Agricultural Policy

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Agricultural Policy

• What do we want, what do we do, what should we do?

2
Agricultural policy

• What do we want?

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What do we want from a national agricultural
policy?

• Stable supply
• Stable prices
• Safe food supply
• Lots of farms, so we dont become too dependent
  on too few corporations
• Minimal ecological damage

4
Stable supply

• How do we achieve this when agriculture is so
  uncertain?
• Is international trade adequate?
• Should we shoot for overproduction every year, so
  that there is enough in the bad times?

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How do we deal with excess production?

• Global markets
• How do we sell all we produce?
• The US government has long sought to support
  (read subsidize) agricultural exports
• Yesterday, Brazil successfully sued us in WTO
• What happens to farmers in other countries when
  America sells its crops so cheaply?
• PL 480
• Can we have stable supply without stable prices?

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Stable prices

• Should we manage supply or demand?
• Price ceilings?
• What are impacts on production?
• Price floors?
• Stockpiling?
• Government purchases more when there is a
  surplus, sells when there is a shortage

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Safe food

• What are the threats?
• Biological contaminants, e.g. salmonella
• Mold and fungi, e.g. aflatoxins
• Prions, e.g. mad cow
• Pesticide and herbicide residue
• Unintended impacts from GMOs
• Etc.
• Are market signals sufficient protection?

8
Saving the family farm

• Why are the farms going out of business?
• How can government help keep small farms solvent?
• Could the government target policies towards the
  small farm?

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Reducing ecological damage

• What is the impact of producing too much?
• Why do farmers so often drain wetlands, clear
  forests and prairies, pollute watersheds, cause
  erosion and damage the ozone layer?
• Who owns the soil?
• How can policy address this?
• Could the government target policies towards
  sustainable production?

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Agricultural policy

• What do we actually do?

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Quotas and tariffs

• Quota limit to how much can be imported
• Tariff tax on imports
• Used to protect domestic producers from foreign
  competition
• Widespread, often designed to ensure food
  security
• E.g. Sugar quotas

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Non-recourse loans

• Government sets target price based on costs of
  production
• If price falls below target, farmer can borrow
  money from government using grain as collateral.

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Non-recourse loans

• Farmer can hold crop until price improves
• If price doesnt improve, farmer forfeits grain,
  i.e. he sells it to the government
• As purchaser of last resort, government ensures
  adequate demand

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Non-recourse loans

• If prices are very high, government can sell the
  reserves it has stockpiled
• Costs of stockpiling
• What happens if production costs in US are
  higher than those abroad?

15
Acreage set asides

• To benefit from government policy (such as
  non-recourse loans) farmer must set aside some of
  land.
• Generally sets aside least productive land, can
  also be targeted towards most environmentally
  sensitive land

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Acreage set asides

• If prices rise, land can be brought back into
  production
• Not very effective at preserving ecological fxn
• Supply lower, average price higher
• Doesnt work well at stabilizing prices when
  produce can be imported

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Conservation Easements

• Right to farm or develop land is sold, but not
  the land itself
• Site we planted is essentially in conservation
  easement for 20 years

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Tax Incentives

• Reduce taxes on land that is managed in
  ecologically and socially desirable way
• Increase taxes on inputs with negative
  externalities
• E.g. dangerous pesticides, methyl bromide, fossil
  fuels
• Tax other negative externalities
• E.g. waste lagoons, erosion, etc.

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Agricultural Market Transition Act (AMTA) 1996

• Production Flexibility Contract (PFC) payments,
  made in proportion to what producers had received
  in 1990-95
• Fixed schedule to disappear by 2002
• Emergency payments of 50 above PFC in 1998, and
  100 above in 99,00 and 01.
• Program cost more than previous ones

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Agricultural Market Transition Act (AMTA) 1996

• Government wanted to move agriculture to free
  market
• Got rid of non-recourse loans and set asides
  (though these were already on the way out)

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Production subsidies

• Many types, such as government risk insurance
  policies
• Estimated at 23 of gross output from 1999-2001,
  excluding food stamps and RD
• Under most recent legislation (2002) limited to
  275,000 per farmer

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Production subsidies

• 70-90 go to largest 10 of farms
• Stimulate over-production
• Conflict with WTO

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Rangeland example

• Currently in the news
• Government lets ranchers use national rangelands
  at very low cost
• Subsidy for meat production, yet meat one of
  major contributors to heart disease, obesity,
  etc.
• Massively negative ecological impacts
• Possible buyout

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What should we do?
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May need separate policies for separate goals

• Ecological sustainability
• Distribution
• Food security
• Price stability
• Food safety

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Ecological sustainability

• Targeted subsidies to protect ecosystem services,
  provide public goods
• 50 of costs of reforestation covered by
  government. Who gets the benefits?
• Targeted taxes to deter negative externalities
• Quotas on inputs with negative impacts
• Reduce emphasis on overproduction
• Overproduction ecological degradation

27
Just distribution

• Break apart grain traders cartel
• Targeted policies to preserve family farms
• Fewer subsidies for the rich

28
Food security

• Judicious use of import quotas and tariffs
• Incentives for conservation of ag productivity
• Disincentives for degradation
• Investments in RD on sustainable agriculture

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Food Safety

• Government regulation
• Labeling
• Precautionary principle

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Conclusions

• Agriculture is most important sector of global
  economy, though only 3 of US economy
• Efficiency is not the only goal we care about
  stability and security, which implies
  self-sufficiency
• Market failures are rife