New Deal for Agriculture

Secretary of Agriculture Brannan recently outlined a new long-range subsidy plan to Congress. The plan has no new mechanism, but a combination of former plans that makes it revolutionary.

Agriculture is the only industry in which market prices are set by purely competitive mechanisms. But farmers have shown an appalling ignorance of classical economic theory by failing to "leave the industry" in depressed times. Ever since 1920, there have been more farmers in the country than farming needs. Some people argue that subsidy plans prolong this disequilibrium; others say that government regulation of farming is necessary to make the farmer's life tolerable and that the disquilibrium would never end anyway.

The major defect in the present method, by which the government maintains a minimum price by loans or purchases, is that consumers often suffer by high prices. The Brannan plan continues government loans and purchases for storable goods, about 25 percent of total farm output, but changes the price-setting formula. Producers are satisfied with this method and want it retained.

On non-storable goods, however, prices to the consumer under the new plan would be allowed to vary, according to supply and demand. If this market price falls below the government support price, the government will send the farmer a cheek for the difference.

In an effort to modernize the basis for minimum support prices, the Brannan plan includes a new and highly-complicated formula. The present support price is a flat 90 percent of parity, parity taken as the 1909-1914 period. A new plan, scheduled to go into effect in 1950, will allow prices to vary between 60 and 90 percent of parity. The Brannan plan, however, will base support prices for each year on the average of the ten previous years.

One objection to this formula is that it will not respond to any major agricultural trend until five years have passed. The last ten years have been amazingly plush for agriculture, and market prices are likely to drop considerably in the future. Since the Brannan plan shifts the financial burden from the consumer to the Treasury, the immediate effect of the plan would be a large drain on the public funds. But any subsidy plan essentially involves a redistribution of income, and this becomes a question of how much income will shift from the tax-payer to the farmer.

A large-scale price support plan involves the problem of overproduction by farmers because the government is always giving them a good price. This problem is handled by marketing quotas, drawn up by the farmers themselves. A quota limits the amount of a commodity a farmer can market, if he wants to receive subsidy benefits. This method, in effect, gives the farmers monopoly powers. Under the Brannan plan, the quota system would be greatly expanded. This part of the plan has raised the howl of "government control" in Congress. The main argument against the quota system is that it is liable to be abused by the monopolistic groups. On the other hand, quotas give farmers protection that other producers get through tariffs, that industry gets through monopoly agreements, and that labor gets through unions.

Congressional reaction to the Brannan plan indicates that it will probably not be adopted in this session and certainly will not be adopted without extensive modifications. The Administration looks for great political appeal in the plan--to the farmers with high support prices, and to labor with low market prices. Although at present the plan is largely the result of campaign promises, it contains some interesting possibilities for a long range agricultural plan.