DOWN ON THE FARM

A “farm” today means 100,000 chickens in a space the size of a Motel 6 shower stall. ~ P.J. O’Rourke   

Eighty percent of Americans live in urban areas. Close to 100% of our food isn’t grown in urban areas, other than folks who now are cultivating 21st century victory gardens in their back yards. As you’ve probably noticed, the price of groceries rose last month. Prices swelled 2.6%, the largest increase in 46 years mostly because of pricier meats, poultry, fish and eggs. Ordinarily, farmers would be pleased when retail food prices have risen, but not now.

Why not? Because even though retail groceries’ prices rose, agricultural commodity crop prices that farmers receive have steadily dropped as their input costs have risen. They’re crosswise in the barn. According to the USDA, farmers have gotten squeezed as input costs have climbed about 11% and crop prices have fallen 11% since 2011. Like many others, our nation’s agricultural (ag) markets have been in tumult, beginning two years ago with #45’s disastrous tariff policies with China. In retaliation, more than 20% of US agricultural exports face reciprocal Chinese tariffs and other countries. I’ve written previously how these tariffs have wounded US farmers.

Today the Census Bureau also provided unsurprising but sobering news about food services sales for April. Sales at grocery stores dropped by a record 13.2% from March. These are bad times for retail sales of virtually every sort.  

Generally speaking, farmers have long been a key Republican constituency. Nevertheless, they’ve been showered with fiscal benefits by both red and blue politicians, especially for ag commodity growers. The very first US Farm Bill was passed in 1933 by President Franklin D. Roosevelt, which provided needed financial aid and subsidies to farmers in the heart of the Great Depression.

The Farm Bill, renewed every five years, represents an age-old, impressive, publicly-financed ag safety net. Like previous versions, the latest $867 billion (B) Farm Bill, signed into law in December 2018, includes substantial taxpayer-provided support for farm incomes, crop prices, financing, crop insurance and, importantly from a political perspective, nutrition assistance programs. The funding of these nutrition programs within the Farm Bill, like SNAP aka “food stamps,” persuades urban Congresspeople to vote for legislation that also aids rural denizens.

Not every US farm receives this largesse. Over 60% of farmers do not receive any ag subsidies; the vast bulk of support goes to growers of the nation’s “industrial” agriculture commodities: corn, soybeans, wheat, cotton, and rice. Most recent information indicates that the largest 10% of farmers have received about 75% of federal ag subsidy dollars.

Unlike his totally passing the buck for covid-19 testing, the president has passed many bucks during the past two years directly to certain farmers. An additional $61B funding to the USDA is now compensating farmers for the “unjustified foreign retaliatory tariffs” as well as the pandemic’s economic damage. This impressive sum works out to an average of about $30,000 for each and every person employed on a US farm. However, very few of these dollars are actually going to workers toiling among the farms’ rows or to non-commodity growers. This elevated $30,000 sum is quite distinct from the $1,200 checks other members of the public have received or are still expecting to obtain.

This bounty might be historically justified because tenured farming emerged right after hunting-and-gathering humans started growing crops in fixed locations about 10,000 years ago. Food comes first, of course and farmers produce the food. Agriculture’s special place in our stomachs if not hearts is also ensured because over the long course of human history it’s been the only line of work that the vast majority of humanity has ever undertaken. Only recently, in historical terms, have many of us worked away from the soil, as shown in the chart below.

Share of Labor Force in Agriculture by Nation and Year

Nation	1500	1800	2012	2017
England/UK	58.1%	31.7%	1.2%	1.3%
Netherlands	56.8%	40.7%	2.5%	1.2%
Italy	62.3%	57.8%	3.7%	3.9%
France	73%	59.2%	2.9%	2.8%
Poland	75.3%	56.2%	12.1%	11.5%
US		90%	1.5%	0.70%

Sources: Ourworldindata.org, the World Factbook 

    The displayed educated guesses for ag’s share of national labor forces in 1500 show that up to three-quarters of laborers worked in the fields. England’s and the Netherlands’ ag labor shares indicate their farmers were somewhat more efficient than those in Italy, France or Poland. The mechanized Agricultural Revolution was in full “bloom” by 1800, shown by the reduced ag labor shares, especially in England. That was not true at first for American farmers, who did not have initial access to improvements deployed at English farms. By 1880, farms’ share of US workers was reduced to 49%.

