Equitability of Government Support Across Major Crop Commodities: A Method of Comparism

Of the many issues associated with modifying the 1996 FAIR Act, equitability of government support across program commodities ranks high on the list of priorities. This concern is associated with both a limited amount of government support and the method that can be used to derive or ascertain some measure of equitability. Likewise, government support that is out of balance across commodities can likely become the supply inducing expected revenue -- which tends to erode market signals. This may be particularly true in times of very low (below loan rate) prices. A reference point commonly used to focus this debate is the variable cost of production per unit of commodity produced. The reason for selecting this measure is that it only reflects costs associated with planting to harvest of the crop. Other costs are deliberately excluded such that comparisons can more easily be made across commodities and regions. Obviously, other costs such as land are important and are included in the total cost of production. However, a logical first step in an economic evaluation of equitability for government support across commodities is the expected unit of return relative to the variable cost of production. After making this derivation, it is relatively easy to calculate whether the margin generated will support other costs including -- land, taxes, a return to management, etc.