Libertarian Solutions to the Food Crisis

Rationing Rice

Something is seriously wrong with our farm policies and Congress is asleep at the switch. Yesterday, Costco started rationing rice, not because of a shortage, but because the price has risen 40% in the last 3 months. It appears that Asian customers, hearing of the rice shortage in their home countries have started hoarding rice.

What is really wrong is that Congress is about to pass a $30 Billion farm bill that keeps and in some cases raises direct payments to large agriculture companies based on the amount of land they own. Senator Tom Harkin, Chairman of the Agriculture Committee knows something is rotten in Washington.

The direct payments are based on the amount of land that certain farmers own, and Mr. Harkin, who has sought to eliminate the payments, said that many recipients of the money then use it to acquire more land and qualify for more payments.

“It’s like the black hole in space that astronomers talk about: everything gets sucked in and nothing ever comes out,” he said. “This is the black hole of agriculture. It doesn’t make sense, but farmers continue to get it.” Mr. Harkin said there was not much he could do because “I don’t have the votes,” adding, “People love free money.”

Almost everything the Congress has done in the last few years on farm subsidies has been seriously flawed. Pushing farmers to grow more corn for ethanol has not helped the environment and sparked “tortilla riots” in Mexico City. Subsidizing the growing of cotton in Mississippi has made it impossible for cotton growers in Africa to make a living. Continuing to subsidize domestic sugar processors has severely distorted the world market price for sugar.

What’s worse is, because John McCain’s key financial advisor Phil Gramm and his wife Wendy pushed through a bill to shield the Commodity Futures Trading Commission (which Wendy headed) from SEC oversight, it is a giant casino for hedge fund investors.

There is also no movement to require tighter regulation by the Commodity Futures Trading Commission of futures markets. Many farmers suggest that hedge fund money is building a speculative bubble in farm commodities and causing wide swings in futures prices, making it more expensive for them to use futures to lock in crop prices. Farmers fear that the bubble could burst, like in the housing market.

“It’s a train wreck waiting to happen,” said Tom Buis, the president of the National Farmers Union.

There is only one solution to this. Scrap all direct farm payments and move to “a new revenue assurance program that would help farmers in times of need, but save money in boom years when crop yields are strong and prices high.”


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0 Responses to Libertarian Solutions to the Food Crisis

  1. Morgan Warstler says:

    C’mon stop being so biased. Obama isn’t worth your credibility. Give credit where credit is due.

    Sure yes, we should definitely scrap ag-subsidies. But then give McCain some “atta-boys,” for wanting to do just that. Its a huge thing to go into Iowa and say, “screw ethanol,” your man certainly didn’t have a sack that big.

    Certainly before you go forcing more regulation on the commodities market (which I’m not neccessarily against), we should demand the ag-subsidies stop. We have one problem we agree on, why not fix it first, then argue about the second?

  2. Jon Taplin says:

    I agree, McCain’s willingness to fight ethanol subsidies was good. I still think Phil Gramm is dangerous and McCain should drop him ASAP.

  3. Zhirem says:

    Sorry Mr. Mogul: McSame *skipped* Iowa. I know because I live here. No attaboys for his sack, regardless of size, for he did not pull it out or plunk it down on Terra Iowa.

    – Zhirem

  4. I am with you that the farm subsidy program needs serious revision. Billions of dollars are wasted and policies rather than genuine market concerns override decisions farmer make. I am not against regulation at all, as I think that would be short-sighted and agribusiness doesn’t have the best interests of the US consumer at heart. I am worried about the energy policies that promote corn biofuel and the use of ethanol. Corn growers use, though they need not, petroleum based fertilizers that do nothing to offset oil consumption. This is where Obama’s policies are not well-thought out. I don’t know as much about McCain, but many Republican higher-ups, for reasons I don’t entirely understand, want to deny that there is any energy problem (and I don’t just mean the global warming debate). So if McCain fought ethanol subsidies, that is the right decision. I would like to know more about why he made it, and I will go look at that. In the meantime, something has to be done about the ag bill.

