Thursday, March 02, 2006

Free Market Agriculture II

It is easy enough to recognize that when it comes to issues regarding production and the environment that free markets and agriculture go hand in hand (see ‘Free Market Agriculture:Green Profits’ post ). But, how does one approach the issue of government funding and farm programs?

There are two things that I would like to point out regarding this issue.

1) Total spending on agriculture comprises 1% of the federal budget. Of that amount, less than half is allocated to the producer. The bulk of the rest is spent on aid to the poor and school lunch programs.

2) Despite that the funding is a small proportion of total federal spending, there are still market distortions that result from these programs.

One Iowa State University economist has pointed out that up to 1/3 of the price of farmland can be attributed to government payments. In fact many producers have expressed that government programs have increased the price of land and impeded their ability to expand their operation and remain competitive.

It seems that while many producers favor maintaining a safety net, they are also utilizing technology, crop insurance, and marketing tools to manage much of the risk characteristic to their market. In addition since agricultural production is very much an export-oriented enterprise, free trade is essential to opening up markets for food and fiber.

With the amount of lobbying and rent seeking that goes on across the board in all industries, it is not accurate to characterize the agricultural industry as having a prominent interventionist overtone. It turns out that modern agriculture is very much a free market friendly industry.

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