Tilting at windmills

Submitted by Jonathan Steiman on April 30, 2005 - 3:35pm.

Since the advent of the oil economy, people—me, for one— have envisioned an apocalyptical end to society. Without oil, we argue, millions, possibly billions, would starve, as both food production and food transportation is made possible with oil.

A less severe and not as permanent scenario could happen sooner than expected.

As the price of energy soars, the Bush administration and the Republican-controlled House are seeking to increase the nation’s energy supply by giving a disproportionate amount of tax breaks and subsidies to the oil and coal industry.

But while the government’s wallet is open to energy producers, it is off limits to the farming industry. In the proposed 2006 budget, the president has trimmed farm subsidies by more than $5 billion over ten years.

So what does this have to do with starving? Assuming farmers are rational business people, which I am sure most are, they will seek the maximum profit for their land. With energy prices soaring and farm subsidies shrinking, farmers will be tempted to become energy producers themselves.

But how? Windmills.

According to the Economist, “the farm lobby is getting gradually more eager to plant windmills instead of profitless crops.”

This will not lead to a famine on the scale if oil ceased to exist. But it could cause a supply shock. As farmers abandon food production to plant windmills, the price of food will rise. Then, as food prices rise, farmers will be tempted to go back to farming. But at this point there will be one problem: The rational farmer that spent hundreds of thousands of dollars on his windmills will not scrap his investment. So crop prices will have to continue to rise beyond the economic value of the windmills.

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Lauren Rae Silva said:
May 3, 2005 - 2:26pm

Rational farmer? Find me one.

ToddG (not verified) said:
May 3, 2005 - 3:35pm

I'm no expert on the domestic food production industry/lobby, but I think it's well-known that a significant number of farmers (an ever-dwindling number of which are "mom and pop" operations) rake in money for not producing crops. That and other regulations hold down domestic prices, preventing other countries from selling into the US profitably.

Perhaps they're hedging their bets that that particular gravy train might get derailed in the not-too-distant future. To this point, yes they are being rational -- why upset a profitable business model - farming with big gov't subsidies - for unproven wind-farming for a nascent market? And it's not like any such shift would happen overnight - if food prices increased at anything more than a miniscule amount, they'd turn right around and keep producing. And do most wind-farms even require enough land to impact food production that much? I wouldn't think so, it's not strip-mining...

Jonathan Steiman said:
May 4, 2005 - 9:02am

"well known that a significant number of farmers rake in money from not producing crops." Please cite, and when cited please explain how the 2006 budget will affect this cohort.

ToddG (not verified) said:
May 4, 2005 - 10:14am

I can't find an explicit cite at the moment - most articles are "premium content" or on Lexis. That they're paid to "not produce" them is hazy - I may be mis-remembering that. But a quick look on Nexis gives many arguments for and against the subsidies. There appears to be a lot of dissension even within the farming industry, among different regions, crops, and different sized producers.

In more recent news, it appears this part [cutting farm subsidies] of the budget request is on shaky ground and may be reduced to around $2.8 billion (approved by the Senate), or maybe less as it makes its way through.

Also in that piece:

A Government Accountability Office report last April found that farmers were skirting the payment limits, often legally, using corporate entities, relatives and shadow partners. Some farms collect more than $1 million a year, far in excess of the limits.

[Also in that WaPo piece] The price support may lead to trade retaliation in the WTO due to the US essentially dumping subsidized crops on the world markets, undercutting prices from developing nations. I believe our subsidies are currently tied to production -- leading farmers to overproduce - why wouldn't they if they're getting paid for it? (Yes I realize this undercuts my "not produce" suggestion. I don't know the absolute truth, if there is one).

I certainly don't know the way out, but it seems apparent there's a large amount of stretching the rules and money-grabbing going on, and some reform would be useful. And if we're undercutting foreign sellers of crops it does sound like there is production to meet demand if our production decreased, so I don't know if a supply shock is really likely. Whether or not we should rely on other nations for basic needs (crops) is a thorny issue though.

