Cravens, M.E.

English

Research Papers in Economics

MARKETING  ORDERS
WITH  PRODUCTION  CONTROLS
M.  E.  Cravens
Professor of  Agricultural Economics
Ohio State  University
John Moore in an article  on marketing  orders in Michigan Farm
Economics showed  that  only  40  percent  of  the  fruit  and  vegetable
marketing  orders  lasted  more  than  five  years  and  that  60  percent
lasted four  years or less.  Despite this spotty  record marketing  agree-
ments  and  orders  have  performed  a  useful  marketing  function  and
are still  acclaimed  as  a means  of  improving  and  stabilizing  incomes
of  growers  of  many  commodities.  The evolution  in thinking  in this
development  appears  to  be as  follows:
For much of our history it was  assumed that supply  and demand
determined  price  and that the  individual  farmer  could  do  very  little
about  it.  In the late nineteenth  century  and  early twentieth  century,
cooperatives  were  pushed  as  one  method  of doing  something  about
prices.
This  was  followed  by  attempts  to  improve  price  by  a  series  of
actions  including:  voluntary  grading,  packing,  and  selling programs;
adoption  of marketing  orders to enforce participation;  and combining
advertising,  promotion,  and  research  with  orders.  Then  came  an
attempt  to  strengthen  farmers'  bargaining  power.
Finally,  after  all  of  the  above  failed  to  solve  the  problems  of
low prices in agricultural industries, supply and demand was discovered
again  as  a principal  if not  the  principal  fact,  and  supply  control  is
being advocated along with the above as the means of attaining higher
farm  incomes.
In  other  words,  we  have  gone  in  a  complete  circle  with  one
difference-the  feeling today that regulation  of price  through supply
or other  means  is  a  proper  function  of  the  political  power,  whereas
formerly  this  was  not so.
Supply  control  combined  with  marketing  agreements  means  a
completely  different  marketing  institution  from  the  one  we  have
known under the term marketing agreements or orders.  The suggestion
of  national  rather  than local  or regional  coverage  for  market  orders
also changes  their nature  as well  as their effect  on individual  growers
and  production  areas.  Rather  than  being  termed  marketing  agree-
ments  these institutions  might better be known as national commodity
trusts, or federal commodity marketing  quotas or national commodity
monopoly.
90In  the  fruit  and  vegetable  industry,  land  and  other  resources
suitable for  production  are for practical  purposes  unlimited,  and the
production  of a commodity can fluctuate  widely.  Prices may average
$1.00 one year and 60 cents the next.  Seasonal prices may start at $1.00
early in the season and  be 50 cents later.  The result is that frequently
part of the product  is left unharvested.  This disaster  comes  to indi-
vidual growers who misjudge the market or who encounter unfavorable
growing  conditions  or follow  poor  management  practices.  However,
the industry  as a whole  and the  majority of the  growers  in it remain
healthy,  and net incomes  to vegetable  growers over a period of years
equal  or exceed  those for  farmers  generally.
Commodity marketing  agreements or orders have been used widely
in the fruit and vegetable industry in an attempt to reduce the variations
indicated  above.  So far their  success has  been  uncertain.
The  earlier  discussions  of marketing  agreements  without  supply
control  have  adequately  covered  their  possibilities.  Any  price  im-
provements  that might  occur  from  such  orders  are  frequently  offset
through increased plantings or production.  The benefits of such orders
in the dairy industry were apparently  more consistent than in the fruit
and  vegetable  industry.
After  successive  efforts  at  controlling  grades  and  packaging,
advertising  and promotion,  and insuring  compliance  of  all  growers
through  marketing  orders,  we  have  been  forced  to  recognize  the
necessity  of  supply  control  in  improving  prices.  We  reclaim  land,
extend credit,  furnish information on how to increase  production,  and
then  expect  a program  of marketing  orders  to  correct  the  resulting
