it written down for him when I declare bankruptcy. While I’m debating which one of those to choose, and I might go bankrupt, nobody will refinance my other debts at low rates. (Meanwhile my Uncle Freddie, who lent me the money, made a bunch of other bad orchard loans. He made an even bigger mistake than mine. I heard that he’s in bankruptcy court now.)

    My neighbors Ben and Hank, however, have a third option. They have a different way of looking at the problem. They think the reason that nobody will offer a good enough price for my orchard (and other orchards like it) is that the usual orchard buyers are just temporarily spooked. They think it will pass. They think the three of us should pool our money, set up a new fund, and use it to buy my and other distressed orchards at better than the going price. With the orchard off my own books, they say I can more easily meet the payments on my other loans, and I’ll be able to get new loans. Later our fund will sell the orchards off for what they’re really worth.

    Now, I think they’re being foolish. What with all the overplanted trees out there, the apple business and the price of orchards are going to remain depressed for a long while. Barring some unforeseen event that boosts demand for apples, prices will remain depressed until finally enough apple trees have died off to reduce the crop to where it ought to be. I’d be a fool to put any of my own good money into the fund they’re proposing.

    But hey, if Ben and Hank can convince some even bigger fool to pay a good price for the orchard I shouldn’t have planted, I’ll cash the check.”

  14. Anonymous Avatar
    Anonymous

    9:23 It’s more fantastic than this. Apples are generally quite expensive, much more so than oranges. Like it or not, more with higher incomes buy apples, while more with lower incomes buy oranges.

    Congress passes a bill that expands the availability of apples by guaranteeing apple purchase installment loans. Lots and lots of apples are now sold, many on installment contracts. But the price of apples remains high — indeed the prices rise. But many lower income people cannot afford apples still. And, of course, some people buy more and bigger apples than they need or can afford on their apple installment contracts. McApples! Then people (both those who bought little apples on low incomes and McApples on bigger, but not big enough, apples started defaulting.

    Meanwhile the financial services sector decides to bundle apple installment contracts as new, sexy securities. Etc.

    TMT

  15. Anonymous Avatar
    Anonymous

    Farm Subsidies Gone Wild: Cows in Europe Earn More Per Day ($2.20) Than 1.2 Billion Poor People

    1. Primary farm producers in the world’s developed countries receive about $280 billion a year in government support. In the European Union, farmers receive a third of their income from government subsidies. Beef and veal producers get more than 70% of their income from subsidies. A typical cow in the European Union receives a government subsidy of $2.20 a day. The cow earns more than 1.2 billion of the world’s poorest people.

    ~Mark Vaile, Australian trade minister in 2005

    2. The developed world funnels nearly $1 billion a day in subsidies to its farmers, encouraging overproduction. That drives down prices and leaves farmers in poor nations unable to compete with subsidized products, even within their own countries. In recent years, American farmers have dumped cotton and other products on world markets at prices that do not begin to cover their cost of production. Europe’s system is even worse; the United States’ farm subsidies are only a third of Europe’s. A cow in France shouldn’t make more than a farmer in Burkina Faso. That is just shameful.

    ~NY Times editorial “Cow Politics” in 2005

    3. In 2006, expenditures on the Common Agricultural Policy (farm subsidies) were €49.8 billion, compared to €48.5 billion in 2005. This represents 47% (the largest component) of the EU’s expenditures in 2006, up from 46% in 2005.

    ~Financial Management in the European Union

    And just in case, 47% seems high, it’s actually “low” compared to the past. Until 1992, farm subsidies represented nearly 61% of the EU’s budget. Reminds me of the joke:

    Q. How do you starve a European farmer?

    A. Weld his mailbox shut.

    From Carpe Diem

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