This multi-century agricultural revolution included improvements in: crop rotation methods, roadways and canals, land management, selective breading of plants and animals, creation of regional and ultimately national markets for foodstuffs, allowances for exclusive ownership of land plots and new farming technologies. The English, Danish and others made significant, early enhancements to iron plows, so they could be guided more accurately and faster by fewer oxen. Another ag technology improvement was the creation of the seed press by none other than Jethro Tull. Mr. Tull’s marvelous mechanical seeder, patented in 1701, distributed seeds evenly across a plot of land and at the specified, correct depth. His original seed press was fragile, heavy and expensive; his efforts to improve it did not allow much time for his abiding interest in progressive rock music. Oh, well. Better versions of his seed press ultimately became very widely used.

The majority of the US agricultural improvements have been capital-using and labor-saving. In the 19th century, such improvements included the cotton gin, mechanical reaper and steel plow. This is unsurprising because historically the US has been resource "rich" (especially land and minerals) and labor "poor." Creating more efficient and productive machines remedied our nation's relative lack of labor. These farm machines allowed the relatively scarce workers to become much more productive.

These impressive improvements farm agriculture have produced more food for more people using less labor and land. In other words, extensive advancements in ag productivity occurred between the mid-17th and late 19th centuries. In 1880 it required 2.5 acres of farmland to produce 100 bushels (bu) of corn. In 1987 it took just 1.1 acres to produce 100bu of corn; in 2017, just 0.6 acres.

Similar advances in ag technologies have reduced the amount of labor needed to produce many foodstuffs. From the above chart all the listed nations except Poland now have less than 4% of their labor force working in agriculture; the US has just 0.7% of our labor force working on farms.

The second chart below shows my Agriculture Productivity Index for ten nations. This index measures the economic contribution of a nation's entire agricultural sector by comparing the nation's share of GDP derived from agriculture relative to its share of labor employed in agriculture. The higher the value of this index, the more productive is the ag sector; the more ag output is being produced measured against ag labor input.

Agriculture Sector Productivity

Nation	Agriculture Productivity Index, 2017
US	1.28
Australia	1.00
Italy	0.54
UK	0.54
China	0.66
France	0.61
Russia	0.50
Canada	0.80
Netherlands	1.33
Poland	0.21

This chart shows that in 2017 the Dutch and US economies have the highest ag sector productivity. Poland’s ag sector has the lowest. The US ag sector is over 11x larger than the Netherlands’ and 6.5x larger than Poland’s.

Every nation provides some level of subsidies to its agricultural sector because strategically all nations require domestically-produced food. Low Index values, less than 1.0, may mean inefficient or quite subsidized ag production. The members of the European Union (EU) in 2017 included Italy, the UK, France, the Netherlands and Poland from the chart. The EU spends $65B per year – over 3x what the US spends – subsidizing agriculture. It’s perhaps the largest, single-sector subsidy program in the world.

Let me end on a sweeter note. One very different, slender, non-industrial and quite tasty slice of US agriculture is organic farming. Organic farm sales represent just over 4% of total food sales and less than 0.01% of all farms. Demand for organically-produced, local farm products continues to show double-digit growth, despite its somewhat higher prices.

Surprisingly, this small-ish corner of the ag market is now booming, perhaps because of the viral crisis. More consumers are heading for community-supported agriculture (CSA) that is now thriving. According to the 2012 USDA Census of Agriculture, there are over 12,600 farms that market their produce through a CSA. CSAs are most definitely not what P.J. O’Rourke’s quote cited at this blog’s opening refers to.

Unlike many other farm operations, no CSA farmers are plowing their unsold crops into the soil, nor tossing perishables due to lagging demand. Au contraire, CSA farms are busier than usual. CSA members, like us, buy a share of a farm’s harvest throughout the season or year; it gets delivered every week in a box, headed finally for your kitchen. Our CSA, Full Belly Farm, is located northwest of Sacramento in the beautiful Capay Valley. Our box this week contained carrots, strawberries, chard, lettuce, spring onions, potatoes and Tokyo turnips. Yum.  

CSA programs around the country are experiencing a surge in people wanting to become members. Judith Redmond, a founding partner of Full Belly Farm, says, "The interest in getting fresh, organic produce just has skyrocketed during this crisis.” CSA farms like Full Belly are busy attempting to increase production to meet rising demand. Fingers remain crossed. The CSA supply-chain is quite brief and utterly local: the farm picks its ripe produce in the fields, inspects it, washes it, and within a day or so and brings it in a box that the member opens up at the delivery location and takes home. This is what our spring boxes of CSA veges can look like.

