Wednesday, May 13, 2009

Too many dishes...

Back in the day, most of us watched Ed Sullivan on Sunday night.  One of the more popular acts was  - and this sounds bizarre to describe now - a guy spinning plates on top of sticks.

Whoa - I'll pause to let you recover.

Anyway, let's suppose each plate (bowl, egg, whatever) is a subsidy directly or indirectly for corn growers. You now have a metaphor for the life of a farm lobbyist.

The problem is we have, I believe, exceeded our spinning talents, and I think the floor is getting slicker.

Consider the headwind for the HFCS plate.
In any case, this whole thing is ridiculous. The issue here is highly caloric sweeteners, not soda per se. In other words, high fructose corn syrup, which is what virtually everyone uses to sweeten their drinks these days. So why on earth would we tax Pepsi at a penny an ounce at the same time that we massively subsidize HFCS? And even if we got rid of the subsidies, which would be a fine idea in any case, why tax soda? If this is the direction we want to go, why not just tax sugar and HFCS directly, regardless of what it goes into? [More]
Now consider the delicately nuanced and artfully phrased slam against crop insurance for corn and other crops, by Bruce Babcock, The Bravest Ag Economist in Iowa.

Because the cost of risk is a real production cost, risk management subsidies are essentially a cost-of-production subsidy. It follows that the main effect of the subsidies is to increase the production of the crops that receive the subsidized risk management. The crops and regions that have the largest reduction in risk will have the largest increase in production. High-risk crops and regions include dryland cotton in Texas, wheat in arid regions of the Great Plains, and corn and soybeans in parts of the Dakotas and the Southeast. The production of low-risk crops in low-risk regions would be largely unaffected by elimination of risk management subsidies because the percentage of reduction in production costs would be small.
Why might taxpayers benefit from expanded production of select crops in high-risk, largely low-productive regions? If expanded production in high-risk regions is large enough to significantly affect U.S. and world aggregate production, then risk management subsidies will lower market prices for the subsidized commodities. Any such decrease in commodity prices will benefit consumers somewhat.
But the prospect of slightly lower commodity prices cannot justify the billions of annual risk management subsidies. Furthermore, a large proportion of the subsidies do not even flow to farmers but rather go to the crop insurance industry. Instead of looking at taxpayer benefits of expanded production in high-risk areas, it is more instructive to look at the political benefits of this expanded production, and at the lobbies that guard against changes in risk management policy. [More]

This plate could be the first to shatter as the deficits soon overtake all other fiscal problems.

And it may be that the ethanol platter is slowing the most drastically.
According to a Duke University-led study, "Converting set-aside [land] to corn-ethanol production is an inefficient and expensive greenhouse gas mitigation policy that should not be encouraged until ethanol-production technologies improve."
This is another in a long list of studies that dent the credibility of corn based ethanol as a viable source of environmentally or economically sound energy. In early February, a University of Minnesota study said that corn based ethanol is worse for the environment than gasoline. [More]
[Wait - that report came from Minnesota??]

If you are a corn grower, it is important that you realize it is far more important to keep these plates going than get the Illinois crop in the ground this year. We could disappear enough demand overnight that all our skills and pride in growing corn would be devalued like a Las Vegas bungalow - along with our land and equity.

Thanks to our confidence in our plate-spinning abilities, this is what our industry now faces: a future in political theater.  We have happily structured our business model on an ever increasing amount and number of subsidies, without pausing to reflect on how many we can keep twirling. I know we didn't intend this, but the signs of our growing dependence were there all along.

It could be a pretty rugged subsidy-withdrawal program is ahead.


From Virginia said...

While agreeing with much of what you say, I don't see any "subsidy withdrawal program" getting any traction in DC. Granting largess is what constitutes power in DC, and I haven't seen anyone there willing to surrender power. In addition, the current mindset of DC is even more bent on federal intervention and government "solutions". No, program complexity will continue to grow and we will see many more unintended consequences of well meaning, but poorly thought out, government programs.

Anonymous said...

I agree with Virginia in the short run. In the long run, we better get our houses in order and batten down the hatches for a tougher ride. Even if we are wrong about this we will be better off if we are prepared.