Title: Issues in Agricultural Economics
1Issues in Agricultural Economics
2Why an economics of agriculture?
- Is the US, agriculture is only 3 of GNP. Does it
deserve its own discipline?
3What 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?
4Issues 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)
5Issues 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
6Market Failures
7Why 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
8Why inappropriate for markets?
- Producers often respond perversely to market
signals - High levels of market concentration
- Producers of input
- Purchasers of raw output
- Vertical integration
9Why 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
10public goods
11Public Goods Provided
- Why is Vermont such a big tourist destination (14
million visitors annually)? - Thomas Jefferson, farmers and democracy
- National security
12Small 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
13Public Goods Needed
- Infrastructure costs, e.g. managing rivers,
irrigation, transportation, etc. - Research and development
14Public 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
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17Dead Zones Around The World
Largest
http//daac.gsfc.nasa.gov/CAMPAIGN_DOCS/OCDST/dead
_zones.html
18Public bads negative externalities
- Waste emissions
- Phosphorous, Nitrogen
- Methyl Bromide
- Factory farming
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21Public 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
22Public bads negative externalities
- Erosion and siltation
- Closely related to natural resource economics
23Uncertainty and Missing markets
24Extreme 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
25Missing Markets
- Many negative externalities affect future
generation - Methyl bromide
- Soil loss is irreversible, and huge
- Modern agriculture depends completely on fossil
fuels
26Market concentration Monopoly and Monopsony
27Agriculture 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
28Vertical Integration
29Share of Profits going to Farmers
30Corporate influence on politicians
- National policy
- Barges
- Ethanol