Part II A

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Part II A B. Government Intervention in
Agriculture
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Government involvement in agriculture

• Most countries have some sort of control
• Food is basic to survival
• Japan almost completely controls agriculture
• Australia has almost no government control
• U.S. is somewhere in between

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Reasons for government control

• Assure adequate food supply at a reasonable cost
• Keep family farms in business
• Minimize dependence on imports
• Farmers income lags non-farmers income
• Boils down to a
• FARM PROBLEM OR A FOOD PROBLEM

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Agricultural Marketing Board

• Started support with 500 million dollars and
  created the Ag Marketing Board in September of
  1929
• Bankrupt in Two years
• Farmers were in a foul mood
• Show video The Bountiful 5
• During the 1930s came up with what we have today

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Summary of Video

• Farm problem
• Management or Labor
• Farm Foreclosures
• Farm Bureau
• What is wrong with dumping
• Soil Conservation Service
• Have to work twice as hard and grow twice as much
  if price is only 50 of what I was getting before

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How are Prices Set ?

• Supply (Quantity Available)
• Demand
• Equilibrium Price and Quantity

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Old Farm Bill

• Went into effect 1996
• Still had non-recourse loan plan
• Ended in 2002
• Keep in mind that most farmers borrow money every
  year.

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The old bill only worked with stable commodities

• tobacco
• cotton
• wheat
• dairy products (cheese and powdered milk)
• corn
• NOT FRUIT AND VEGETABLES

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Old Farm Bill Non-recourse loans

• Cotton (price per pound)
• 
  
• Farmer sells crop .90 C
• Deficiency payment .80 Target price
• .70
• .60 B
• Break even .50 Loan Price
• .40 A

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Target Prices

• At 40 cents a pound, the farmer would give his
  crop to the govt. and the govt. would send the
  farmer 30 cents a pound. The farmer did not have
  to pay the loan back (non-recourse).
• At 60 cents a pound, the farmer paid the govt 50
  cents a pound, and received 20 cents from the
  govt
• At 90 cents a pound, the farmer pays the govt 50
  cents a pound and keeps the rest.
• The govt has guaranteed that the farmer will make
  at least 30 cents a pound on cotton that year

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New Farm Bill,

• Signed into law, May 13, 2002
• Administered by the Farm Service Agency (FSA)
  Provides funding for
• Conservation programs on working farms
• Programs to create and maintain jobs in rural
  communities
• Programs for energy
• Commodity program payments

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New Farm Bill cont.

• FSA funding cont
• Disaster Assistance
• International School Lunch Program
• USDA implemented Food Stamps
• Outreach
• Additional resources
• Since the new farm bill was enacted
• Farm income has been at record highs

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Trade Adjustment Assistance

• Provides technical assistance and cash benefits
  to eligible producers
• of raw agricultural commodities
• if an increase in imports contributed to a
  decline in price, resulting in a drop in net farm
  income
• Examples
• Salmon fisherman, catfish producers, shrimp
• Producers of wild bluberries

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Direct and Counter-cyclical Payment Program (DCP)

• Provides payments to eligible producers on farms
  enrolled for 2002-2007 crop yr
• Computed using base acres and payment yields
• Two kinds of DCP payments
• Direct
• Counter cyclical

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Eligibility to Participate in Program

• Share in the risk
• Annually report use of farms acreage
• Comply with conservation and wetland
• protection on all of their land
• Comply with planting flexibility required
• Use the base acres for ag or related activities
• Protect all base acres from erosion

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Eligible Commodities (Direct Payments)

• Barley (.24/bu)
• Corn (.28/bu)
• Grain Sorghum (.35/bu)
• Oats (.024/bu)
• Oilseeds (.80/cwt)

• Peanuts (36/ton)
• Rice (2.35/cwt)
• Soybeans (.44 bu)
• Upland Cotton (.0667.lb)
• Wheat (.52/bu)

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Eligible Commodities (target price)

• Barley (2.24/bu)
• Corn (2.63bu)
• Grain Sorghum (2.57/bu)
• Oats (1.44/bu)
• Oilseeds 10.10/cwt)