I don't know if I agree 100% with this, but I think it well-addresses the issue:

Support for a farm program that long ago outlived the need and is rife with cheating should be nonexistent. After all, subsidies discourage efficiency, encourage overproduction and give U.S. farmers an unfair advantage over their poor counterparts elsewhere in the world. But like farming, subsidies get in the blood. Like kudzu, the noxious vine that crept up on the South, subsidies, once established, are difficult to eradicate. The president gave up too soon on what he knew would be a hard row to hoe.

from the The Atlanta Journal-Constitution, April 18, 2005 (Opinion page obviously). From Lexis. I don't know if that paper is considered a liberal rag or conservative rant or what, but the idea that eradicating subsidies from any industry is damn hard seems obvious. I'm certainly not willing to give up my rent-stabilization at the moment for example!

Anonymous (not verified) said:
May 15, 2005 - 1:28pm

Hi, Seems like one premise here is we owe support to overseas farmers struggling to make a living. We don't but we do owe it to our own producers to give them the oppourtunity to make a fair living. Contrary to the prevailing college teaching the rest of the world plays hardball with us over tariffs, quotas and underhanded restrictions on product importation. Do you think we can continue to sustain a $162 billion dollar annual trade deficit with China or huge ones with Japan and Germany? I walked into a store here in Manhattan and found the apple juice, frozen strawberries and fresh cloves of garlic I wanted to buy were imported from China. I just installed an American Frigidaire A/C unit and when I took out the packing materials I noticed the A/C was made in China. In the last 30 years Japan has sold us 40,000,000 autos and we have sold them 40,000. Really think our cars are that bad? They aren't but Japan imposes modifications to cars imported and has killed the market. In Seoul, South Korea, where in a city of seven million people I saw exactly two US cars in ten days I asked a friend who lives there why? "I can afford a Corvette if I want but if I buy it my neighbors will slash the tires and break the windows because I am not supporting Korean car makers," he said. The rest of the world supports their industries and it is past time for us to do the same.

ToddG (not verified) said:
May 16, 2005 - 11:04am

I don't feel we owe any overseas farmers any financial support. But as a member of the WTO these issues kind of need to be dealt with - and are horribly difficult to deal with, as witnessed by the continuing troubles with the WTO and trade talks - to wit:

CAN north and south ever be reconciled? These days, this seems to many to be the biggest question facing the World Trade Organisation (WTO). In September 2003, a block of developing nations led by India and Brazil managed to bring the Doha round of world trade talks to a screeching halt in a key meeting in Cancún, Mexico, by demanding that the rich world lower barriers to agricultural trade. Though strenuous effort has put Doha back on track, agriculture remains a sticking point between the rich, mostly northern countries and the poorer, mostly southern ones. Difficulties abound in other areas as well, particularly services.

from the free trade fans at the Economist. So there's no doubt serious hardball going on. If everyone's egregiously flaunting the WTO rules then someone needs to call BS on the whole affair. But with the faltering of the ongoing rounds of talks maybe it will all collapse before then anyway.

Bryan Keogh said:
September 12, 2005 - 11:55pm

ToddG's statement about "farmers rak(ing) in money from not producing crops" is basically correct. The money comes from the USDA's Conservation Reserve Program:

The Conservation Reserve Program (CRP) is a voluntary program for agricultural landowners. Through CRP, you can receive annual rental payments and cost-share assistance to establish long-term, resource conserving covers on eligible farmland.

The Commodity Credit Corporation (CCC) makes annual rental payments based on the agriculture rental value of the land, and it provides cost-share assistance for up to 50 percent of the participant’s costs in establishing approved conservation practices. Participants enroll in CRP contracts for 10 to 15 years.

As of July 2005, 407,827 farms were receiving annual payments totaling $1,715 million to let their land sit idle. That's $48.43 per acre. By the way, CRP land often becomes prime hunting real estate as deer, pheasant and other game numbers typically flourish once the farming ceases.