Reader responds: Silver lining is that capitalism works when tried

A government handout aimed at eliminating losers is not competition and will only further damage the industry in the long run.

April 24, 2020

2 Min Read
Hog barns with feed bins
National Pork Board

Adam Salsbery, who is part of his family-owned and operated grain and farrow-to-finish operation near Sharpsville, Ind., offered the following response to the National Hog Farmer blog "Is there a COVID-19 silver lining?" written by Kevin Schulz.

I disagree with your assessment of our current situation. Competition is an inherent characteristic of capitalism. Competition involves winners and losers. A government handout aimed at eliminating losers is not competition and will only further damage the industry in the long run. As an industry, we are producing too much. That is obvious when you hear how many producers were pinning their hopes on a new market (China) to bail us out and are now begging for free money.

Long-run supply should equal long-run demand. A bailout will artificially maintain too much supply. The $37 loss per head that is being thrown around is a projection based on a snapshot in time. It is not a real number. If the markets are allowed to work, inefficient producers will have to make changes or exit the market which will lead to increased prices and increased opportunities for the efficient producers. Producers whose business models are so highly leveraged and thinly capitalized that they can't survive the current situation without a bailout need to reap the consequences of their poor business decisions.

Related:Is there a COVID-19 silver lining?

You also implied that family farms are more likely to be damaged by a lack of a bailout than large corporations. That may not be the case. If left alone to let the market sort this out, cost of production and equity available to wait for profitable times will determine who is left standing. Family farms are making these decisions knowing that they are putting their own equity at risk, not an investor's.

A bailout which causes prolonged lower prices may cause family farms to pull the plug rather than spend down their equity, even if they are the low-cost producer. Also, in an over-supply environment, we are all competing for shackle space. It would seem that the small producers are more likely to be harmed because they have less perceived negotiating power for space.

I also long for the good ol' days. If you are looking for a silver lining, it is that capitalism works when tried. Go U.S.A.

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