• Peanuts (495/ton)
• Rice (10.50/cwt)
• Soybeans (5.80 bu)
• Upland Cotton (.7240lb)
• Wheat (3.92/bu)

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Example for corn (Direct Payments)

• Base acres planted for corn 100 acres
• x.85
• Payment acres 85 acres
• Direct Payment Yield x110 bushels
• Direct Payment rate x .28/bushel
• Direct Payment 2,618.00

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Direct and Counter-Cyclical Payments

• Corn /bushel
• Target Price 2.63
• Avg. Market Price 2.00
• Effective Price 2.23
• Loan rate 1.95
• Direct Payment rate .28
• CCP payment rate 2.63 (2.00 .28)
• 
  0.35
• CCP85 x 110 x .35 3272.50

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Counter-cyclical Payments

• Provides support counter to the cycle of market
  prices as part of a safety net in the event of
  low crop prices.
• CCP for a commodity are only issued if the
  effective price for a commodity is below the
  target price for that commodity.

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Comparing Programs

• Non-recourse
• Target pr effective pr acres
  bu/acre total
• 2.63 - 2.00 .63 x 100 x 110 6930
  (Govts Cost)
• Profit on sales 550
• Total 6930 550 7480
• CCP
• Direct Pay CCP
  total
• 2618 3272.50 5890.50 (Govts Cost)
• Profit on sales 550
• Total 5890 550 6440

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The Case Against the Farm Bill

• According to some experts
• Cost
• Distribution of Subsidies
• Is like the Soviet Approach
• Not good for International Trade
• Welfare for Corporate Agribusiness
• Small Family farms are shortchanged

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What happens to stored crops

• Tried burning , dumping, destroying it
• export it
• give it away
• school lunch program
• food banks
• PL 480 Food for peace
• Food stamps

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Ways to Reduce Production

• Dairy herd reduction
• Sheep or other animal production reduction
• Acreage reduction
• No production

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Ag Program Costs

• Commodity Programs 10 Billion
• Food Stamps and Nutrition 39 Billion
• Other programs 16 Billion
• USDA total budget 65 Billion
• For 2004, estimated 76 Billion

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Other Programs for Agriculture

• Federal Water Projects and Subsidies
• Ag Research and Extension
• Marketing Services
• Advertising and Market News
• Inspection Service and Grading
• Cheap grazing land

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Tobacco conflict

• Tobacco subsidy
• Health service
• Tobacco lobbyists
• 150,000 tobacco farmers in Kentucky
• Bill now before the Senate to buy out many
  tobacco farmers at a cost of 9.6 billion dollars

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Ag policies, in reality, help the public as well
as farmers!

• We have a steady supply of high quality food
  and...
• spend only 11 to 13 of our income on food,
• Export approximately 40
• Less than 2 of population are farmers
• but, we also pay for it in taxes to support the
  ag programs currently in practice.

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Who pays taxes

• Top 1 (over 195 K) 29 of Fed Tax
• Top 5 (over 91 K) 48 of Fed Tax
• Top 10 (over 68 K) 59 of Fed Tax
• Top 25 (over 42 K) 80 of Fed Tax
• Top 50 (over 21 K) 95 of Fed Tax

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Tuesday

• USDA
• Food Safety

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Paper 2

• Because agricultural programs are very expensive
  and we produce more than enough food and fiber,
  governmental regulation and support should be
  eliminated. Agree or disagree with the title and
  defend your position.

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Paper 2

• 1) Remember to state the title exactly.
• 2) Have an introductory paragraph in which you
  agree or disagree and briefly describe why you
  feel the way you do.
• 3) Write a main body in which you elaborate and
  fully explain your position.
• 4) Summarize or conclude what you have just
  discussed.

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• 5) Remember to use literature citations and use
  footnotes or include a bibliography.
• 6) Paper will not exceed 2 pages.
• 7) No cover sheets
• 8) Remember to submit paper to turnitin.com and
  put the i.d. number below your name.
• 9) Paper is due July 22, 2004