Source: Full Belly Farm

The state of American agriculture is thus very diverse, ranging from huge, subsidized industrial agricultural operations to far smaller, more personal CSAs. Many of the giant ag operations are being tormented by the effects of the covid microbe. Fortunately, CSAs are becoming more sought-after and popular probably because of the coronavirus. Here’s hoping we food consumers continue benefiting from small CSA boxes.

BEWARE, SUBSIDIES BITE BACK

In the game of baseball, you live by the sword and die by it. You hit and get hit. Remember that. ~ Alvin Dark[1] 

The world is awash in subsidies. Many sorts of taxpayer-paid benefits to customers and producers inhabit all types of markets. Unsurprisingly, benefited producers and consumers, like you and me, enjoy them because they provide lower costs and prices. Subsidies are like ghosts; most folks are not even aware of them; but they’re lurking in lots of marketplaces including fuel and food. We do not relish it at all when subsidies are taken away.

Around the world, when governments attempt to scale-back costly subsidies, citizens get very offended. As it has in the past, this has been happening recently. Just ask the leaders of Chile, Ecuador, France, Iran and the US, among other nations.

Every subsidy is initially justified as an incentive to promote the “public good” be it oil exploration in 1913 or mortgage interest tax deduction also in 1913. But inevitably, subsidies soon become seen as deserved entitlements, when they are thought about at all. That’s why the “best” subsidies should always have an explicit end date, like the California state subsidy for solar panel installations.

Historically speaking the grandest subsidy of all were the Homestead Acts, first signed by President Lincoln in 1862, that incentivized western migration. Any citizen, including freed slaves, could claim up to 160 acres of federally-owned land. If they lived on the claimed property for five continuous years, built a home and grew crops, they could then file a deed to own the property. More than 160 million acres were homesteaded, representing almost 10% of the US, mostly west of the Mississippi River.

Subsidies have come in an impressive variety of new, old and strange flavors. New ones include credits for green energy technologies (like solar and wind power) and electric vehicle purchases. Agricultural subsidies, probably created not long after farmers first started purposefully tilling fields 10,000 years ago, are ancient as well as relatively large and spanning the globe. Food – and subsidies supporting it – usually comes first on anyone’s menu.  

Downright strange subsidies include a $47,000 grant to a New York jitney service to improve its shuttle operations for wealthy New Yorkers going to their summer homes in the Hamptons on Long Island; a $50,000 subsidy spent on a tattoo-removal program in San Luis Obispo, California; and a $225,000 grant in Minnesota to determine whether poultry litter (aka, chicken poop) could be used as a fuel for generating electricity.

Question: What is the largest subsidy that the US government now provides?

No, it’s not the very tall heap of Ben Franklins [over $26 billion (B) worth] that the fossil-fuel industry receives from federal and state governments. This impressive sum fuels about $12B for renewable energy and energy efficiency efforts. This total does not include $14B to corn farmers who produce ethanol. We’ll get back to fuel subsidies in a moment.

The largest subsidy also does not include the $150B per year of tax-breaks that home mortgage-holders receive as well as other aid to encourage home ownership in America. This subsidy is the second biggest.

American farmers have long benefited from several types of subsidies, which total about $25B every year. Federal support for agriculture (ag) includes the establishment of our land-grant colleges beginning in 1862 with Kansas State University. In 1887 federally-funded agricultural research was initiated. Direct subsidies that provide “farm income stabilization” were first introduced in the 1930s.

We taxpayers provide subsidies that seek to protect farmers against fluctuations in prices, revenues and yields (the amount of crop produced per acre). These agricultural subsidies do cover price-supports for commodity crops like corn, wheat, rice and soybeans, as well as crop insurance. About 40% of the nation's 2 million farms receive subsidies. A recent analysis found that 60% of the largest ag subsidies go to the biggest 10% of farms.

Crop insurance can be vital. It is purchased by farmers and subsidized by the federal government, to protect against the loss of their crops due to natural disasters, or revenue losses due to declines in agricultural commodity prices. Over 80% of US crop acreage is insured via the federal crop insurance program. Five years ago, the portion of total cotton acreage covered by crop insurance was 96%; and soybeans, 88%. And who said commodity farmers are defenseless against mother nature?

