Agflation", conservation, and the loss of wildlands in America
- From: chatnoir <wolfbat359a@xxxxxxxxxxxxxx>
- Date: Sun, 13 Apr 2008 16:50:16 -0700 (PDT)
http://tinyurl.com/6a43w9
Agflation", conservation, and the loss of wildlands in America
Published by Jason Welker at 10:56 am under
Environment, Ethanol, Externalities, Law of Supply, Market failure,
Microeconomics
How does a growing Chinese middle class threaten duck populations in
the American Midwest? Here's the story:
As Prices Rise, Farmers Spurn Conservation Program - New York Times
"You can't pay me NOT to farm this land!"
This is the view being expressed by more and more American farmers
today. Since 1985 the US government has paid hundreds of thousands of
farmers around $50 per acre of land per year to NOT grow food. In
other words, if you were a farmer with 1,000 acres, you could earn
$50,000 a year for not doing anything with it at all, just letting it
sit idle.
What is the logic of such a program? In the mid-80's food prices were
so low that farmers working their tails off to cultivate and harvest
their lands often found themselves losing money when they went to sell
their crops. The traditional farming lifestyle was in jeopardy as
farmers experienced year after year of economic losses. Improvements
in farm equipment, along with the widespread use of chemical
fertilizers, pesticides and herbicides had increased farm yields to
levels never before achievable in human history. What increases
productivity for all farmers, however, also increases total supply of
crops, driving prices to historic lows. All this meant farmers could
barely get by in the American heartland.
Enter the government:
....the Conservation Reserve was conceived as part of the 1985 Farm Bill.
Participants bid to put their land in the program during special sign-
ups, with the government selecting the acres most at risk
environmentally. Average annual payments are $51 an acre. Contracts
run for at least a decade and are nearly impossible to break -- not
that anyone wanted to until recently.
Things were great for the farmers. Output fell as millions of acres
went into disuse, while farm incomes rose due to rising prices for
their outputs and transfer payments from the American taxpayers.
Farmers now had to work less to earn more money.
Today, however, farmers are putting millions of idle acres back into
cultivation. They are choosing to work harder and farm more land in
order to take advantage of the rising world food prices caused by the
increasing demand for meat among the world's emerging middle class and
the rising price of grains due to the push to promote ethanol as a
renewable energy.
The farmers' behavior today is a perfect demonstration of the law of
supply, which acknowledges the direct relationship between a product's
price and the quantity that producers will bring to market. There are
actually two markets at work here: the market for cropland, and the
market for wildlands. Farmers face a tradeoff in their decision of
whether to farm their land or let it lay fallow. In 1985, the
government made the decision that not enough land was lain fallow, so
it subsidized farmers who set lands aside for conservation. Since
subsidies are a determinant of supply, the supply of idle land
increased while the supply of cultivated land decreased, driving up
food prices.
In addition to the law of supply, this article also encompasses the
concept of market failure. The Farm Bill of 1985 inadvertently
corrected a market failure relating to "merit goods", or those that
create positive externalities or spillover benefits for society. In
the case of farmland, the less land was used for farming, the
healthier the wildlife populations on the now idle lands of the
American Midwest. Hunters, environmentalists, and conservation groups
had much to cheer about:
,,,hunters had more land to roam and more wildlife to seek out, with
the Agriculture Department estimating that the duck population alone
rose by two million; and environmentalists were pleased, too. No one
disputes that there are real environmental benefits from the program,
especially on land most prone to erosion.
At its peak the "Conservation Reserve", as it was known, saw more than
36 million acres set aside for wildlife. Today, however, farmers are
choosing to put this land back into cultivation.
Markets are complicated things. Markets do a fantastic job of
assigning values to easily tradeable commodities like corn, soybeans,
sunflower seed oil, and wheat, which happen to be some of the crops
most commonly grown on the millions of acres set aside for
conservation since 1985. What market fail to do, however, is to assign
adequate values to the non-tradeable goods in our society. The
biodiversity of a wild grassland, the health of a water fowl
population, the carbon-sequestration capacity of a standing forest,
and the joy a hunter gets from roaming a fenceless wild land.
As food prices continue to rise in response to the shift towards bio-
fuels and the growing demand for meat among developing countries'
consumers, there will be more and more pressure for farmers in the
industrialized world to take their lands out of conservation and put
them into cultivation. This is not only a rich world phenomenon
either. In Brazil, farmers are responding to rising sugar prices by
cutting down ever growing chunks of the Amazon, one of the world's
last great rainforests, sometimes called "earth's lungs" because of
its ability to trap carbon from the atmosphere.
If balance between conservation and cultivation is to be achieved, it
requires a market system that puts a tangible, tradeable value on the
sometimes intangible "goods" relating to the environment. For now, a
short-term solution might be a new Farm Bill that offers farmers a
more substantial payment for keeping lands idle. Such an
interventionist approach may stem the loss of wild lands, but does
little to address the bigger problem of market failure underlying the
degradation of the world's remaining natural environments.
.
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