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AGRIBUSINESS: The Threat of Permanent Law

If permanent law goes into effect, most crops double or triple in price under commodity support provisions of 1938 and 1949.

Dr. Neil Hamilton directs the Ag Law center at Drake University, he says reverting to permanent law is like applying 70 year old legislation to the military. “Well let’s go back and fund the military based on what the price was in 1949, which is the idea of the reversion to the permanent law.”

In the early 20th century, higher production costs led to government subsidies called parity prices. Milk takes less time to produce than corn or wheat, so if permanent law comes into effect in January, that’s the first way we’d feel it.  Some crops not around in the late 40s, like soybeans, are not covered at all.

Hamilton says setting a guaranteed price out of alignment with the market will cause problems.

“Well then people will produce for the government as opposed to producing for the market.”

The policy would either bankrupt USDA or force acreage allotments and marketing quotas, and Hamilton says modern lawmakers would have trouble figuring out how to run an ancient system.

“Think if you were the Secretary of Agriculture and people running the FSA how you put the architecture back together of how you even deliver a program like that. We haven’t had production controls essentially since the mid 80s.”

The parity price for commodities could force USDA to outbid commercial markets to make prices higher than parity.  Or they would have to subsidize the difference, both at the cost of the taxpayer.

Parity price of corn is $12.80 a bushel, that’s seven to eight dollars higher than modern prices. Take into account average acres for corn (155.3) and bushels per acre (89.1 million) in the U.S.  And if market prices weren’t higher than parity, USDA would be forced to pay the difference, which is around $114.8 billion. So if a new farm bill is not passed, Congress will need to ramp up the budget because corn prices alone would bankrupt USDA three times over.

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