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Ignoring the crop subsidies for a moment, there was a similar issue in the US for many years. In the little farming town where I grew up, there was a giant mountain of grain dumped outside of town where excess grain was left to rot (and like the article stated, it reeks).

People often wonder why excess grain is dumped instead of shipped off as aid to people that can't afford it. The reason is simple but complex in its implications: the grain is worth less than the cost to move it somewhere else. In addition to the loss of underutilized grain, someone has to pay even more money to move it that in the net is not a cost efficient way to get food to the people that need it relative to not using dumped grain. So the grain is dumped.

One way to improve the situation is to invest in infrastructure to reduce the logistical cost, allowing the grain to compete across a wider range of market prices. However, that investment in infrastructure has to be offset by return on the grain production it effectively allows and has to account for the unpredictability of a global market that the subsidies are crudely trying to mitigate. There is a diminishing return.

One of the big issues in the global market is that grain trade tends to be highly protectionist, in part for food security reasons. While some countries (like the US) produce grain in vast quantities at low cost, most governments do not want to be dependent on foreign countries for their food. At the same time, these policies increase the price and restrict flow of food in these countries in times when the global market is a much more efficient producer. Subsidies and protectionism tend to be very blunt instruments.

"One way to improve the situation is to invest in infrastructure to reduce the logistical cost, allowing the grain to compete across a wider range of market prices."

I have seen these sort of 'inversions' as well. As an engineer I've pondered whether or not you could create enough infrastructure to create a non-spoiling product which returned enough capital to move the rest. So in the grain situation you might create a simple distillery which produced grain alcohol, which was sold to cover the cost of moving excess grain to locations where it could be used. Grain alcohol has a number of used and it doesn't spoil, further processing grain into alcohol is a relatively self sufficient process (you can use the alcohol produced to run the distiller and still get net positive output.) It of course presumes free grain.

One of the more curious social effects I've witnessed is that someone will dump grain which is too expensive to move, but they are less willing to simply give it to you for your distillery. They note you're getting an economic benefit from their grain (which is true) but they are unwilling to build their own distillery and capture that value but still won't cede the value to someone who does that original investment.

>>They note you're getting an economic benefit from their grain (which is true) but they are unwilling to build their own distillery and capture that value but still won't cede the value to someone who does that original investment.

I think this is because, 'If I'm not gaining anything, you shouldn't either' attitude.

Programmers would be pissed if the code written by them gets used by somebody else to make money, while they don't make any money out of it. Isn't this the whole Java debate these days all about. Sun/Oracle aren't getting much money out of Java(While writing/maintaining/advertising it) while the whole world is using it to make money.

I think you are correct, that captures the problem.

How do we make recycling and efficiency more important than personal gain?

  Me: "Give me the grain and I'll put it to productive use."
  Them: "What do I get out of it?"
  Me: "Nothing"
  Them: "Then why should I give it to you?"
  Me: "Because the resources you used to create it won't be wasted."
  Them: "Oh, Okay." <- never happens
The challenge comes when the choice is 'put to use, but only if its free' or 'rots away and nobody gets anything.' People choose to have it rot. Its the prisoner's dilemma writ large, and one of the inherent traits in humans, and one that religions seem to try to overcome.

You are expecting the producer to distinguish between consumers that would have bought grain instead and consumers that would never buy the grain no matter how low the price went. In reality producers just don't have any reliable way to determine that, so they naturally consider freely given away produce to be a potential lost sale, or at least having a tendency to depress prices even if through indirect effects. And in fact they are almost always quite right to do so.

Well in this case the market is exhausted at the point of delivery. Which is to say the farmer has all his grain in wagons and he can drop it off in the grain elevators (full) drive somewhere else (always an option but raises his costs) or dump it. So perhaps we disguise the economic transaction by making our hopper look like an excess grain dump station :-).

Now I'm being humorous there but there might be some social engineering needed. And I wonder if one could promise a share of any future profit (if there is any) which comes from the use of the grain.

How about for the last two lines: Me: "Because I may be able to create a market environment where you may be able to profit off this grain in the future. Plus you have nothing to loose." Them: "Sounds great."

I would certainly pitch it that way. Not sure if they would go for it though.

That is where government is supposed to step in and provide at least a small incentive, or buy the supply for a more modest sum before distributing it. Protecting the life and health of citizens is pretty much the most fundamental role government is supposed to serve. If it is failing in that duty, it should be toppled.

Generally I agree with this sentiment but the place where it falls down is that the grain is rotting. Its one thing to cover some of the economic loss to the farmer, its another to do the 'double lose' of both paying tax payer money for grain that won't be consumed, and then not doing anything with the grain. So perhaps the government builds our distillery so that there is a 'sink' for any amount of excess grain into a useful pre-cursor product.

Interesting Analogy.

I always knew 'reward' vs 'punishment' motivations always exist. But only today I had a blinding flash of obviousness that 'no-reward' 'no-punishments' scenarios are equally demotivating.

And understandably so, I would not put in extra hours at office if not rewarded, yet I'm not getting punished either.

You forgot "and then the share of grain you were going to profit from now is worth half, because some people were buying it to make grain alcohol"

zero sum game

Can you please elaborate?

