U.S. Farm Policy

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U.S. Farm Policy World Ag TradeImplications
for U.S. Agriculture

• Daryll E. Ray
• University of Tennessee
• Agricultural Policy Analysis Center

Midwest/Great Plains/Western Outlook
Conference Radisson Airport Hotel, Indianapolis,
IN Thursday August 14, 2003
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Introduction

• Why does agriculture have chronic price and
  income problems?
• What are the implications of 2002 Farm Bill on
• Crop price possibilities
• Winners/losers
• Expectations underlying the change in farm policy
  direction versus Experience
• What can we realistically expect from world trade

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What is the Problem?

• Technology expands output faster than population
  and exports expand demand
• Market failure lower prices do not solve the
  problem
• No self-correction on the demand side
• People will pay almost anything when food is
  short
• Low prices do not induce people to eat more
• No self-correction on the supply side
• Farmers tend to produce on all their acreage
• Few alternate uses for most cropland

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Traditional Policy Levers

• Government Stock Management
• Loan rate/support price to set a floor price.
• Limit price increases by Govt FOR released
  stocks
• Restrict supply
• Short-term set-aside
• Long-term Conservation Reserve Programs
• Expand demand
• Domestic
• Foreign
• Government payments
• Coupled to production
• Decoupled

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Implications of Current Farm Program

• No price floor Since LDPs effectively replaced
  non-recourse loans
• No emergency reservesSince no CCC or FOR buffer
  stock policy
• No price ceilingSince Incomes are supported, not
  prices
• Primary beneficiaries
• Livestock producers, importers and other users
  are subsidized
• Agribusiness input suppliers and output
  processors are subsidized
• Not crop farmers (land owners?)

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Expectations vs. Experience

• Expectation Rapid growth in China imports,
  especially corn

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China Net Corn TradeComparison between 1996
FAPRI projections and PSD actual with 2001-2005
using 1999 FAPRI projections
Mil. Bu.
1996 FAPRI Projections of Net Corn Trade
Corn Imports
1999 FAPRI Projections of Net Corn Trade
Corn Exports
PSD Actual Net Corn Trade with 2002 Projection
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U.S. Corn Exports

• Comparison between 1995 FAPRI projection, 2001
  CBO projection, 1994-2001 PSD actual, and
  2002-2011 APAC flat export projection

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Expectations vs. Experience

• Expectation Rapid growth in China imports,
  especially corn
• Experience China continues to be a net
  exporterwill export nearly 500 million bushels
  of corn this year

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Expectations vs. Experience

• Expectation Export lead farm prosperity just
  around the corner (been saying this for over 25
  years)

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Corn
U.S. Domestic and Export Demand
Million Bu.
DOMESTIC
1976-85Average 4,909
1996-02Average7,537
1986-95Average 6,188
20 EXPORTED 1996-02Average 1,868
28 EXPORTED 1976-85Average 1,923
1986-95Average 1,831
EXPORT
Source USDA PSD Database
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Corn
U.S. Net Domestic and Net Export Demand Adjusted
for corn fed to import and export beef, pork, and
broilers
Million Bu.
DOMESTIC
1976-85Average 4,935
1996-02Average7,281
1986-95Average 6,156
23 EXPORTED 1996-02Average 2,125
28 EXPORTED 1976-85Average 1,897
1986-95Average 1,863
EXPORT
Source USDA PSD Database
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Corn
U.S. Net Domestic and Net Export Demand With and
without net livestock export adjustment
Million Bu.
Published Domestic Demand
DOMESTIC
Domestic Demand with net livestock export
adjustment
Export Demand with net livestock export adjustment
Published Export Demand
EXPORT
Source USDA PSD Database
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Net U.S. Corn Exported in Livestock
Corn
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Corn
U.S. Net Corn Exported as Meat and Domestic
Industrial, Alcohol and Food Demand
Million Bu.
Industrial, Alcohol and Food Demand
Average annual increase 1990-2002 68 mil.
bu. 1996-2002 89 mil. bu.
Average annual increase 1990-2002 22 mil.
bu. 1996-2002 7 mil. bu.
Net Corn Exported as Beef, Pork and Broilers
Source USDA PSD Database
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SOYBEAN COMPLEX
U.S. Net Domestic and Net Export Demand Adjusted
for soy fed to import and export beef, pork, and
broilers
Million Metric Tons
1996-02Average 38.129
DOMESTIC
1986-95Average 29.289
54 EXPORTED 1976-85Average 26.824
47 EXPORTED 1996-02Average 34.480
1986-95Average 25.513
1976-85Average 22.829
EXPORT
Source USDA PSD Database
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Net Export and Domestic Demand for 8 Major Crops
205 mmt 76-85 Average
249 mmt 86-95 Average
291 mmt 96-02 Average
million Metric Tons
122 mmt 76-85 Average
115 mmt 76-85 Average
113 mmt 76-85 Average
Guess which is exports and which is domestic
demand
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Indexed Growth in U.S. Population, Domestic
Demand for 8 Crops, and Exports of 8 Crops,
1961-20021979100
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Net Export Acreage for 8 Major Crops
Million Acres
103.6 76-85 Average
86.8 86-95 Average
77.0 96-02 Average
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Expectations vs. Experience

