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

The Economics and Politics of U.S. Agricultural Policy

James Dunn

Pennsylvania State University


The economics and politics of u s agricultural policy

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


The economics and politics of u s agricultural policy

Impact of technological change in agriculture


History

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

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

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

Price support

Government purchases


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

Quota


Capitalization of programs

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

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

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

Cash Farm Income and Government Payments


Agricultural subsidies

Agricultural Subsidies


Loss of markets

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

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

Congress Now

  • Senate –

    • 54 Democrats

    • 4

    • 6 Republicans

  • House of Representatives

    • 232 Republicans

    • 200 Democrats

    • 3 vacant


Other points

Other Points

  • Farmers vote together

  • In a close election farm vote can be very important

  • No one wants to tell farmers no


The coalition

The Coalition

  • Farmers

  • Consumers

  • Environmentalists

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


2013 senate ag committee white democrat blue republican white both

2013 Senate Ag Committeewhite Democrat, blue Republican, white both


Program commodities

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

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


The economics and politics of u s agricultural policy

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

Source:USDA

Source: USDA


Policy and gatt

Policy and GATT

  • Small countries walked out in Cancun.


Policy and freer trade

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

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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