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

slide2
Since 1990, 17% of political contributions from agriculture have come from sugar growers. Sugar is less than 1% of agricultural output
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?
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
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
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
slide26

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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