I have 10 things every month. I sell them for a living.

One month i only sold 5, but you asked for the other five. If i give you, there will be more things in circulation and now i will be offered less money for my things. Maybe only next month, but i still lose.

Perhaps. But shouldn't getting a helping setting up a new source of _demand_ for your product, grain, in the form of grain alcohol producers help prop up the prices for your supply?

The demand was already there. say 30% of the people that actually buys your product every month produces grain alcohol.

now, you give your exceeding production for free. That person that got it for free makes grain alcohol, sells it cheaper than your paying customer. next month your paying customer will either also want it free, or at a much lower price to remain competitive, lowering your next month profit.

The whole problem is people trying to make more money with the grain by creating false scarcity. if they sold way cheaper when they had more production, the original paying customer would have bought twice the grain and made twice the grain alcohol to begin with. and none of that would have been a problem.

The fundamental economic problem is that demand is very inelastic. When you draw a supply-demand curve for food it looks very close to a vertical line, people do not buy significantly more food when you make it cheaper, people do not buy significantly less food until they run out of money.

The implication is that even slight excesses result in rock bottom prices, and even slight shortages result in very high prices. This volatility is bad for everyone. Therefore the government steps in with subsidies to even out how much farmers get, and to guarantee a surplus to avoid ruinous food prices for consumers.

But there is simply no good way to do this without perverse consequences somewhere...

> people do not buy significantly more food when you make it cheaper, people do not buy significantly less food until they run out of money.

That's not really accurate. Yes, the total amount of food may not change, but the type of food changes quite a bit. People will eat less desirable, but cheaper food.

That's not so much an issue with grain prices. Rice and bread and such are the most basic of staple foods, and pricing people out of that market results in hunger and starvation.

But huge amounts of the staples the US produces are then fed to animals to make meat. It takes something like ten pounds of grain to make a pound of hamburger. If food gets more expensive people cut back on meat, which frees up more grain.

That is true in the US, but not as true in other countries. The US eats an enormous amount of meat compared to most countries (and even more so compared to history).

The article mentions that it would be better if some of the farmers started growing vegetables rather than grain, but the subsidies don't pay for vegetables.

There are multiple kinds of rice, some area cheaper and easier to grow than others.

Same for wheat - low gluten types are cheaper. (Which is basically why they invented the http://en.wikipedia.org/wiki/Chorleywood_bread_process )

People buy meat when they have more money than required for sustenance, which takes much more grain than direct consumption.

In the long run, yes, this is true.

However there is a long lead time for changing how many animals there are in the food pipeline. Thus the amount of meat animals does not increase very rapidly to respond to a bumper crop in wheat. (The meat supply can, however, drop rapidly after a drought or flood...)

And the yearly fluctuations in crop yields tend to be fairly large. Certainly larger than the variation we're likely to see in how much people want to eat.

>Therefore the government steps in with subsidies to even out how much farmers get, and to guarantee a surplus to avoid ruinous food prices for consumers.

Yeah it's not like there are mechanisms to deal with this sort of volatility (hint - futures).

Futures do not change how big the price swing is from year to year - they just let you control now the cost you'll have in a few months.

It is also a technique mostly for businesses, not consumers. How many consumers do you hear about controlling next month's food bill by buying their produce on a future's market? Right, none.

Are you implying that you buy your food from the farmers or are you're telling me that the food industry/retailers can't estimate the consumer demand and make contracts/futures on that ? And how exactly do futures not change the price swings from year to year ?

The latter. Futures do not change the supply or demand, and therefore do not change the overall results of a supply-demand curve. What they do is allow people to estimate where it will eventually land, and choose whether to lock in prices some distance in advance.

This ignores a subtlety. If one consumer locks in a large fraction of the supply at a low price, then the supply is smaller than expected, you've made the supply-demand problem more extreme for everyone else. So futures allow entities to lessen their own volatility, but that increases everyone else's volatility.

It becomes highly elastic over longer time periods, if you can cheaply store it for one year you can feed to to cows / chickens / pigs and then eat them.

Not to question your story, but was that grain actually discarded or was it outside storage by the grain elevator. It is pretty standard procedure for grain elevators to have outside piles to store excess grain until shipment. You lose a little and you have to watch moisture when you mix it, but for elevators, it is definitely not a loss.

It was about a half mile from the grain elevators but no one ever retrieved it. They only dumped it there in the years when the market was excessively soft; there were more convenient places to buy cheap grain. In years when the market was good nothing ever ended up at the grain dump.

That whole region had ridiculous yields for years after Mt. St. Helens blew (it was in the ash plume -- great fertilizer) but they had difficulty moving that volume economically during years when the rest of the country had high yields. Or at least that is my recollection as a kid. Once they started dumping grain, the pile only got bigger.

Wow, whoever ran that elevator really needed to get his business sense fixed.

Some of the piles in Indiana and Kansas would make you think they are building a ski slope. First time I saw one I was so confused given that moisture is such a problem and drying is not cheap[1]. Some elevators make a lot of profit managing moisture.

[1] If you are an awesome engineer and can figure out a cheap way to dry grain / corn, there is one big market for you.

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