That characteristic, alone, does not doom crop agriculture to depressed prices and incomes. It takes two additional conditions to do that, both of which we have discussed in recent columns. One is the tendency for the total supply of major crops to grow faster than demand. That is, public and privately supported development of new technologies typically shifts the crops supply curve faster than population and income growth expands demand. Having excess productive capacity is not the problem.
All industries strive to have more productive capacity than is normally needed.
The difference is that other industries use only the productive capacity that is needed to meet current demand at profitable prices while crop agriculture tends to use all its collective crop production capacity all the time. Under this combination of price unresponsive supply, price unresponsive demand and supply shifting faster than demand, prices and market incomes can be expected to be chronically depressed unless production is systematically throttled-back to better match demand. In the past, policy governors were available to override farmers propensity to wire production throttles wide-open. Without such governors, more billions of taxpayer dollars are sure to be paid to farmers in lieu of their receiving market returns for more economically justifiable production levels. This and the previous three columns were based on my testimony before the House Committee on Agriculture on February 14, 2001.