The Price of Plenty

Columnist Mark Sullivan used strong language: "Hardly ever in the world was anything so fantastic" as the Government's support of farm prices. "It is an economic monstrosity, a fiscal and social danger." New York's Butter and Egg Merchants Association called for a "congressional investigation of the whole stinking mess."

Was it as bad as all that? Was it the Government floor under farm products that was keeping food prices so high? Stung by all the criticism, Secretary of Agriculture Clinton P. Anderson last week called in the press for a patient point-by-point review of the whole price-support program.

Congress passed the support law in 1942 to give farmers an incentive to raise enough food for World War II. The law provides that the Government support farm prices of 21 products at 90% of parity.* The law would remain in effect till two years after the end of hostilities (i.e., the end of 1948) so that U.S. farmers, who bitterly remember the 50% drop in farm prices soon after World War I, will not reduce their crops too soon.

Due to the support program, farmers have maintained production at about one-third greater than the prewar level. "This has of course done more," Anderson claimed, "to hold food prices down and assure relatively plentiful food supplies in this country than anything else. . . . Current price support activities are minor and are exerting almost no effect on food prices."

Tiny Bite. That was true enough. Prices of most farm products are still well above levels at which they must be supported: e.g., wheat is 121% of parity and hogs 159%. The support program had nothing to do with boosting them there. So far this year, the Agriculture Department has probably spent less than $50,000,000 to support farm prices, a tiny bite in the nation's food bill of billions. But the Department has spent it in such a way as to raise the biggest outcry against the program.

Instead of supporting prices when they fall below parity, the Department had started supporting them above parity in the fear that they would drop below. On this reasoning, it had bought $100,000,000 worth of potatoes last year, of which it recouped $20,000,000 by sales to distillers. The rest were taken off the market and allowed to rot to keep the price above the guaranteed support levels. A month ago, the Department bought nearly $1,000,000 worth of turkeys and took them off the market, though turkeys are well above parity.

It has recently started buying dried eggs--now selling at 96% of parity--and thus boosted the retail prices of eggs. And now the Government has started to buy potatoes again, in expectation of another surplus. The Department argues that it is cheaper to support these prices above parity, by buying comparatively small quantities, than to let them drop below parity and be forced to buy up great quantities.

Answer to Come. But to many consumers this policy makes little sense. They pay the bill twice, once through high prices and again in taxes for their support. Why not let prices drop to parity before beginning to support them? Lower prices would boost consumption, and the surpluses would probably soon be gobbled up. The Department has said no. But the Government cannot expect to get off cheaply in the future.

In the last two weeks, the prices of farm products have declined. With a bumper crop in the offing, the drop may well continue. At best, if the Agriculture Department continues its policy of buying up food to keep it off the market, the support program will, in fact, be doing just what its critics now say it does, keeping prices up. At worst, unless the prices of manufactured goods drop, in line with food, the Government might find itself pouring out millions to support farm prices on a scale so vast as to be unworkable.

* Parity is a theoretical price level for farm products which is intended to give farmers the same amount of purchasing power as they had in some past favorable period, usually 1909--14. Parity is adjusted every month by the Department of Agriculture in line with any change in the price level of farm and manufactured products.

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