Thursday, September 28, 2006

OPEC for Spuds

A reader alerts me to a textbook example of a cartel:

It took farmer Merrill Hanny three days to bury $100,000 worth of his perfectly good potatoes. He remembers how they crunched beneath his tractor as he plowed over his muddy field in the spring of last year.

Mr. Hanny destroyed part of his crop at the behest of the United Potato Growers of America, a fledgling group of regional farming cooperatives. The group aspires to be to potatoes what OPEC is to oil by carefully managing supply to keep demand high and constant, resulting in a more stable return for farmers.

The new organization has been a boon to Mr. Hanny, 53 years old, and other farmers who for years have watched potato overproduction push down prices and mash profits. "For the first time, I feel in control of my destiny," says Mr. Hanny, who is married and has seven children....

In the past year, United Potato helped erase 6.8 million hundred-pound potato sacks from the U.S. and Canadian markets -- the equivalent of about 1.3 billion medium orders of french fries at McDonald's. For farmers, their open-market returns surged to $10.04 per hundred pounds, up 48.5% from last year....

The spud cartel's manipulation of supply is perfectly legal. Orange, dairy and other farmers have employed similar co-ops as market stabilizers since 1922, when the Capper-Volstead Act exempted farmers from federal antitrust laws, permitting them to share prices and orchestrate supply.

From the Wall Street Journal two days ago. As a matter of public policy, it is hard to see any good reason to allow this cartel while outlawing most others.

But I must admit that it is hard for me to separate my objective analysis as an economist from my love of hash browns. So I have two reasons to object to this particular cartel.

Update: A comment draws attention to an odd phrase in the article: "managing supply to keep demand high and constant." This makes no sense if the words are interpreted as we use them in economics textbooks. Managing supply does not affect the demand curve. By "demand," the author probably meant "consumer expenditure," which in turn equals producer revenue.