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Consumers, other economic segments will see impact

Depressed commodity prices reach far beyond farms

Most farm commodities are selling at prices lower than seen in two decades. Low prices combined with forecasts of a drought this year that could greatly impact production in Mississippi add to the importance of federal programs that provide assistance to farmers during difficult economic times.

With one in three jobs in Mississippi linked to agriculture, the issue of depressed farm prices reaches far beyond the farm. Agriculture is an important cornerstone of the state economy, and ripple effects from problems in farm country can impact businesses ranging from retail merchants to insurance companies across the state.

U.S. Sen. Thad Cochran (R-Miss), speaking recently to 130 members of the Mississippi Farm Bureau Federation at an event on Capitol Hill, said emergency assistance for agriculture due to weather-related disasters and economic crises may be needed again this year.

“Additional funding might have to be allocated this year,” said Cochran, who is chairman of the Senate Agriculture Appropriations Subcommittee, and a senior member of the Senate Agriculture Committee. “We’ve got our work cut out for us in the Congress to respond to the problems that we face in agriculture. A lot of farmers are really hurting, and there are a lot of ways Congress can help in addition to providing direct disaster assistance.”

Cochran suggested working to reduce the inheritance tax and other taxes that affect landowners. He also said that fuel costs for agriculture are a big concern, and one that needs to be addressed.

“Farmers are really getting hurt because of huge increases in fuel prices,” he said. “We’ve seen changes in policies in this Administration that have made it very difficult to explore and produce domestic energy, and that needs to be reexamined,” Cochran said.

Federal program payments that give farmers insurance against disasters and low market prices help prevent farmers from going out of business. But the subsidies are also part of the problem because they encourage high production even when prices are low, and inflate costs for land rentals and other production costs.

Dr. John Lee Jr., head of the Department of Agricultural Economics at Mississippi State University, said direct payments to agriculture in the U.S. totalled $22 billion in 1999. Preliminary figures show Mississippi farmers received an estimated $400 million in direct payments in 1999.

An example of how price supports encourage high production can be seen in soybeans. Lee said there is a worldwide surplus in soybeans stocks that has resulted in very low prices. But soybeans stocks are expected to continue to increase because of production.

“That creates a very depressing situation,” Lee said. “People continue to grow soybeans because they don’t get the market price. They get government support prices, and that price is high enough to encourage a lot of extra production. That gives farmers some income. The bad news — it keeps them producing and keeps us in an over-supply situation keeping the market price down. It just prolongs the low price situation.”

Other ag experts interviewed by the Mississippi Business Journal agreed that a way needs to be found to prevent farmers from going out of business without encouraging overproduction that aggravates the situation with low commodity prices. But that is a difficult challenge, one that seems to have no easy solution.

“If funding support creates a false impression of what is actually going on in marketplace, then it tends to bid up land rental prices,” said Fred Heindl, executive director of the state Legislature’s Mississippi Agribusiness Council. “It is a false impression because the actual commodity price may be suffering. So we continue to produce. Cotton, for example, is in oversupply right now at a time when the realistic market price for cotton is low. And if we retain that price through federal payments we give a false impression, and farmers continue to produce and even expand production at a time we already have overproduction. The challenge to agriculture leadership and policy makers is how to keep producers of traditional crops viable without distorting markets and reducing the farmer’s position in the market for the long term.”

Heindl said it is important that strong support for agricultural programs remain in place. The challenge is how to balance that with world market conditions.

Another area of concern at the federal level is regarding concentrations in markets of large companies.

“There are few buyers for our major commodities,” Heindl said. “It leads to less competitive market, and danger for market control. And at the federal level we look at anti-trust activity and regulation.”

David Waide, president of the Mississippi Farm Bureau, said that most people think of price supports and disaster payments as a subsidy to the farmer.

“It is really a subsidy for consumers as it has kept the price of food very inexpensive across the U.S.,” Waide said. “Without the subsidies, grocery prices would be a lot higher.”

And although subsidies have helped, there is no long-term security. Congress could in the future decide against price supports and disaster payments, and farmers would be left holding the bag.

Lee said that the uncertainly about federal programs long term means that farmers bought very few tractors or other farm equipment last year. And so while farmers got support payments for certain commodities, lack of purchase of farm equipment and supplies has had a big impact on rural, agricultural-based economies.

“Farmers don’t know what to expect for the longer term on government policy,” Lee said. “Farmers are uncertain whether to buy $200,000 tractors or cotton pickers because they don’t know whether government payments will continue to be there. Without the payments, they couldn’t afford to produce. Government programs are the difference between large losses and not having large losses.”

Contact MBJ staff writer Becky Gillette at mullein@datasync.com or (228) 872-3457.

About Becky Gillette

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