The $25B sum for all farm subsidies does not include the additional $15.3B that the Trump administration has provided farmers since 2018 as “trade aid” to ameliorate the nasty effects that retaliatory Chinese tariffs have laid upon one of his most stalwart constituencies. It is nearly certain that more trade aid will be provided to US farmers, as the US-China tariff “war” drags on.

Agriculture subsidies cover much more than US farms. The European Union (EU) spends even more money on ag subsidies; 37% of its budget is devoted to Common Agricultural Policy (CAP) subsidies, or about $65B per year. These subsidies are designed to protect European farmers’ livelihoods. They are so substantial that according to the New York Times, the Hungarian Prime Minister, the Czech Republic Prime Minister, as well as very senior officials in Slovakia and Bulgaria, have re-directed part of their nations’ CAP subsidy gravy train to their family members and political friends. Is there a quid pro quo down on the farm? Seems so.

Whenever EU politicians initiate preliminary discussions about reducing their massive CAP expenditures, farmers protest by driving their huge tractors into capital cities to disrupt commerce. In late November this happened once again, in Amsterdam, Berlin, Dublin and Paris.

Subsidy recipients in the US also protest when valued benefits are threatened. In January 2015 the Obama administration proposed ending the popular Sec. 529 tax benefit to pay for college expenses. The hue and cry from many of the millions of folks who took advantage of this tax-reduced means of paying for their children’s college was loud and clear. President Obama abandoned his proposal within a week. His staff called it “such a distraction” for the State of the Union address preparation. Back to the drawing board.

Answer: The very largest subsidies that the federal and state governments proffer are for healthcare, about $290B each year. In addition to subsidized Medicare and Medicaid, healthcare supports include the key tax-exclusion that employer-paid health care insurance receives. Employers provide 56% of all healthcare policies in the US and pay over 80% of their employees’ healthcare premiums (it used to be a higher percentage). Employers’ premium payments are exempt from federal income and payroll taxes. In addition, there are direct subsidies that reduce premiums for lower-income citizens through the ACA and tax-deductibility for large, personal medical expenses. If Bernie Sanders or Elizabeth Warren is elected president next November, many of these subsidies probably would disappear. Instead, the federal government would directly pay for virtually all our healthcare expenses, perhaps over $3 trillion per year, ten times the current healthcare subsidies.

Let’s return to another market that receives significant subsidies in many nations, energy.

To get a sense of how large energy subsidies can be, the table below calculates the implied subsidy for each listed country, based on its domestic gasoline price versus the world average price.

As shown, Venezuela completely subsidies (100%) its domestic price of gasoline, basically offering one gallon to consumers for a worthless 

Price of Gasoline by Nation

Nation (Price rank in parentheses)	Price of Gasoline* ($/gal)	Implicit Subsidy
Venezuela (1)	$0.00	100%
Iran (2)	$0.47	89%
Ecuador (11)	$1.85	55%
USA (31)	$2.93	29%
World Average	$4.14

*Average prices as of Nov. 25, 2019.

Source: https://www.globalpetrolprices.com/

1 Bolivar, a price fixed in 1997 despite hyperbolic inflation since 2018. This giant subsidy is costly; it represents over 20% of the Venezuelan GDP.

For perspective, a liter of milk – when available – costs about 20,000 Bolivars in Caracas. On the Venezuelan black market – the illegal, “parallel market” – one US dollar is worth well over 1 million Bolivars. The Venezuelan government’s official exchange rate states 1 Bolivar is worth about 10 US cents, which everyone considers a grotesque fiscal joke. Gas may be free at pumps in Venezuela, but only if a person can afford to wait in line for days to buy some due to significant shortages.

Iran provides the second most-subsidized (and thus least-expensive) gasoline in the world, where it currently sells for $0.47 per gallon; that’s a gasoline price level the US hasn’t seen since 1973. Iran’s gasoline subsidy is 89%, relative to the world average price. Iran’s fossil-fuel price subsidies represent more than 15% of its GDP.

Iranian gasoline consumers rioted across the country in mid-November after their government increased the price of fuel by about 50%. Multitudes of very unhappy demonstrators – most of whom believe that super cheap gasoline is an entitlement – have continued to burn gas stations and block traffic in Tehran and dozens of other cities. Many have been killed. Iran’s theocrats have yet to back down.

In early October Ecuador’s government removed its costly 40-year old subsidy, now 55%, on gasoline that increased the price by about 25%; the price of diesel doubled. Protests happened immediately led by indigenous groups that turned increasingly violent despite a military-enforced curfew. With two weeks the President of Ecuador retreated and re-imposed the subsidy.

