Draft Paper – Not to be cited without author’s permission
Emergency payments are given to farmers when price fall so low that an economic emergency is declared in rural areas. Counter-cyclical payments are designed to counter the normal “hill and valley” cycles of rising and falling crop prices by filling in the valleys, kicking in when prices drop below average levels. Non-recourse loans essentially set a floor price—and if prices fall below that level, the government is forced to buy the crop, making up the difference with cash outlays. In all three cases government outlays go up in response to falling prices.
In other words, when farm prices rise, subsidies drop, and when prices drop, subsidies rise. The cause is the price, and the effect is the subsidy. Widely circulated economic simulation models run by Daryll Ray, Daniel De La Torre and Kelly Tiller at the University of Tennessee, 19as well as models run by others,20 clearly show that even the complete removal of subsidies would not have any significant effect of raising chronically low farm prices, which are typically below the cost of production for most farmers, for most products, in most countries, and in most years. So while the current US and EU subsidy systems are clearly misguided and unfair, and absolutely must be reformed, (see Box 2, p 27), they are not the root of the problem.
What then is the true cause of farm prices so chronically low that farmers cannot survive
anywhere, North or South, without compensatory subsidies? concentration in the control over agricultural markets has mainstream economists in both developing and developed
Over the past twenty years reached levels that most countries would consider
excessive by almost any measures. prices believe that these high levels
Many of the world’s of concentration affect
best analysts of commodity prices.21 Clearly integrated
conglomerates have a vested interest in paying as little as (crops and livestock), which charging as much as they can
possible for their to consumers.
Some examples from the US give an idea of the degree of concentration that exists today: 22
Four companies (Cargill, Cenex Harvest States, Archer Daniels Midland, or ADM, and General Mills) own 60% of terminal grain handling facilities.
Three companies (Cargill, ADM, and Zen Noh) carry out 82% of corn exporting.
Four companies (Tyson, ConAgra, Cargill, and Farmland Nation) concentrate 81% of the beef-packing industry.
Four companies (ADM, ConAgra, Cargill, and General Mills) own 61% of flour milling capacity.
These companies seem to be significant beneficiaries of the current system of market access and subsidies. They and others like them are able to buy cheap in the US and the EU, and thus undercut local producers at dumping prices in markets around the world. While it this degree of market concentration that is behind keeping crop and livestock prices low, subsidies do play an indirect role in that they allow the system to persist. They make it possible for the suppliers (large farmers in the US and EU) of these companies to keep supplying them, despite receiving prices below their costs of production.23 Large growers are compensated with direct payments for producing at such