In other industries, excess resources are shifted to another use relatively quickly, but in agriculture there is little alternate use for a combine, and if land is converted to a housing development, it cannot later be shifted back into production. The resources have fixed uses. Resources will eventually be shifted out of agricultural production after a number of years of low prices, but very little is shifted out in the short to intermediate run.

If ever there were a time that farmers wish that they could control production, it was last year. Not only could they not finely control it, they couldn’t control it at all. Some were unlucky and saw their crop burn up, while others hit the jackpot with reasonable yields and extremely high prices. For the most part, when it comes to production using modern farming methods what one runs through the combine is the luck of the draw; last year farmers in much of the mid-section of the country drew a bad hand.

So yes, there are good reasons to support a farm program that is designed to compensate for market failures.

As our regular readers know, we have criticized the current price component of the crop insurance program for providing generous protection when it is not needed—when prices are high—and providing little protection when it is needed—when prices are low for an extended period of years. To the extent that subsidized crop insurance is used to protect farmers against yield disasters, we support its use because in many cases it is more targeted that the traditional ad hoc disaster programs.

Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC). Harwood D. Schaffer is a Research Assistant Professor at APAC. (865) 974-7407; Fax: (865) 974-7298; and;



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