  5. Chris says:

    I agree with huntingdonpost. Farmer subsidies have long created inefficiencies within the market. Though it has been argued that they have been historically placed in order to provide incentives to farmers to farm or not to farm, they have seemed to have become a foreign policy tool that is used to attack other governments for doing the exact same thing. The good news to the story is that the situation can be changed. Though the European Union has long been criticized for their agricultural policies, they have improved from the days of stocking warehouses full of unsold butter, which would later be dumped on the African market. Though farmers in the United States are probably less subsidized than their European counterparts, any funding that will promote a rise in the production of corn biofuel and ethanol could just create a larger problem than what the world is seeing today with the dramatic rise in food prices. Could the food crisis come at a worse time than during an election year where politicians rely on the votes of those who receive such subsidies? Most definitely not.

  6. usaefix says:

    The only way you get something changed is by throwing all these rascal out, through term limits!

  7. JR says:

    We should just do away with the Iowa Caucus. Everyone (almost) has to kiss those rich farmers’ and agri-business owners’ arses to have a chance of winning Iowa and gaining that Big Mo that carries every winning candidate to the nomination.

    Can’t win Iowa and be against corn!

  8. someknowledge says:

    The price of corn is pretty high. We probably don’t need farm subsidies. Tying any of this to politics is misguided. The question is should we be turning perfectly good food into motor fuel while a good part of the world is starving? There are major energy problems on the horizon. Use of fossil fuels is increasing, and supplies are limited. It’s time we make intelligent decisions on how we will use the remaining petroleum. It’s time we distribute food to the world’s population instead of just burning it.

  9. Morgan Warstler says:

    What kind of regulation would you bring to the commodities market? How do you keep hedge fund guys from betting on prices?

  10. Jon Taplin says:

    Morgan- You would force them to take possesion of the goods they are buying in the futures market. In otherwords you cannot buy a million bushels of corn futures until you prove you have a place to store a million bushels of corn.

  11. Azmanon says:

    Its not much better in the EU. I’ve met farmers (i.e. landowners) in the UK that get paid £75,000 per year NOT to produce any crops. This is supposedly to “balance” the market values across the continent.

    I’m for localizing food production. A huge part of our oil dependency goes towards petroleum based fertilizers and transportation of food. So the common market of larger areas like the US and EU is linked to industrialized mass production and distribution of food (So I suspect a substantial part of the subsidies end up back into the accounts of the oil companies. Anyone have any data on this?)

    Jon’s new federalist model could also help localize food production and diversify the market by breaking up large ag-business conglomerates. A few people might even become healthier in the process.

  12. Morgan Warstler says:

    What happens now when they own the bushels/futures, and have no place to store it? I’m assuming that means they have to sell it at a loss right, to someone who can store it.

    Speculators bug me too, but I can’t quite wrap my head around how hedgefund guys could use immense amounts of cash to wrench profits from the market, are they going to corner the OJ market, destroy half, and sell the other have >2x?

    I think I understand commodities, I understand tulip mania, but I don’t get how you can buy up a bunch of futures and distort the market, unless you know how big the crop is going to be (a al Trading Places).

    Feel like we’re missing something, at least I am.

  13. Jersey says:

    I would rather buy the produce from American farmers knowing that they follow strict federal standards than from the poor guys in Africa who may use God-knows-what to try to increase their produce. Most farmers in our country are poor as it is by other cost-of-living standards, and anything that can help them, to some degree or another, I support.

  14. Face it, Morgan, you punked yourself. An actual Iowan nailed you. And McCain’s a flip-flopping lying breaker of FEC campaign finance laws, so you can’t trust him to keep his word.

  15. Jon Taplin says:

    Morgan-The whole notion of “cornering a market” revolves around buying more of a commodity in the futures market than is capable of being delivered in the real market. It’s what the Hunt Brothers tried to do with Sivler futures in the 80″s. It’s like calling someones bluf over pork bellies.

  16. Morgan Warstler says:

    I didn’t think they actually acheived it.

    Well, I hope he didn’t break any FEC campaign laws. But if he did, they are probably bad laws. :)

  17. Rick Turner says:

    I liked the signs in old school antique stores in my hometown of Marblehead, Mass… “You broke it; you bought it.” And trying to corner a market in futures is tantamount to breaking it. You’re breaking the normal flow of a commodity to it’s end users via a form of highjacking. Legal? Sometimes… Ethical? Nahhh…. And that is a weakness in unregulated libertarian economics…ethical is likely to lose to barely legal.

