Farmers and oil producers

It has been a bad year for U.S. farmers. The Asian economic skid cut demand for exports of U.S. grain while output rose in the Midwest. The surplus, according to the Associated Press, lowered wheat prices to $2.70-3.10/bu recently from $4.55/bu a couple of years ago. Drought, meanwhile, has destroyed crops in the South, especially Texas. Corn fields stretch dismally brown across the central part of the state. Cotton output is expected to be no more than half that of a year ago. The year thus

July 27, 1998

4 min read

It has been a bad year for U.S. farmers.

The Asian economic skid cut demand for exports of U.S. grain while output rose in the Midwest. The surplus, according to the Associated Press, lowered wheat prices to $2.70-3.10/bu recently from $4.55/bu a couple of years ago.

Drought, meanwhile, has destroyed crops in the South, especially Texas. Corn fields stretch dismally brown across the central part of the state. Cotton output is expected to be no more than half that of a year ago.

The year thus has hit farmers with the heavy ends of both of their major risks: markets and weather.

Producers sympathize

Oil producers can sympathize. First, the Asian fiasco took a bite of as-yet unknown size out of the market for their basic commodity. Then an unusually warm winter in the Northern Hemisphere cut seasonal demand.

Oil prices tumbled. The futures price for light, sweet crude on the New York Mercantile Exchange has fallen by about the same proportion as the price of wheat: from more than $22/bbl in mid-1996 to less than $13.50/bbl recently.

So oil producers have been hurt by the same risks plaguing farmers: markets and weather. But similarity ends there.

On July 18, President Bill Clinton ordered the federal government to buy U.S. wheat worth $250 million and give it to needy countries in Asia and Africa. There are two announced aims: 1) raise wheat prices in the U.S. by 5% or so, and 2) feed hungry people in Asia and Africa.

The program might be expanded in terms of wheat volumes and crops covered. It's "good for American farmers, good for our economy, and it's the right thing to do," Clinton said.

Time will tell. Somebody-taxpayers and Americans who consume wheat-must pay for that 5% increase in wheat prices that Clinton hopes to bring about.

Most Americans won't notice it. And they probably don't mind. Nobody wants farmers to go bust or impoverished people to starve.

But what if the effect is more than 5%? The problem isn't just surplus grain in the Midwest. It's also crop destruction in the South, which means eventual shortage. An agricultural give-away might turn out to have been not as cheery for the economy as Clinton made it sound.

Furthermore, humanitarianism isn't always constructive. Freebie food hurts whatever commercial agriculture exists in recipient countries. And donations have a way of enriching mainly the crooked officials, if not whole regimes, that spoil production systems in countries that should be able to feed themselves.

These are just a few thoughts that Americans should hope their chief executive gave to the subject before he acted. If he didn't think about these things, or if he considered but ignored them, then his act would appear to be motivated more by regional politics than by economic considerations or humanitarianism.

There's another issue here. One industry in the business of extracting wealth from nature sustains harm from weather and price risk and receives automatic relief from the federal government. Can anyone imagine Clinton acting to raise oil prices by 5% in a market slump?

Popular sentiment

Farmers serve an obviously essential role in any nation's economy and have long enjoyed government insurance against their basic risks. That oil has done without such comprehensive protection simply represents popular sentiment, democratically expressed. To quibble about fairness is futile. But it is appropriate to suggest that a government walks on dangerous ground when it indemnifies select industries against business risk and ignores others.

Politically less-favored industries should wonder out loud why agriculture deserves official aid they can't realistically expect. And the people who pay for the assistance should wonder about the program's potential effectiveness and politics behind it. Asking tough questions about state big-heartedness is not at all mean-spirited, as someone inevitably suggests. To use Clinton's words, it is just the right thing to do.