Remember the country-wide “yellow vest” protests in France? In November 2018 these protests were precipitated when the French president raised the gasoline tax. That didn’t last long. President Macron soon cancelled the tax increase due to the protests’ intensity and potency. Despite this victory, the yellow-vest protests have continued.

Similar widespread, popular protests against gasoline price hikes have occurred in Indonesia, Myanmar and Nigeria during the past 20 years. Indonesian strong-man Suharto’s government was deposed in no small part by gasoline price-induced protests. In effect, he lived by the subsidized sword, and also died by it politically. Perhaps baseball and politics really are not all that different.

The pervasive protests I have mentioned above raise a challenging dilemma for political leaders: How can governments reduce and reform fuel (and other) subsidies, which can be both fiscally and environmentally ruinous, without setting off extensive protests? So far, there seems to be no answer. Once a subsidy of any kind has been established, the beneficiaries (consumers and/or producers) will cry wolf, bite back, or worse if it is reduced or eliminated. It is a beyond-holiday gift we pay for that keeps on giving.

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[1] Alvin Dark won World Series rings both as a player and a manager during his 31-year career. He managed five major league teams including the Oakland A’s. He oversaw the A’s World Series championship in 1974. 

WHY MOST EVERYONE DISLIKES ECONOMISTS

If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.  ~ John Maynard Keynes

Over the past several decades economists have established a larger presence in the world of policy formulation. The sun never sets on economic experts making pronouncements that are reported 24/7; everything from inadequate GDP growth to the price of kale[1] and quinoa. Despite this prominence, economists are far from cherished. We lament, "Why aren't we loved?"

We're disliked because, mostly for the best of reasons, we often espouse and support policies that raise the prices of products that people actually purchase. Many economists argue that goods like petroleum products, food, water and sugary drinks are priced too low and should be raised. When offered a choice, most everyone wants lower, not higher prices.[2] Hence the negative feelings folks have with economists (and politicians) who endorse higher prices. 

The rationale for raising prices sometimes focuses on how we can be saved from ourselves – or can save "other people" from themselves (this is more popular than policies that raise prices on goods or services we ourselves buy) – because our consumption of some goods creates negative public externalities like air and water pollution (perhaps remedied by a carbon tax that raises fuel prices). Consuming other goods creates detrimental personal consequences like lung cancer or obesity (resolved in part by implementing a cigarette tax or soda tax that raises these goods' prices, so consumers buy less of them).

Speaking of soda taxes, a growing list of localities have attempted, so far uniformly unsuccessful, to implement various types of soda taxes. This list now includes San Francisco and Berkeley, CA that have each placed differing tax propositions on sugared drinks on their November ballots. The debate about the tax is already bubbling over in both cities.

The advocates of Berkeley's intricate Prop D state it's a 1-cent per fluid ounce tax on distributors of some sugared-drinks (called "Big Soda" by proponents). the Berkeley city attorney states that "The tax would be payable by the distributor, not the customer," which seems to hope that voters will forget such taxes almost always get passed along to final consumers in the form of higher prices. Pro-D'ers say the tax will reduce the incidence of obesity and diabetes. That may be possible in the longer term, but there are many other (known and unknown) factors that contribute to obesity and diabetes. Unfortunately, available information about using soda taxes as a fiscal means of reducing America’s growing obesity epidemic is fairly dispiriting. We'll see if a notably progressive city's citizens will vote to raise the price of many of the sugared drinks they consume in the name of public health.

Does anyone really want to pay higher prices if they have a choice not to? Nope.[3] Witness the popularity and permanence of a myriad of sizeable government subsidies that artificially lower prices for consumers and/or producers. These subsidies include those to industrial agriculture that ultimately reduce commodity food prices (e.g., wheat, corn, milk, cotton) and tax subsidies provided to oil and natural gas exploration and to home mortgage interest payments. Subsidies to agriculture have been estimated to be from $10 billion to over $20B per year. The home mortgage interest payment tax deduction (subsidy) was estimated to cost $80B in foregone revenues in 2010.

The Australian carbon tax "experiment" offers an unusual case study in the fecklessness of politicians raising prices, in this case energy prices. A carbon tax is a tax on the production and/or consumption of fossil fuel based on the fuel's carbon content. Most economists and virtually all environmentalists strongly support such a tax as a means of improving air and water quality, even though many politicians remain extremely wary of imposing one. Their well-founded fear is connected with creating an unpopular policy that raises energy prices.