  18. JR says:

    Speculators haven’t caused the price of corn to new highs! The fact that 20-30% of the supply is being converted into ethanol (which requires more energy to produce than the resulting ethanol provides) is driving the price to these insane levels. This is corn that used to feed cattle and chickens and hogs (and humans) that’s now being burned by internal combustion engines. It’s crazy! But it’s the ethanol industry, backed and created by Congress, the President and Wall Street that’s the major force driving grain prices higher, not speculators.

  19. Jon Taplin says:

    JR- That wouldn’t accountt for the rice, wheat and soy shortage.

  20. Peter says:

    Isn’t it a $300 billion farm bill (not $30)?

    These days, one might not blanch at a number like $30 billion…

  21. JR says:

    As food, they are fungible.

    I think worldwide demand has taken off as developing countries have pursued American style diets, which consumes huge quantities of grain to feed the cows that make the Big Macs (an over-simplification, perhaps but illustrative).

    So much more acreage is now devoted to corn for fuel that it is squeezing out the other, less profitable grains. Nobody saw these shortages coming and everyone was chasing the quick buck in corn.

    And farm subsidies hugely distorts the market in the first place. Speculators have raised the price some, but in general we are in the midst of an inflationary spiral when prices will act in ways that can’t be rationalized. My guess is there is some hording and some suppliers are holding back waiting for even higher prices.

  22. ricefarmer says:

    The average american pays $4,000 in federal taxes. The ag subsidy is under $20 that’s what goes to the farmer. The rest goes to food stamps, government housing, and every thing related to agriculture such as offices of USDA. This gets the american people cheap and safe food. I do not get payed to grow corn, I have base acres on the crops that have been grown on the land. The input costs of 2005 almost drove me out of farming. I am a 4th generation farmer. Every thing is passed to me. I am the next generation. I have been selling my rice, beans, and wheat for almost the same price my dad did when he was younger and in some cases less than that. I have to farm 3 to 4 times more ground than my father did to make a profit, with the same labor and equipment. I farm 2500 acres with most of it rented. It is a good life but a hard way to make money. The age of the average farmer is over 55 and growing older each year . The young farmers are leaving or going bankrupt. The cost of production has doubled from 2004 to 2005 and 2008 will double that. Th e rice mill will no longer let me book my crop! I do not get market price for it. It was $3.60 under the market, why? I can not change the crops I grow because the equipment is too high to take the risk of loosing it all. What is the first thing to happen when we have problems with any country? We take away any food that would come from us (rice), that I have grown and is no longer needed. Do I take all of the net loss? Cuba bought a lot of rice before the embargo. . The import tax on my fertilizer is 50%, it must be around $200 a ton for tax. I am paying $525 a ton. I can not hold my crop, I have to pay the bank back. If the payments are gone the American farm will be gone and low prices will return. One good year out of 20 will not let me survive. Food is cheap. Rice is about $0.10 a serving compared to gas at $3.40 a gallon, and a soft drink at $0.50 for one serving. I am not the only one to get subsidy payments. Try postage on the large newspapers. They get them and they set the price of the newspaper. I take my crop and ask how much will you give me. Not too many places take trailers full of grain. I lost over $100,000 in wheat last spring due to the freeze. The United States had me in a disaster county with relief. The relief money was a loan for my loss. A friend of mine thought I got money. My insurance covered fire and hail, but didn’t help much on the freeze. If the farmer is gone, food will be high. There’s no magic button to push to make all the food in the store, it comes from the proud american farmer. It gives me a satisfying feeling inside when I know I’ve feed the world with safe and low-cost food. Do not knock down the american farmer who is your food supplier. Not all countries like the United States. Until you can sit in the American farmer’s shoes wondering how am I going to pay back my crop note this year and hope they do not take away what 3 generations have given me, don’t take away my safety net for bad times. My thoughts,
    A Proud Rice Farmer

  23. Morgan Warstler says:

    “It takes around 400 pounds of corn to make 25 gallons of ethanol,” Mr. Senauer, also an applied economics professor at Minnesota, said. “It’s not going to be a very good diet but that’s roughly enough to keep an adult person alive for a year.”

