The economics and politics of u s agricultural policy
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The Economics and Politics of U.S. Agricultural Policy . James Dunn Pennsylvania State University. Since 1990, 17% of political contributions from agriculture have come from sugar growers. Sugar is less than 1% of agricultural output. Impact of technological change in agriculture. History.

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The Economics and Politics of U.S. Agricultural Policy

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The Economics and Politics of U.S. Agricultural Policy

James Dunn

Pennsylvania State University


Since 1990, 17% of political contributions from agriculture have come from sugar growers. Sugar is less than 1% of agricultural output


Impact of technological change in agriculture


History

  • Started in 1930s as temporary measure

  • Political support remained after depression

  • Farm problems recur regularly

  • Lots of programs – I’ll talk about price and income programs


Economics of Agricultural Policy

  • Idea- raise farm incomes, end farm failures

  • Give one time boost

  • Doesn’t work in long run

  • Doesn’t stop farm exit

  • Subsidize large farms more

  • Subsidize rich at expense of others -average farm family has higher income and much higher wealth than the average US household


Types of Policies

  • Simple price supports – create surplus that must be purchased and sold at loss – usually exported - expensive

  • Quotas – limit production – make it difficult to expand – quota gains value if sold


Price support

Government purchases


Purchases

  • What do you do with the surplus you buy?

  • If you give it away what about the farmers trying to compete with free food?


Quota


Capitalization of Programs

  • Farmers learn program will continue

  • Price of land and cows and other specialized assets reflects value to best farmers

  • Artificially high milk prices drive up prices of cows

  • worst farmers still lose money


Dairy Cows

  • If milk price is high, what happens to price of cows?

  • Who will pay the most?

  • Do higher cost farmers make any money?


Rentable Quota

  • Who will pay the most to rent the quota?

  • How much will they pay?

  • Who will pay the least rent?

  • How much will they pay?

  • Who makes money?

  • Quota in Canada is $20,000/cow


Cash Farm Income and Government Payments


Agricultural Subsidies


Loss of markets

  • Price supports reduce competitiveness in international markets, e.g., loss of soybean exports to Brazilian producers

  • Higher prices stimulate substitution by other commodities in consumption, e.g., high fructose corn syrup (sugar)


Some important points

  • Very few farmers

  • House of Representatives based on population – disproportionately urban

  • Senate – two members per state – more rural interests represented

  • Often control of Congress very close

    • in 2008

    • Senate 49-49-2 (independents caucus w/ Dems)

    • House 232 -200 (3 vacant)


Congress Now

  • Senate –

    • 54 Democrats

    • 4

    • 6 Republicans

  • House of Representatives

    • 232 Republicans

    • 200 Democrats

    • 3 vacant


Other Points

  • Farmers vote together

  • In a close election farm vote can be very important

  • No one wants to tell farmers no


The Coalition

  • Farmers

  • Consumers

  • Environmentalists

  • Other food sector participants, e.g., fertilizer companies, other agribusiness


2013 Senate Ag Committeewhite Democrat, blue Republican, white both


Program Commodities

  • Feed grains – mostly corn

  • Oil seeds – mostly soybeans

  • Wheat

  • Cotton, rice, sugar, peanuts

  • Dairy products

  • Wool, mohair, honey, dry peas

  • 13% of Farm Bill spending


Bio-Fuels

  • Subsidies for corn from ethanol

  • Loans for bio-refineries

  • Corn and soybean prices are very high

  • Vegetable oil prices very high

  • Very little savings in petroleum use


Geographic distribution of government payments as a proportion of gross cash income from farming

Source:USDA

Source: USDA


Policy and GATT

  • Small countries walked out in Cancun.


Policy and freer trade

  • Free trade agreement with Australia (January 1, 2005)

  • Duties on most industrial goods eliminated

  • Special treatment for agriculture, especially sugar and dairy products

  • Central American Free Trade Agreement was held up over agriculture (sugar) but passed in 2005

  • NAFTA disputes - many over agriculture (tomatoes, sugar)


Concluding Comments

  • Not a big success

  • Very costly

  • Extremely important politically – domestically and internationally

  • With close elections – won’t go away –very important in government shutdown


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