Wednesday, March 13, 2013

Down on the Farm

Decline in sugar price from 29 cents to 21 cents per pound lb
Said a weathered old farmer named Weiss
At his acres of oats, wheat and rice:
"There's nothing I grow,
As far as I know,
That is subject to free-market price."

According to the Library of Economics and Liberty, "most governments around the world intervene actively in the operation of their agricultural markets." This is because the volatility of growing conditions leads to volatility of prices, which may cause acute misery to politically sensitive groups. However, political sensitivities play differently in different countries. In the world's many poor nations, especially in Africa, governments intervene to keep the price down, thus calming the potentially restive urban masses. They do so by forcing farmers to sell only to state agricultural boards, which use their monopoly powers to peg artificially low prices. Such tactics tend to disadvantage farmers and discourage production and supply.

In wealthy countries, such as our own, farmers are seen as a naturally disadvantaged class, and governments intervene to set a floor under prices. Of course, such programs have long been exploited by politically connected agricultural producers to reduce their own business risk. One of the most politically connected American agribusiness groups is the sugar industry, which, according to the Wall Street Journal, "has long relied on subsidies that critics say are disproportionate to its contribution to the U.S. economy." The fact that such price support programs come at a substantial cost is underlined by today's news that the US Department of Agriculture is considering buying up to 400,000 tons of sugar to prevent defaults under a program in which sugar producers borrowed $862 million from the government. As the Journal helpfully points out, this is enough sugar to make 142 billion Hershey's Kisses. "The sugar industry has long relied on subsidies that critics say are disproportionate to its contribution to the U.S. economy," writes Alexandra Wexler. Since the loan program began in October, sugar prices have fallen from about 25 cents/lb to roughly 21 cents. Because of that, a program that was supposed to involve no cost to the US consumer has lost $80 million, the most in 13 years.

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