    Mr. Senauer said climate change advocates, such as Vice President Gore, need to distance themselves from ethanol to avoid tarnishing the effort against global warming. “Crop-based biofuels are not part of the solution. They, in fact, add to the problem. Whether Al Gore has caught up with that, somebody ought to ask him,” the professor said. “There are lots of solutions, real solutions to climate change. We need to get to those.”

    Mr. Gore was not available for an interview yesterday on the food crisis, according to his spokeswoman. A spokesman for Mr. Gore’s public campaign to address climate change, the Alliance for Climate Protection, declined to comment for this article.

    However, the scientist who shared the Nobel Peace Prize with Mr. Gore, Rajendra Pachauri of the United Nations’s Intergovernmental Panel of Climate Change, has warned that climate campaigners are unwise to promote biofuels in a way that risks food supplies. “We should be very, very careful about coming up with biofuel solutions that have major impact on production of food grains and may have an implication for overall food security,” Mr. Pachauri told reporters last month, according to Reuters. “Questions do arise about what is being done in North America, for instance, to convert corn into sugar then into biofuels, into ethanol.”

    In an interview last year, Mr. Gore expressed his support for corn-based ethanol, but endorsed moving to what he called a “third generation” of so-called cellulosic ethanol production, which is still in laboratory research. “It doesn’t compete with food crops, so it doesn’t put pressure on food prices,” the former vice president told Popular Mechanics magazine.

    A Harvard professor of environmental studies who has advised Mr. Gore, Michael McElroy, warned in a November-December 2006 article in Harvard Magazine that “the production of ethanol from either corn or sugar cane presents a new dilemma: whether the feedstock should be devoted to food or fuel. With increasing use of corn and sugar cane for fuel, a rise in related food prices would seem inevitable.” The article, “The Ethanol Illusion” went so far as to praise Senator McCain for summing up the corn-ethanol energy initiative launched in the United States in 2003 as “highway robbery perpetrated on the American public by Congress.”

  24. Morgan Warstler says:

    I’d like to understand more about rice farming in the US. Why are there import taxes on fertilizer? Which countries can’t you sell rice to? Why won’t the rice mill book your crop? Please forgive my ignorance.

  25. Danny Kenny says:

    This post is full of lots of assumptions, the first being that speculators are bad. They are not. There are instances when speculators corner a market, but not in the case of food.

    Speculators make a bet that prices are going to rise in the future. Why are prices going to rise in the future? There are many reason, but most of them have to do with governmental action. Most of the current turmoil is due to monetary mismanagement by pseudo governmental authorities, but they are being compounded by problems on many levels, most importantly, in my opinion, government restriction on trade.

    As a simple example of why speculators provide a good to the market place, here is a simple example. Say, for the purpose of this exercise, the fundamental price of oil is $100. Why does it sit around $120? Let’s say there is a 20% chance that the US strikes Iran and the price of oil is projected to go to $200 if that happens (again all for the sake of this exercise). Speculators buy oil futures now, at a higher price, in case we do attack Iran, there will then be more oil in the marketplace. The speculator forgoes consuming oil now, at the expense of saving for later. If he did not do this, there would be less oil should his projected scenario actually happen, and the price would be higher than the $200 predicted without that speculation.

    Granted, that is a simple example, but it drives home the point. Speculators are betting that the price of food will be higher in the future (mind you, for reasons other than their speculating, most likely government intervention, and no, not just the US’s). If the scenario does indeed play out, the supply of these foodstuffs will be greater in the future, and prices will be lower. If the scenario does not, prices will go down, and the speculator will have lost on his bet.

    Does this mean that speculators are great people? No. But they do provide a good to the economy, in the same way that short sellers on stock exchanges, who seemingly would be a ‘negative’ to stock markets, actually strengthen the overall economy and provide additional liquidity.

    Things are not always as they seem. Sometimes critical thinking is necessary to understand why something that ‘seems’ bad, in reality is not.

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