I mentioned the late Paul Harvey’s famous speech, “So God Made a Farmer,” in a 2014 column. The speech portrays the many virtues of the farmer. These virtues endure.
Unfortunately, the U.S. farm market is not as virtuous.
Economic models and historical experience show that if you have a high level of competition, you get the most efficient level of output at the best price. Markets work best when consumers have lots of choices and sellers must serve their needs by producing something of quality at the best price.
The agricultural sector looks to have all the right characteristics for the market to do its job. Everyone needs to buy food regularly, so there are many buyers. There are many farmers, too, competing for our business.
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But the U.S. farm sector fails the competition test for two key reasons: This sector receives generous taxpayer subsidies, and current government policy unnecessarily restricts farm labor.
Agricultural subsidies increase supply beyond the quantity that would result in a market without such government intervention. This results in what is known in economics as a deadweight loss.
Deadweight losses occur because the taxation cost of the subsidy regularly exceeds what society gains from the increased level of production. The Congressional Budget Office reported in June that subsidies for U.S. farms will be over $22 billion between 2016 and 2018, up from their previous estimate of $14 billion for the period.
While farmers don’t generally support a reduction in subsidies, there is agreement that freeing up the labor market will help their business. U.S. farmers repeatedly ask for an expansion of the H-2A visa program that provides for temporary agricultural workers from other countries.
Empirical research shows that such immigrant labor expands the economy’s productive capacity. Research by Giovanni Peri of the University of California-Davis showed that those states with higher immigrant worker populations have higher rates of output per worker.
Productivity growth in the farm sector is actually slowing. The U.S. Department of Agriculture reports that total factor productivity, which includes labor and capital inputs, fell 1 percent between 2007 and 2013 from the 2000-2007 period.
Farmers typify what is good about America, but they need free markets for us all to succeed.
Peter Crabb is professor of finance and economics at Northwest Nazarene University in Nampa. firstname.lastname@example.org. This column appears in the July 19-August 15, 2017, edition of the Idaho Statesman’s Business Insider magazine as part of a special section on agriculture. Click here for the Statesman’s e-edition, which includes Business Insider (subscription required).