problems.  This is  too much to  expect of any  one program.
You  may  ask what  we  are waiting for if we have finally  decided
that  supply  control  is  needed.  I  will  devote  the  remainder  of  my
time to  a discussion  of the weaknesses  of this  approach.
All of  the  suggested  controls  have  one  thing  in  common.  They
assume that the market does not and will not work unless some outside
force  is  applied.  After  looking  at  the  elasticity  of  supply  and  of
demand  and  at market  performance,  particularly  in  the  1930's,  we
are convinced  that  the situation  is hopeless.
Controls  are  based  on the  assumption  that farmers,  if left alone,
will not adjust production  in response to price.  This is not so.  They
adjust  wherever  they  are  allowed  to  do  so-perhaps  not  as  rapidly
as  desirable  but this  is  human  nature.  It  seems to  me that  we have
been out of adjustment since about 1930 but we have been encouraged
to forget  the problem  and let the government  take care of it by price
supports  and other  measures.
91Fifteen  or  sixteen  years  ago  many  were  sure  that  the  potato
industry  was  doomed  unless  drastic  supply  controls  were  enforced.
Ten  years  ago  after  a  costly  failure  to  enforce  governmental  pro-
duction  controls,  potato  production  was  finally  left  to  the  judgment
of  potato  growers.  The  results-good  years  and  bad  years,  some
failures and some successes, but certainly no catastrophe.  The efficient
and  better  managed  operations  have  realized  profits.
If we  are  to  allocate  productive  resources  by other than  market
means, what means are we to use?  Even Willard Cochrane's certificate
system gets back into the market  after the certificates  are first issued.
Presumably  some  historical  base will  be  used  for  the original  distri-
bution  of  production  bases,  after  which  some  method  of  transfer
would be  allowed.  These  certificates  will undoubtedly be  a windfall
to  present  farmers  and  a  cost  to  all  succeeding  farmers  and  to
consumers.  Certainly  any  added  income  will  be  capitalized  rather
quickly  into  their  value.
Another  area of  uncertainty  is the cross  elasticity  of both supply
and  demand  for  farm  products.  Under  market  agreements  with  or
without  controls  we  are  presumably  talking  of  one  commodity  in
each agreement.  We know  very  little about  the effect  of  controlling
one  commodity on the price and production  of  another.  Controlling
tobacco  and  leaving  resources  formerly  used  in  tobacco  production
to add to the problems  in other commodities  may be quite  a different
matter  from covering  all commodities.  If we had  the time we  might
profitably  speculate on the effect of commodity by commodity control
of all farm products.  We should  have more  information  on this  area
since the use of this means of solving the over-all  farm problem might
be quite  different from that for solving the tobacco  farmer's  problem.
Production  control  of  tobacco,  which  has  no  close  substitute,
might have quite  different effects  from the control  of Brussels sprouts
with  no  controls  on  substitutes  such  as  broccoli,  cauliflower,  and
cabbage.
Controls  must  be  based  on  some  assumption  about  supply  and
price relationships  and must have a goal of some level of prices.  The
price  goal  presumably  is  the  "fair"  price.  Anything  lower  is  too
low  and  anything  higher is too  high.  You might  ask,  fair for whom
-the  farmer,  the  consumer,  and  which  farmer  or  consumer?  I  am
told  some  corn  growers  can  make  a  profit  by  growing  corn  at  60
cents  per  bushel.  Others  cannot  make  a  profit  at  $1.20.  Which  of
these  is  "fair,"  or  do  we  split  the  difference?  The  same  applies  to
milk,  beef,  or  other  farm products.  How  would  you  like  to  be  on
the  "fair"  price board?
92The  market  price  seems  to  have  merit  since  it  is  based  on  the
combined  judgments  of  buyers  and  sellers.
One  program  of  supply  management,  the  tobacco  program,  has
been  in  effect  for  several  years.  Grower  support  has  been  almost
unanimous,  prices  have  been  kept  high,  and  tobacco  consumption