• Expectation Export lead farm prosperity just
  around the corner (been saying this for over 25
  years)
• Experience Crop exports have been flat for
  years. Exports have not been the driving force of
  crop utilization

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Expectations vs. Experience

• Expectation Export competitors will reduce
  production in response to lower prices

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Argentine Soybean Complex Exports and Surplus
Production
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Brazilian Soybean Complex Exports and Surplus
Production
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U.S. Soybean Complex Exports and Surplus
Production
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Expectations vs. Experience

• Expectation Export competitors will reduce
  production in response to lower prices
• Experience
• Export competitors export all production above
  domestic demand
• Eliminating set-asides and lower commodity prices
  did not cause export competitors to reduce
  acreage

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Expectations vs. Experience

• Expectation With Planting Flexibility
  Decoupled Payments Farmers Would Plant for the
  Market Reduce Production When Needed
• Eliminating set-asides and lower commodity prices
  did not cause export competitors to reduce acreage

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Indexed Four Crop Acreage, Price and Price
Adjusted for LDP and Contract Payments
Four Crop Acreage
Four Crop Price Adjusted for LDP, AMTA, and MLA
Four Crop Price Adjusted for LDP
Four Crop Price
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Foreign Crop Acreage
Change in Foreign Acreage
Million Acres
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Change in Foreign Crop Acreage
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Points to Ponder

• Since 1985 farm policy has been driven by
• Exports, exports, exports (Those are OUR exports!
  And well do ANYTHING to get them back and to
  make them grow.)
• Agribusinesses lobbying ability (We MUST lower
  prices and maximize output. If we build it, they
  will come.)
• Exports have not delivered after two decades of
  promises
• Agribusiness got everything they wanted (except
  elimination of the CRP)
• No bottoms or tops on prices (Increases the value
  of superior information.)
• Elimination of annual acreage reduction programs
  (Volume is everything.)
• Farmers relinquish the farm policy agenda to
  agribusiness and those that believe agriculture
  will self-correct with unfettered free markets

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Policy Premises

• U.S. and world output will continue to outpace
  demand
• Aggregate crop agriculture does not self-correct
  on its own in a timely manner (assuming otherwise
  is denying the obvious)
• Total acreage changes too slowly to be of help
• Consumers will never oscillate between 1 and 5
  meals a day depending on prices
• Exports
• Competitors are as committed to producing for
  international markets as we are
• Import customers view food as a national security
  issue and abhor increased dependence

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Policy Implications?

• Farmers have been sold a bill of goods on the
  elimination of acreage reduction programs
• Trends in competitors acreage and production
  were unaffected by U.S. elimination of set aside
• Elimination of set-aside was good for
  agribusiness but not good for farmers market
  income
• EVERY other non-farm industry watches demand when
  deciding output levels
• Not having supply management is the real reason
  we are in the current mess

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For More Information www.agpolicy.org
Agricultural Policy Analysis Center The
University of Tennessee Dept. of Agricultural
Economics 310 Morgan Hall Knoxville, TN
37996-4519 dray_at_utk.edu [phone]
phone [phone] fax