U.S. Farmers Unlikely to See Turnaround Anytime Soon

Low prices for agricultural goods could continue through the year 2000, leaving
many US politicians urging a return to broad subsidies through crop and farm
insurance. According to Keith Collins, an economist with the US Department of
Agriculture, a rebound in the Asian economies is two to four years off, and
until that recovery takes place foreign demand for US agricultural products
will be weak.

And that’s got Congress ready to jump back on the subsidy wagon. After the
1996 Freedom to Farm Act, it appeared that US subsidies for farms might be on
their way out, but now Democrats and Republicans from farm states seem willing
to resurrect the system of subsidies through the back door of crop insurance.

Crop insurance compensates farmers if commodity prices fall below a certain
level. But because crop insurance encourages farmers to plant more than they
normally would, it also tends to result in larger than average crops and as
a result a greater risk of extremely low prices. In effect rather than a typical
insurance scheme, this is a roundabout way of setting a price floor on agricultural
commodities.

The US would be better off getting the government out of the crop insurance
business altogether.

Sources:

No quick fix seen for struggling farm economy. Joe Ruff, Associated Press,
Feb. 16, 1999.

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