Unstable Farm Prices: Economic Consequences and Policy Options

that a high proportion of the world's population subsists on diets which even in good crop years are only marginally adequate. In the United States, food prices, and especially the prices of grains, have risen to levels thought highly improbable only three or four years ago. Does the new environment call for equally dramatic shifts in policy? This is the question I have been asked to discuss. I am under no illusion that one more paper on the subject of U.S. agricultural policy will significantly alter the course of human events. In a world of shortages, however, it is reassuring to know there is still a surplus of at least one item, namely advice on policy matters. The threat of redundancy obviously looms large over anyone who has the temerity to accept an invitation to address the American Agricultural Economics Association on this topic. Whoever does so must expect to operate in an area where the marginal utility of additional information is very low; my hope is that I have been able to identify an area where it is still positive. The subsequent analysis is based on the premise that price instability in grains rather than the threat of shortages or surpluses will be the dominant issue facing policy makers in the United States over the next few years. I will argue first, that price instability is not all bad, or to put it slightly differently, that within the profession there is a tendency to overvalue price stability as an objective of policy and sec nd, that only modest changes in our existing institutions and policies are required to deal with the current situation. The discussion will be confined mainly to problems associated with instability in the prices of grains and soybeans. Cotton, tobacco, peanuts, rice, sugar, and perishable commodities will be ignored except insofar as they are affected by policies adopted for grains. There are compelling political as well as economic reasons for doing so. Agricultural policy debates in Washington have been dominated for over fifty years by the question of what to do about the prices of a small group of commodities, principally wheat, corn, cotton, and dairy products. Recent events have not altered this situation. Congress lost interest in trying to deal directly with the prices of perishable commodities in the late 1940s following the disastrous experience with suppor programs for potatoes and eggs. In the intervening years, administrators as well as politicians have shown great reluctance to take on new programs involving perishable commodities because of regional conflicts among producers, resistance to the acceptance of effective controls, and concern about the potential high costs of government interv ntion. Furthermore, there is the practical problem of what can be done to stabilize the prices of such commodities as potatoes, onions, apples, and eggs. In theory, it might be possible through the use of such instruments as marketing orders to reduce fluctuations in prices or to even out returns to producers (although not market prices) by taxing commodities in high priced years to build up a fund out of which payments might be made in low priced years, but in practice such programs would be difficult to implement even if sufficient support could be mobilized to get the necessary enabling legislation enacted. In contrast, with storable commodities such as grains and cotton, a well-tested array of policy instruments is available which could be Invited address. K. L. Robinson is a professor of agricultural economics at Cornell University. The author is indebted to his colleagues, B. F. Stanton and W. G. Tomek, for their constructive comments on an earlier draft.