Australia initiated a national carbon tax in July 2012 under Labor Party Prime Minister Julia Gillard, principally on large industrial and electricity-generation firms' emissions. The tax on carbon that companies paid was about A$25/metric ton in mid-2014. CO2 emissions went down. The price of electricity and other goods increased. And Australians were not at all happy about these price increases. So unhappy that voters threw out the Labor government in the next election. The tax was then repealed in July 2014, under the new leadership of Liberal Party (conservative) PM Tony Abbott, who said the tax was a “9 percent impost on power prices, [and] a A$9 billion handbrake on our economy.” Mr. Abbott probably doesn't spend much time chumming around with economists who advocated for the ex-carbon tax. Australia is thus the only country that has both implemented and annulled a carbon tax.

Closer to home, let's consider the price of water – perhaps the most precious resource that sustains our lives, next to oxygen in the atmosphere. I believe that California's current, devastating drought is caused in large part by the price of water being too low for way too long – ever since the first dams were built in the early 20th century principally to supply water to Central Valley agribusinesses and Southern California consumers. It's true that residential, commercial and industrial users also have benefited from paying low prices for their water. But the biggest beneficiaries have long been agricultural (ag) irrigation users, who all by themselves consume close to 80% of California's fresh water. And who have paid downright benthic-level prices for decades.

For more than half a century, federal and state water policy has been established in California and other Western states to keep irrigators' water prices very, very low via significant government subsidies. As Marc Reisner states in his classic book Cadillac Desert about water policies in the mostly arid West, ''What federal water development has amounted to, in the end, is a uniquely productive, creative vandalism."

Here's a prime example of preposterously low ag water prices, taken from Reisner's book. Through the 1980s the Westlands Water District, one of the largest in California and therefore in the US^[4], charged its ag customers between $7.50 and $11.80 per acre-foot. Economists estimated the actual cost of delivering this water was $97 per acre-foot. Thus, these customers were paying only 8% to 12% of the cost of providing this resource. This degree of public financial support is at the very deep end of the subsidy pool. Who paid (and continues to pay) the remaining 90% of the cost? Us taxpayers. Adding more water to this vandalism fire caused by low prices, the dominant planted crop at the time in Westlands was cotton – a very water-thirsty, "surplus crop" whose price is itself heavily subsidized by the federal government. Talk about going from worse to terrible.

With its slight cost, California ag irrigators have had no economic incentive to conserve or efficiently use water. They continued to greedily guzzle until the rivers, reservoirs and wells have almost dried up during this latest drought. This unsustainable water gluttony itself has also created significant environmental damage in the Central Valley.

 Water prices have finally started to increase for ag irrigators; some of Westlands' customers are now paying over $1,000 per acre-foot – nearly 10 times more for water than right before the drought. Irrigators' allotments of water also have been cut– making the price of that water infinite.

However, few if any residential consumers are now paying more for their water. In fact, over 250,000 water users in California do not even have meters to determine their actual water usage. These unmetered customers are charged a flat fee, sometimes as low as $20/mo. Cities and areas where unmetered water usage is significant include South Lake Tahoe (62% unmetered), Merced (52%) and Sacramento (47%).

Thus, it's no surprise that we haven't reduced our water consumption much, in spite of Gov. Jerry Brown's January declaration to cut water use by 20%. In July 2014, statewide water usage was cut 7.5%, compared to a year ago. Southern California consumers reduced their usage a trifling 1.7%. Is it time also to raise non-irrigator water prices? Probably so, but it's also time to further incentivize water conservation by giving credits to customers who have reduced their usage more than 15% to 20% and/or installed water-saving methods.

Are water policy economists popular when they support such needed price increases? Not at all; everyone is completely comfortable with their long-time, subsidized, rock-bottom water prices. But water pricing policy must change from a subsidy-based system, if existing water resources can ever sustainably accommodate both the arid West's significant population growth and increasing agriculture needs. Appropriately set market-based prices can make every user recognize that water is indeed a precious and limited resource that must be used wisely.

