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Issues in Agricultural Economics

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Factory farming. Public bads & negative externalities. Agro-chemicals. Half lives ... Size of farms. Not even more efficient in terms of food production ... – PowerPoint PPT presentation

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Title: Issues in Agricultural Economics


1
Issues in Agricultural Economics
2
Why an economics of agriculture?
  • Is the US, agriculture is only 3 of GNP. Does it
    deserve its own discipline?

3
What are the desirable ends in agriculture?
  • Profit maximization?
  • Food security?
  • Adequate food for those Americans who can afford
    it? For all Americans? For everyone in the
    world?
  • Minimize ecological impacts?
  • Maintain the agricultural life-style?
  • Ensure a decent quality of life for farmers?

4
Issues unique to agriculture
  • The most important economic output
  • Does not respond well to market forces
  • Producers often respond perversely to market
    signals
  • Exhibits every type of market failure
  • Most countries want to produce their own food
  • Extremely dependent on non-renewable resources
  • Fossil fuels, Soil (5.5 gallons of oil to restore
    1 acre/yr fertility)

5
Issues unique to agriculture
  • Highly affected by world market price in most
    countries
  • Characterized by rapid technological change and
    innovation
  • Land grant colleges
  • Heavy government intervention in almost every
    government in the world

6
Market Failures
7
Why inappropriate for markets?
  • Substantial public good benefits
  • Closely related to community development
    economics
  • Enormous negative externalities
  • Waste absorption capacity as open access
  • Ecosystem conversion
  • Closely related to natural resource economics
  • Extreme uncertainty
  • Depletes resources on which future generations
    will depend for survival

8
Why inappropriate for markets?
  • Producers often respond perversely to market
    signals
  • High levels of market concentration
  • Producers of input
  • Purchasers of raw output
  • Vertical integration

9
Why inappropriate for markets?
  • Land supply is fixed i.e. highly inelastic
    supply of main input
  • Highly inelastic demand
  • Lag of months to years between planting and
    harvest, so supply highly inelastic in short run.
  • Land conversion very difficult to reverse
  • From forest to agriculture
  • From agriculture to housing

10
public goods
11
Public Goods Provided
  • Why is Vermont such a big tourist destination (14
    million visitors annually)?
  • Thomas Jefferson, farmers and democracy
  • National security

12
Small Scale vs. Industrial Impacts on community
  • Dinuba vs. ArvinDinuba had twice as many
    business establishments as Arvin, and did 61
    percent more retail business. It had more
    schools, parks, newspapers, civic organizations,
    and churches, as well as better physical
    infrastructurepaved streets, sidewalks, garbage
    disposal, sewage disposal and other public
    services. Dinuba also had more institutions for
    democratic decision making, and a much broader
    participation by its citizens. Political
    scientists have long recognized that a broad base
    of independent entrepreneurs and property owners
    is one of the keys to a healthy democracy.
  • Suicide rates

13
Public Goods Needed
  • Infrastructure costs, e.g. managing rivers,
    irrigation, transportation, etc.
  • Research and development

14
Public bads negative externalities
  • Ecosystem conversion
  • Great plains, California, the Amazon
  • Pantanal and Mississippi
  • Dead zone in the Gulf of Mexico

15
  • 41 of Continental US
  • Heavily Farmed Regions(N)
  • 56 of N from 5 states

http//www.epa.gov
16
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17
Dead Zones Around The World
Largest
http//daac.gsfc.nasa.gov/CAMPAIGN_DOCS/OCDST/dead
_zones.html
18
Public bads negative externalities
  • Waste emissions
  • Phosphorous, Nitrogen
  • Methyl Bromide
  • Factory farming

19
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20
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21
Public bads negative externalities
  • Agro-chemicals
  • Half lives
  • What percent of crops was lost to pests in 1940
    (before pesticides) vs. now?
  • Water use
  • 70 of water used in agriculture
  • Many rivers no longer reach the sea

22
Public bads negative externalities
  • Erosion and siltation
  • Closely related to natural resource economics

23
Uncertainty and Missing markets
24
Extreme uncertainty
  • Affected by weather
  • All sorts of pests
  • Lag time between investment and return, with
    highly variable market
  • Consequence of highly inelastic supply and demand

25
Missing Markets
  • Many negative externalities affect future
    generation
  • Methyl bromide
  • Soil loss is irreversible, and huge
  • Modern agriculture depends completely on fossil
    fuels

26
Market concentration Monopoly and Monopsony
27
Agriculture and the megacorporation
  • Producers of inputs
  • Purchasers of raw output
  • One firm controls nearly 50 of global market
  • 500,000 times the size of a large farmer
  • Size of farms
  • Not even more efficient in terms of food
    production

28
Vertical Integration
29
Share of Profits going to Farmers
30
Corporate influence on politicians
  • National policy
  • Barges
  • Ethanol
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