August, 2000

Fruits of Thought

Restricting Supplies

What should the policy response be when growers can’t make a living? In the produce industry the politically correct response has been simple: Let’s all work to increase demand.

It is understandable that this would be the approach industry organizations would take. Everyone from farmer to end user will benefit, or at least not be hurt, by additional consumption.

It is very difficult to evaluate the effectiveness of these efforts, however. Unfortunately, many commodity groups are so small that most of the budget goes for overhead. The groups that depend on voluntary support, such as 5 A Day, are perennially short of funds, and even those larger groups supported by mandatory assessments find it difficult to gain support for longer term efforts to build demand.

Of course, the dirty little secret of efforts to increase demand is that even if they succeed, they probably won’t help growers realize better prices, those who are looking to improve the lot of farmers are going to be looking somewhere else. And that place is toward the restriction of supply.

This is nothing new in the industry, of course. The citrus Prorate was for years a hot issue, and items as diverse as Florida tomatoes and California kiwi have had restricted entry into the fresh market based on things like minimum size.

Old laws are being dusted off. The Cranberry Marketing Committee, for example, has recommended that the marketable quantity of cranberries during the 2000-2001 crop year be limited to 5.4 million barrels and each producer be given an allotment and allowed to sell 85 percent of what they sold last year. This would be the first time the volume limitation provision would be used on cranberries since 1971.

Now the overwhelming majority of cranberries are sold for processing, so the cranberry industry has special problems with an overhang of juice being stored from season to season. Still, the proposal is similar in nature to what a lot of growers are talking about for many commodities.

Unfortunately these types of proposals cause all kinds of inefficiencies and, particularly in a global economy, scarcely seem likely to work. I vividly remember the irony of a lemon business I used to run. Because of volume restrictions on domestic lemon marketing, I was able to purchase lemons for many dollars under the U.S. market – provided these were shipped out of the country. So I bought really cheap lemons and shipped them overseas.

Now here is the idiocy of it all. As the boats filled with my lemons were headed out of New York Harbor, they would pass the boats filled with Spanish lemons that I was importing to sell in the northeast.

This business was only possible because of the artificially high price of domestic lemons caused by the volume restrictions.

Mark my words, if the Cranberry Marketing Committee gets its way and volume is restricted to insure a profitable market in the U.S., countries throughout the world will learn to grow cranberries. Before you know it, there will be tankers of cranberry juice rolling into U.S. harbors, and cranberry growers will rue the day they restricted supply.

Besides, want to know another dirty little secret, this one about volume restriction? It doesn’t help farmers either. It helps landowners and license holders.

Most agricultural land is good for particular items – some land is good only for apples, some land is good only for grapes, etc. If you restrict production and succeed in raising prices, the higher value of the crops capable of being produced off that land tends to raise the price of the land.

Though current landowners get a windfall, anyone looking to become a farmer, either by leasing land or buying land and farming it, is not likely to be better off than before.

Right now because cranberry prices fell to under $30 a barrel last year, the land that is suitable for cranberry growing will bring lower prices than it did in 1996 when cranberries were at $65.90 a barrel.

In most industries a lament to the general public that one can’t make a living would be greeted with sadness, but not necessarily a sense that public policy should do anything about the problem. What is the correct number of shoemakers or hair salons? Equally, what is the correct number of acres of rutabagas that should be sold? Well, nobody can really know the answer. All we can say is that if rutabaga production is too high, then marginal producers will have trouble getting financing and will close.

Yet, for Americans there is something unsatisfactory with this answer. We live in Alexander Hamilton’s country. He was the one who fought for a mighty industrial nation, and we are the living embodiment of all he envisioned. But if Hamilton wrote our future, it was Thomas Jefferson who won our hearts. And in Jefferson’s vision, we were to be a nation of yeoman farmers, avoiding the pestilence of cities.

So even if our heads tell us that if there are too many cranberries then some cranberry farmers must go out of business and reduce surplus production. This is for most of us just a little too reminiscent of Dickens’ Scrooge urging the poor to die and thus reduce the surplus population.

Our hearts tell us to find another answer. But let us be certain that in seeking to help our farmers we don’t create additional overseas competition and aid landowners and license holders as opposed to Jefferson’s virtuous farmers tilling the soil.  pb