But economists and other folks who advocate for such higher prices aren't praised, they are usually disparaged. As always, it's very hard to be loved when you're reducing people's disposable income by increasing prices with higher taxes or reduced subsidies in the name of efficient allocation of resources. Very few people care about efficiency once there's less money in their wallets. So, maybe we'll never be thought of as well as dentists. Still, it's strange that we struggle to be liked as much as folks who grind down worn-out molars. So it goes for those of us affiliated with the dismal science.  L

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[1] By the way, October 1^st is apparently National Kale Day. Who'd of guessed. 

[2] Recall from your Econ101 course the Law of Demand, which states that ceteris paribus as a product's price increases, the quantity demanded will fall. Rarely-seen examples that dispel the Law of Demand include Giffen and Veblen goods –where as price increases the quantity demanded of the good also increases.

[3] There is a thin sliver of conspicuous consumers who might choose to buy certain goods because they're more expensive. We call such consumers the 1%. As mentioned above, economists call such goods Veblen Goods – think of the Rolls Royce Wraith.

[4] Reisner states that in the 1980s, just 1/4^th of Westlands Water District's annual available water would completely accommodate New York City's total annual water needs.

FATTER FARMERS, AILING EATERS

Beware the hobby that eats. ~ Ben Franklin  

How much and what kinds of food should we produce? Because food is a necessity, these questions have occupied policy-makers for a long, long time. Food policy, one of the most contentious political issues both within nations and across countries, varies significantly around the globe.

For all too long, US food policy has been focused on benefiting a selective, few food producers (Big Food - industrial-sized farmers and processors) and mostly ignoring food eaters (all of us).

As I've mentioned in an earlier post, the US is blessed with abundant, fruitful land on which to grow crops and raise livestock. The US ranks first among nations in the amount of land cultivated for agriculture. Equally important, US farmers have continued to innovate and utilize agricultural (ag) techniques and technologies that have steadily increased farm productivity. In the last 40 years, US ag productivity (measured by the number of people a single American farmer grows food for) has increased a remarkable 774%. Recently, however, these impressive gains seem to be subsiding. As ag productivity has risen, the number of farmers has significantly dropped, so now less than 1% of our population claims "farming" as their occupation. The remaining, larger farmers have been financially benefiting from soaring farmland prices and increasing demand for their products. Since 2009, farmland prices in Iowa and Nebraska have doubled.

Commodity ag production is dominated by an even smaller number of large, industrial-scale farm operations in the US. As the world's largest exporter of food products, the US sold $135.8 billion (B) worth of food and food products abroad in 2012. According to the UN's Food and Agriculture Organization (FAO), the US is ranked number one in the export of corn, soybeans and wheat – among primary ag commodities – along with almonds, blueberries, peanut butter, spinach and other crops. The vast bulk of these exports center around primary food commodities.

Because of our productive farms and skilled farmers, as well as deliberate food policies enacted by the Federal government, US consumers spend , by a wide margin, the lowest proportion of their income on food of any nation, as shown in Figure 1. This certainly benefits food consumers, which includes everyone of us. But this inexpensive food comes with several economic and physical consequences.

First, because the domestic food industry has fiercely and successfully protected its interests, the US like virtually all countries has provided sizable subsidies to commodity farmers (up to $35B annually) and erected significant barriers to the import of certain foods and food products from foreign countries. Who pays for these subsidies and supports? Taxpayers. Protecting a nation's food supply is arguably a high priority in terms of survival. The strategic rationale for using tariffs on ag products is long-standing in terms of "food security." Over 210 separate ag product tariffs – including one for furskins – are in force in the US. These tariffs increase the price of food. But large US commodity farmers are hardly feeble, fragile producers needing protection from superior foreigners.

Second, because of these substantial subsidies, ag products like corn, wheat and soybeans have remained relatively inexpensive. How have food producers responded? By substituting these products and their derivatives into more and more retail foodstuffs. Most soybean production is destined for food meal eaten with grain by livestock. More and more inexpensive corn has been transformed into high-fructose corn syrup destined for sugared-soda, breakfast cereal, ketchup and a myriad of other retail food products.

According to World Bank data, the US price of corn has decreased almost 9% during the past 6 months. These subsidies have well-noted and demonstrable physical consequences for the food-eating public; just ask New York City Mayor Michael Bloomberg. The increased use of subsidized ag commodities in our food contributes to higher obesity levels both for adults and children. More than one-third of US adults (35.7%) are obese, not just overweight. Obesity prevalence among children and adolescents has almost tripled since 1980. Now about 17% (or 12.5 million) of children and adolescents aged 2 -19 years are obese.

