Thursday, December 26, 2013

Farm socialism in the hotel lobby

They seemed like normal people talking about farms as I was taking advantage of the hotel lobby wifi. Then came a bit of jaw dropping autarky. "You have to subsidize food production. We can't just depend on others" claimed a neatly bearded salt and pepper haired gentleman. Within a couple of minutes a lady in the group claimed that "farmers think they are independent souls but they are really the banks' serfs." They showed zero understanding that the two statements are intimately related, subsidy creates serfdom. 

Economically, farming is normally risky work. Bad weather regularly destroys product, often reducing income below production cost. Good weather regularly destroys profit as bumper crops drop prices, again often below production cost. 

Normally big Agriculture would be an unlikely occurrence. Why would stockholders ride the roller coaster of weather and ag markets for unremarkable returns?  The norm is family farms who at least get a good lifestyle out of the deal. But this norm is dying. 

Preserving family farms and politically stabilizing farm culture prompted country after country to adopt farm subsidies that paid more people to produce than the market needed. Prices were managed and stabilized so farmers would not regularly go bust. These subsidies not only made it safe for the family farmer to stay in business but drew in the financier who saw a tax money harvest. That MBA dominated big ag model now predominates and the old farm culture of independent yeoman farmers is pining for the fjords. 

Subsidies create serfs by making it safe for powerful bullies to enter the market and drive weaker but more tenacious players to the wall. ADM and company are not tenacious and with government subsidies they don't have to be.