The Wall Street Journal

Wednesday, April 17, 1985

A Subsidy Both Wooly-Headed and Mammoth
By James Bovard

The wool program is agricultural policy at its worst --
ineffective, expensive and incorrigible. Since Congress began
subsidizing sheep farmers after World War II to encourage the
wool industry, production has fallen 75%, wool quality has
slumped, and foreign producers have surpassed Americans in
every measure. Last year Uncle Sam gave farmers $115 million
to encourage wool production, or up to 30 times the market
value for each additional pound of wool. The result: the
smallest wool crop since 1909.

Hearings to hammer out the details of the wool program for
the next four years begin early next month in both the House
and Senate agriculture committees. But without public
agitation big changes in this programmed disaster are

Under current Agriculture Department regulations, wool is
assigned a target price, the price Congress feels ranchers
should rightfully receive for their wool. Regardless of the
disparity between the target price and the market's price,
the Agriculture Department makes up that difference in
"incentive payments" to farmers. In 1983, the target price
was $1.53 a pound, or 2 1/2 times the 61-cent-a-pound market
price. The department thus passed along 92 cents a pound in
compensatory payments to sheep raisers.

One reason the program has so little effect is that wool
is a byproduct of sheep production, providing only 20% to 30%
of revenue. Sheep are raised primarily for their meat. A big
increase in wool prices yields only a slight increase in
sheep revenue. The General Accounting Office estimated in
1982 that the wool program has increased sheep production 6%
to 13%.

Nor does the sheep farmer always benefit from raising more
sheep. Because lamb and mutton prices are very elastic, a
slight increase in supply often means a sizable drop in
prices. The wool program, which works so hard to drive up the
price for a sheep byproduct, probably drives down the price
for the main product.

The inefficiency infesting the wool industry compounds
such problems. A New Mexico State University report
concluded, "Small flocks, from 10 to 50 ewes, are often not
profitable because they tend to be poorly managed." Robot
shearers are widely used in Australia, but not in Texas,
South Dakota and other big wool-producing states. The average
Australian sheep farmer produces more than one-third more
wool than his U.S. counterpart.

The wool industry has a long tradition as a subsidy
project for the Agriculture Department. The 1949 farm act set
a national wool output goal of 360 million pounds a year, but
by 1950 production was straggling in at only 217 million
pounds. The 1954 National Wool Act increased government
handouts, and lowered the production goal to 300 million
pounds. Today, the annual wool harvest is barely a hundred
million pounds a year. All in all, the Agriculture Department
has spent almost $1.5 billion to stimulate the wool industry
-- and still the great sheep depopulation continues. As one
observer grieved, "Pretty soon we'll have to start worrying
about stocking the zoos."

A variety of justifications has been offered for such an
outlay over the years. The 1954 National Wool Act deemed wool
an "essential and strategic commodity," vital to national
defense. The primary explanation: Wool was used heavily in
military dress uniforms. The Pentagon decided in the
mid-1970s that dress uniforms weren't necessary for national
emergencies, and wool was taken off the strategic list. But
the National Wool Growers Association strives mightily to
make people think that wool is still officially classified as
a strategic commodity.

Congress justified extending the Wool Act in 1977 because
of its contribution to "a positive balance of trade." In
other words, no matter how high the cost it is better to
produce a commodity in the U.S. than to buy it from
foreigners. The NWGA praises the wool program for enabling
"farmers and ranchers to utilize marginal lands that were
otherwise unsuitable for agriculture." If Congress were
willing to spend another $30 billion, we could probably grow
our own bananas.

The NWGA, on the other hand, claims that the program is a
boon to taxpayers. The association claims wool payments are
completely financed by a tariff on imported wool. Without the
wool program, the NWGA warns, the State Department would
probably abolish that tariff and lose revenue. (Citizens then
could be hurt by lower clothing prices.) In reality, though,
there is no earmarking of tariff revenues to domestic sheep

This tariff charade does serve a purpose: It makes farmers
feel better about taking taxpayer money. And few members of
Congress seem to care whether the wool program achieves its
stated goal. In hearings on the 1981 farm bill, the Senate
heard no testimony on the wool program, and the House
listened only to a NWGA spokesman. The agricultural
committees gave no serious examination to a program that
would cost taxpayers more than $300 million in the following
four years.

What would happen if the wool program were abolished
tomorrow? Under the "Chicken Little" scenario offered by farm
lobbyists, no more wool would be produced. But since the U.S.
produces less than 2% of the world's wool, the loss wouldn't
shake the pillars of commerce. Rather than getting almost all
of their wool from overseas, U.S. consumers would get all of
it from abroad. Many ranchers would, instead of raising sheep
at a loss, raise cattle for a profit. The Pentagon could
stockpile wool for less than the current program costs.

The wool program is the perfect example of our lethargic
agricultural policies. It hasn't worked in the past, it isn't
working now, and no one on Capitol Hill honestly expects it
to work in the future.


Mr. Bovard is a free-lance journalist in Washington who
writes frequently on agriculture.