AgDM newsletter article, April 1999

The policy dilemma of the current farm downturn

Bob JollyBy Robert Jolly, Professor of Economics, 515.294.6267, rjolly@iastate.edu, and Alan Vontalge, Livestock Economist,, 515.294.6311, vontalge@iastate.edu

Whenever commodity prices decline and farm income suffers, many farmers and agricultural lenders turn to the government for relief.  These cries for relief usually focus on requests for direct government payments to farmers.  In addition, charges of unfair business practices are often leveled against agribusinesses and non-traditional farm production businesses.

As happened in 1994, the pork industry ran headlong into a slaughter capacity constraint and for a few weeks late in 1998 experienced the lowest prices for its product in decades. 

The federal government responded in its usual fashion by increasing crop-related subsidies through its feed grain apparatus.  In addition, an obscure farm program provision (the loan deficiency payment) kicked in and pumped additional money into the checking accounts of some corn and soybean growers. 

The federal farm program payments, estimated to be around $1.2 billion for Iowa farmers in 1998, took the edge off the potential drop in farm income.  But increased subsidies did little to assuage farmers’ concerns about their ability to compete in a commodity market with prices averaging below those received over the past decade.

For farm leaders and public officials, the re-emergence of farm financial stress poses a number of policy dilemmas of how to resolve the current situation.

 

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