I don't think weather forecasting is currently good enough for a farmer to plan which crops to plant based on rainfall predictions.
If every farmer planted a diversity of crops to account for all likely weather scenarios, then the average productivity would drop, as most crops would turn out to be unsuitable for the weather that occurred.
Exactly. Anyone that thinks farming in the US is a matter of pulling out the almanac and hoping the rain will match expectations is naive at best.
Here's the thought process a farmer goes through in deciding what to plant:
1. What's the expected market price for corn and soybean.
2. What is the cost of crop insurance?
3. What's the current rainfall estimate?
4. What's the cost of water via irrigation and the cost of the irrigation equipment.
5. What's my field rotation state?
6. How much is fertilizer?
7. What subsidies are in effect for the various crops?
8. How is my cash flow?
And so on. The stereotype of farmers either being stupid hicks or suckling at the teat of Federal subsidies is ridiculous. The technology farmers use is amazing, and the factors they have to consider are multi-variate.
Sometimes farmers get screwed, and sometimes they make a fortune. Subsidies (as well as futures and other hedges) are a means of smoothing out the market so that farmers can stay in business while also providing for steady agricultural returns. It's not a perfect system by any means, and subsidies for things like ethanol drastically distort other markets, but to try and simplify it into Farmer A works hard but dumb and Farmer B is a smart, HN guy is just too simplistic.
So, context, I'm a libertarian. But, bear with me a moment.
Why are subsidies bad? They "distort the market". How do subsidies distort the market? They cause overproduction of the subsidized good. Where an efficient allocation would tend to fairly precisely match demand to production (more precisely than any other known way of doing it), thus allowing the rest of the capital to go do other useful things, a subsidized good overinvests capital into producing the subsidized good, thus producing an opportunity cost to civilization due to the misallocation of resources into overproducing a good rather than doing something else more useful.
What is the result of farming subsidies? An excess of food. What is food? Food is one of the fundamental foundations of civilization. No food means total chaos in a matter of days. What does precisely producing 100% of the expected target food production means? It means the slightest bobble in production translates to shortages, and as we all know, shortages happen, and in particular, black swans will happen. A free market does not blindly assume everything will be swell and does build in some buffer against expected disaster, but the buffer can always be exceeded and the free market makes it very difficult for a given producer to make their own buffer larger, lest a competitor eat their market share.
Suddenly, a bit of "overproduction of food" doesn't sound like such a bad idea. Ideally we'd be storing the excess as much as possible, though regrettably food doesn't store as well as you'd like. Still, I'm actually in favor of a certain amount of food subsidy.
The ethanol subsidy is still stupid, and given subsidies may be bad on the grounds of being excessive, or because the interest group has captured the regulator and are managing to harvest the surplus directly instead of via overproduction (which is the result we're actually trying to produce for once), but in general, I'm not actually against a bit of overproduction of the foundations of civilization.
Oh, I'm libertarian in many ways as well, but generally agree with you on farm subsidies with the exception of ethanol. I think it's criminal for us to be taking some of the most productive farmland in the world, and growing corn on it to burn in our cars. It's a net negative in terms of energy, and is almost solely due to Iowa having an inordinate amount of influence due to the timing of their primary.
Also, witness the affects of the sugar tariffs that have given rise to the widespread use of HFCS. If it weren't for these, we'd still have Coca-Cola flavored with real sugar. Instead we have to import it from Mexico...
An economics professor of mine said that, besides food subsidies, another reason rich countries have few famines is livestock farming.
There's a lot of energy lost in the process of feeding corn to cattle and turning them into burgers; you could feed more people by eating the corn directly.
So when there's going to be a corn shortage like this year, livestock go to slaughter ahead of schedule, which reduces the demand for corn, and increases the supply of meat.
On its face, eating meat is a luxury, but it actually serves an important function as a buffer against shortages.
If vegetarianism ever became a very popular lifestyle (I'd say, very roughly, if it was adopted by a majority), the risk of food shortages would increase.
"I don't think weather forecasting is currently good enough for a farmer to plan which crops to plant based on rainfall predictions."
It's good enough to offer insurance to farmers for when harvests will fail. This exists, I know because I (even if only at arms length) work in this field.
Agriculture is boom-and-bust, precisely due to the unpredictability of the weather, infestations, etc. It's more predictable today than in the past, but there is still a lot of guesswork going on. There are sophisticated mechanisms in place for mitigating this, such as the futures market and insurance.
I'm not sure how these insurances are sold to end users at small scales. I'm involved in building crop harvest forecast systems to be used by insurers who insure large businesses (think multinationals) who need resources from mostly Asian and African countries for the production of their goods, e.g. palm trees. So this use case is different in scale from your example, our work is mostly in risk modeling on a large scale.
That said, if I were selling insurances, I'd want two things: data to justify or explain my rates to my customers, and data to make predictions of my own risk and/or profit margins. The two might be correlated in a highly competitive and transparent market, but I have a hunch that these insurances are not, and that there isn't a whole lot of pressure to work on a cost plus pricing model, so that these insurers can work on a value-added pricing model.
It depends - surely, studying the weather (how much snow there is on the mountains in winter affects how much water there is in the rivers in the spring) can reduce, if not remove, the risk of crop failure. Perhaps you have the choice of a more expensive drought-resistant crop and a cheaper one that isn't.
Breaking the feedback loop by subsidizing failed crops doesn't create any incentive to invest effort into making good decisions in these areas.
You're making the assumption that winter snowpack has a dramatic effect on farming success. Sure, it helps fill the aquifers when it melts, but farmers depend on rainfall (at least in the US) as much as they do on irrigation. Heat also makes it hard for crops to grow successfully, regardless of how much water they get through irrigation.
The returns a farmer receives depends also on the price the crop can receive. Barring futures contracts, for widely-traded crops such as wheat, soya and corn, this will depend on the global market, i.e. not only the local weather, but also the weather in Brazil, Australia, etc.
Think of it this way: it's a trade-off, like almost all reliable systems have to
make. Would you rather have, for example, a server that runs with maximum
efficiency but has a high risk of failure and extended downtime or one that is
reliable with a 99.9% uptime, but isn't as powerful as the first one?
>I don't think weather forecasting is currently good enough for //
That would be an interesting study. Take weather data and forecast data from the last n years and look at how good various sources are at prediction over various regions and timescales.
If every farmer planted a diversity of crops to account for all likely weather scenarios, then the average productivity would drop, as most crops would turn out to be unsuitable for the weather that occurred.