U.S. Bails Out Struggling Industry
By Jim Knisley
The U.S. may not have supply management for poultry, but the U.S. government does seem to step in on a regular basis to manage supply and subsidize demand.
A few weeks ago the U.S. Secretary of Agriculture announced that the U.S. government would buy an additional $40 million of chicken to sop up some surplus production, reduce storage stocks and, perhaps, stabilize or raise prices.
The $40 million comes on top of the U.S. government’s legislated food assistance programs, which provide school lunches for students from poor families and food stamps to help other impoverished people afford food. The total cost, to the U.S. government, of the school lunch program is about $10 billion. The total cost of all the programs for all foods is in the $70 billion to $80 billion range.
The additional $40 million is said to be a special program or bonus program. But it seems a pretty regular event. There was a $30 million special program for chicken last year and a $42 million special program in 2008.
While USDA Secretary Tom Vilsack touted the assistance to low income families he added that the purchase would help struggling U.S. broiler producers “bring supply in line with demand.”
The U.S. broiler industry applauded the government intervention saying it will provide some relief from excessive inventories.
The excessive inventories are very much a self-inflicted wound. U.S. production in the first half of 2011 was four per cent higher than for the same period in 2010. This increase came in the face of rising costs for feed and fuel and declining U.S. domestic consumption and prices.
There is little doubt that many in the U.S. industry are struggling. A handful of companies have closed and many producers are not recovering their costs of production from the marketplace.
Even with the additional assistance provided by the U.S. government the situation looks likely to worsen in the short term. Without government intervention the situation could have become pretty dire until supplies fell in line with demand and that could have taken considerable time – too much time for many in the industry.