Third, the disproportionate influence of large, primary food producers not only greatly sways domestic food policy in their favor, but has scuttled the last set of international trade talks, the Doha Development Round, within the World Trade Organization. Several countries, vigorously supported by domestic food producers, would not agree on reducing often sizable tariffs on food imports. Who is hurt by these import protections? Chiefly hundreds of millions of food consumers, as well as domestic and foreign food producers, especially in developing nations.

Here are three examples of disruptive food-based tariffs. First, US tariffs on sugar, championed by domestic sugar producers, have significantly increased the price of sugar in the US. According to the Dept of Commerce, the domestic price of US wholesale refined sugar over the last 25 years has been two to three times the world price. These higher prices are maintained through support loans and tariff-rate quotas. In 2004, the US price was 23.5 cents per pound, compared to the world price at 10.9 cents. This price differential results in a significant competitive cost disadvantage for domestic sugar-containing product manufacturers, and higher prices for US consumers. Employment in domestic sugar-containing products industries decreased by more than 10,000 jobs between 1997 and 2002 according to the Bureau of Labor Statistics.

Second, like many countries Japan has venerable tariffs on food imports to protect its seemingly less efficient domestic producers. Japan applies an average tariff of 25% on agricultural produce imports, about 4 times as high as Japanese non-ag tariffs. This doesn't include rice imports (a key staple of Japanese diet),which are protected by a 778% tariff! While this astonishingly high tariff protects the usually small-scale Japanese rice farmers, it hurts all Japanese rice consumers, as well as more efficient rice exporters from Thailand, Vietnam (the world's top two rice exporters) and other nations.

Last and by no means least, the European Union's Common Agricultural Policy (CAP) is unfortunately typical of how ag tariffs protect relatively small numbers of farmers/producers to the detriment of all food consumers. The CAP's budget in 2012 was $71.5 billion (B), and represents 42 %of the total EU budget, making it the largest agricultural "aid" program in the world. The CAP offers income and market support for farmers, as well as "rural development support" that helps farmers modernize their farms and become more competitive while protecting the environment, and keep rural communities "thriving." It's interesting to note that Europe has over 17 million (M) farmers (out of a population of over 500M) with an average farm size of about 30 acres.

By comparison, the US has about 2 million farmers, and an average farm size of 445 acres. Thus, there are over 5 times as many farmers per capita in the EU, and their farms are on average 15 times smaller than those in the US. It's hard to imagine that many of these EU farms are as proficient as those in the US. A group of Purdue University agricultural economists offered the following statement in 2002 regarding the size of a farm needed for efficient production:  An economically viable crop operation in the US Corn Belt (includes Illinois, Iowa, Missouri, Nebraska, Kansas and Minnesota) would have between 2,000 and 3,000 acres of row crops. That's a lot different than a 30 acre Polish farm. As is the case for all too many ag assistance programs, the CAP appears to support an ever-shrinking culture, associated with "rural " communities, that's been overcome by the march of time and progress.

The significance of a small number of large US ag producers has steadily increased over time as techniques and technology have allowed for more efficient, mechanized industrial-scale production. A mere 46,000 farms in the US (2.5% of all farms) accounted for 50% of all sales of agricultural products in 1997. This trend in ever-more concentrated power of Big Food has had major consequences for all food consumers and producers around the globe. As mentioned above, this power extends to other nations' farmers, in particular those in the EU.

What can eaters do? We can vote with our mouths by continuing to buy food products that are healthful and nutritious (H&N), rather than laden with sugar, salt, fat and non-natural ingredients. This is easier said than done since H&N foods are often more expensive than subsidized foods. And, buying H&N foods runs counter to Big Food's enormous marketing and sales efforts of that inundate each and every one of us   all   the   time.

Federal food policy needs to change by stop subsidizing Big Food and instead support H&N food producers and eaters. Improving the viability of smaller, organic producers would be a good place to start. It would be reassuring if writing our Congress-person to indicate our serious support for H&N foods would have some positive effect towards making eaters in the US (and beyond) more relevant and healthier. It's certainly worth a try. But our beloved Congress is guided by focused and forceful minorities (like industrial Big Food reps who has now gotten "ag-gag" laws passed in several states) rather than far more numerous but restrained majorities (like food consumers, who don't have lobbyists to press their case). So it may be simplistic to rely on consumer "votes" to re-orient food policy in this land of Big Macs, Big Gulps, Pringles and Snickers, but one has to start somewhere…