has  continued  to  expand.  But  even  here  some  disturbing  signs  are
appearing.  Our  share  of  world  trade  in  tobacco  is  declining  and
seems  destined  to  decline  further.  Even  worse,  our  efficiency  in
production  does  not  appear  to  be  increasing  nearly  as  rapidly  as
in  Rhodesia  and  elsewhere.  Tobacco  production  bases  have  been
capitalized  at  a  high  rate,  and  acreages  for  individual  growers  are
frequently  small  and  inefficient.  The  effects  of  controls  on  other
crops  such  as  cotton  and wheat  have  not  been  as  well  received  by
growers  and have  other  defects.
Finally,  as  you  no  doubt  have  realized,  I  favor  decentralized
decision  making  over  centralized-the  impartial  decision  of  the
market to political decision by the government.  I have not mentioned
the freedom  of the individual and the inevitable  consequences  of the
assumption  of  increasing  responsibility  for  decision  making  by  the
government.  I still have faith in individual responsibility and decision
making  and believe taking this  away results  in  a net  loss to society.
Certainly  our system,  with its admitted  faults,  has given  our farmers
a  greater material  wealth  than  is  enjoyed  by those  in  places  where
central direction  has been the accepted  method of organization.  Our
farmers  have  also  been  given  the  less  tangible  but  nonetheless  real
values  of being  an  independent  and  respected  citizen.
Political  decision  making  provides  no  assurance  that  decisions
will  be left  to  the  farmer,  i.e.,  the  minority  group.  Certainly,  this
has not been  so  in Russia  and in  other countries  where  farm  policy
is  determined  by  political  means.  We  might  well  be  reluctant  to
accept  a complete  system of political control  of our farm prices.  We
might eventually find ourselves with neither high incomes nor freedom
of  choice.
I  believe  that  marketing  agreements  with  controls  will  make
positive  adjustment  more  difficult,  will  slow down  rather  than  speed
up  adjustment,  will  further  complicate  management  decisions,  and
will focus our attention on scarcity  rather  than  abundance.  In addi-
tion,  the  apparatus  for  administering  any  such  program  would  be
tremendous.
To  the  extent  that  this  program  is  successful  in  raising  prices,
it will encourage resources to remain  in agriculture that would other-
wise  have  left  it  and  will  further  encourage  resources  outside  of
93agriculture  to come into it.  The free market  system at least operates
in  the  direction  of  removing  resources  from  agriculture  under  con-
ditions  of  low  prices,  as  well  as  into  agriculture  with  high  prices,
even if  slowly.  I  submit  that  the  market  system  is  no  more  brutal
than  the  control  system.
The difference between  the controlled market and the competitive
market  system  is  only  that  the  margin  between  success  and  failure
may  be  set  at  a  slightly  different  point.  You  cannot  eliminate  the
borderline cases,  i.e.,  those who are in the gray zone between success
and  failure,  in  any  business  or profession  by  any scheme  of  control
or  subsidy.  These  are  really  the  problem  cases,  and I  suspect  that
any  control  program  may  increase  the width  of  this border  through
its  indication  to  the  marginal  farmer  that  something  is  being  done
to help  him.  This raises  a false  hope  in most  instances,  and  in my
opinion,  nothing  is  so  pathetic  as  the  person  who  is  motivated  by
a  false  hope.
On  the  positive  side  I  would  recommend  further  improvement
in  our  outlook  and  marketing  information,  greater  flexibility  and
competitiveness  in our markets,  and more training  among our farmers
in  agricultural  policy  and  in  making  decisions  in  these  and  other
areas,  and  then  allow  the  farmers  to  decide  who  leaves  and  who
remains  in  farming.  In  the  final  analysis,  under  any  program,  re-
sources  must  move  out  of  rather  than  into  farming  if  adjustment
is to be  achieved.
94PART  IV
International  Trade and
American Agriculture

MARKETING ORDERS - WITH PRODUCTION CONTROLS

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics