Having a few farmers in the family, I thought that several points in the discussion were being overlooked and I feel a need to enter the fray!. Farm subsidies are a complicated issue. At face value, it would appear to be another boondoggle. I suggest, that they were/are necessary to insure a stable food supply and stable prices that will sustain the farming industry. Farming is not similar to manufacturing. Outside forces beyond the control of the farmer can easily put him/her out of business in a heartbeat. It was to this end, insuring a livelihood year in and out, that brought subsidies to bear. Keeping a stable price. I do agree that Big Agri Business has distorted the objective, and now often are taking advantage of the process. Ethanol being a major one. So here we go! ..here tis:
To break even, farmers at least must be able to cover their fixed costs. Therefore, they will not, as a rule, respond to falling prices by taking land out of production—that is, working to raise prices by limiting supply. Just the opposite: confronted with falling prices, farmers will attempt to increase output in hopes of offsetting falling per-unit revenues by a higher total volume of unit sales. Failure to do so will put them out of business—sooner rather than later.
So the normal operation of the market—which aggregates the decisions of many individuals—is for lower prices to trigger higher output, leading to even lower prices. The farmer’s imperative to cover fixed costs, and the fact that farmers generally do not coordinate their individual actions prior to bringing their goods to market, gives rise to the seeming irrationality of farmers’ responding to falling prices by trying to increase output. And since the demand for most food goods is relatively unresponsive to price, a significant decline in price may be required to clear the market of excess supply. Thus the overall price level tends consistently downwards—and buyers’ expectations of what they will have to pay adjust ever downward, too.
The only way to stabilize farmers’ incomes and preserve a viable, diverse agricultural system is through some combination of price supports and supply management. Government price supports are the most effective means of stabilizing price and offsetting the negative consequences of rapidly falling prices: farmer bankruptcy, land loss, accelerated farm consolidation, and the competitive pressure to shift to more input-intensive farming methods. Supply management programs, which allow the government to mandate land set-asides when surpluses arise, can help compensate for farmers’ lack of control over commodity prices; they can also be extended to embrace conservation initiatives and sustainable land management practices, benefiting the environment as well.