As an operator of a small livestock and forage farm, I keep an eye on policy developments in the broader agricultural sector. For the most part, I have an opinion that small farmers would be better off with less government intervention and direct assistance in the agriculture sector. I am not a fan of farm subsidies, intrusive regulations, or single desk marketing boards.
A post at GRIST presents a American “progressive perspective” on how current farm policy discussions are moving in the United States. It is interesting that the message in the article is small farms will benefit from functioning competitive markets and reduced direct subsidies.
White House phone lines have been ringing off the hook as thousands of consumers responded to a coordinated action alert by farm groups, calling to express their support for the Fair Livestock Competition rule.
I have written in the past about the policy challenge presented by either a captive market or captive supplier situation. Either situation can evolve into a form of “regulatory capture” where the dominant market participants can afford to spend money on lobbying to game the market rules. It is tough for competition to work in the public interest if the competitive market signals are muted or distorted.
The question is whether the proposed actions of the USA government will lead to more dynamic or competitive markets that are not subject to regulatory capture. In the case of the proposed Grain Inspection, Packers and Stockyards Administration (GIPSA) regulations, the answer is maybe. The proposed regulations are an attempt to reduce perceptions of price discrimination among processor-owned feedlot operations. However, some of that price discrimination might very well be due to improved meat yield or other value attributes associated with packer-owned production operations. It will be difficult for regulators to differentiate between perceptions of price manipulation and legitimate discrimination that accounts for differences in quality.
The situation with reducing direct farm subsidies is a bit more clear cut. It is tough to envisage a form of direct farm assistance that does not distort the market and economic signals in the sector. In some situation, it is all too likely that those subsidies will flow through to create inflated land prices or land rents which present a disadvantage to producers who do not receive a direct subsidy.
I have a concern about the direction of Obama proposal to only restrict subsidies flowing to large farms. Will the market distortions be reduced by this measure? I have my doubts. The longer term solution is reduce direct assistance in total so that the government is not put in the difficult position of picking winners and losers.
In the long term, an agriculture industry with reduced levels of direct farm assistance and more limited safety nets might have interesting structural impacts. It could very well be possible that the small farmers and beginning farmers with off farm income could experience a competitive advantage in a less distorted market environment.