Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC). Harwood D. Schaffer is a Research Assistant Professor at APAC. (865) 974-7407; Fax: (865) 974-7298;dray@utk.edu and hdschaffer@utk.eduhttp://www.agpolicy.org.

Twists and turns are part of life. As individuals, it is common to look back in wonderment, if not amazement, when considering how each of us “got to where we are.” Public policy also has its twists and turns. Sometimes those twists and turns cause the policy to veer from its original purpose or reason for being. Take for example commodity programs.

For as long as the authors of this column can remember, our understanding of commodity policy was that it is to provide a safety net for farmers. And we thought that we had a pretty good handle on what a farm safety net should be. A safety net should minimize damage to commodity prices/revenues during the “hard times,” the times when production chronically outruns demand such as during 1998-2001 crop years and during many previous periods. A safety net also should protect farmers against catastrophic on-farm production losses that result from the vagaries of weather. In exchange for this protection, these policies also protect consumers from extremely high prices.

It is not obvious why a safety net should be needed. In fact, it has been a mission of ours to explain to farmers, consumers, and policymakers why a safety net is important. We have sought to do this through this column and the talks that we give to groups to groups here and abroad.

It is our view that a safety net is needed because of the way crop markets work. Aggregate crop and food markets respond differently than the generic markets that are the subject of an introductory course in economics. For markets to behave the way they do in the textbook, producers and/or consumers have to respond to changes in price in a robust and timely manner. And many markets do just that.

However, when it comes to agricultural markets, the response on the part of consumers is muted—cheap food does not induce people to eat 5 meals a day. Similarly, there is a lack of a timely response on the producer side as well—who can afford to rent land and then leave it idle? And if that is not enough, weather-caused variability happens.

It is critically important to note that these market characteristics have nothing to do with the physical characteristics of major-crop farms, including their size and number. The market characteristics are the key. And they are no different today than they were in the 1930s, the 1800s and so on. Of course, during periods when demand growth exceeds that of production, the characteristics appear dormant but they are still there (actually farmers are the beneficiary those characteristics during those times).