Price Support

The objective of a price support policy was and is to keep farm prices above the equilibrium price, as a means of supporting farm incomes. This sort of policy faces a major obstacle, as shown by the figure below:

Figure 6: Price Support

• One possibility is simply to destroy the excess. This probably has not been done very widely as deliberate policy, but it has been done in extreme cases -- at one time roads in Brazil were paved with coffee beans, and crops have been destroyed also in the United States and European countries.
• Another possibility is for the government to buy up the excess and store it. This policy was suggested by the "ever-normal granary," and it was supposed that someday -- eventually -- the stored crops would be needed and would be sold to avert famine. But, in fact, there were few sales out of the stores, and the stockpiles of grain and other products just got bigger and bigger and bigger until this sort of policy was phased out (in the United States) in the 1970's and the biggest stocks were sold off.
• Another possibility is for the government to buy the excess and give it to people who would not otherwise buy it, because they are too poor or too far away. This is the source of cheap cheese and milk for school lunches, for example. (My wife informs me that at one time, lobster was a frequent meal in University of Rhode Island dining halls. The lobster surplus was being bought up by the state, and ... you get the picture!) It was also part of the idea behind "food stamps." This is, of course, less wasteful than outright destruction, but it is wasteful in the sense that the resources are being used to produce goods that people wouldn't buy even at the cheap prices that have created the "Farm Problem."

Shifting Supply