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Ag Policy, Lecture 3 Knutson, Chapter 1. Today U.S. Agriculture Government Spending Policy Forces of Change. Setting the Stage. How much does agriculture matter to the U.S. economy? How big a player is U.S. agriculture in the world? How much money does the U.S. spend on agriculture?.

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ag policy lecture 3 knutson chapter 1
Ag Policy, Lecture 3 Knutson, Chapter 1


  • U.S. Agriculture
  • Government Spending
  • Policy
  • Forces of Change
setting the stage
Setting the Stage
  • How much does agriculture matter to the U.S. economy?
  • How big a player is U.S. agriculture in the world?
  • How much money does the U.S. spend on agriculture?
how big a player is u s agriculture in the world
How Big a Player is U.S. Agriculture in the World?
  • #1 exporter of ag products in the world
  • Over 30% of crop acreage basically for export
  • What does this mean for policy?
how much does agriculture matter to the u s economy
How much does Agriculture Matter to the U.S. economy?
  • Depends
    • Farming accounts for 1% of workforce and less than 1% of GDP
    • Entire food and fiber system accounts for 17% of workforce and 13% of GDP
how much money does the u s spend on agriculture
How Much Money Does the U.S. Spend on Agriculture?
  • What do you call agriculture?
  • Do you define it by what Ag committees have responsibility for?
allocation of u s budget outlays by function fy 2001
Allocation of U.S. Budget Outlays by Function, FY 2001

Human Resources includes: health, medicare, social security, etc.

Physical Resources includes: transportation, community and regional development, etc.

Source: Budget of the U.S. Government

share of mandatory program spending by farm bill title budget authority fy 2002 2011
Share of Mandatory Program Spending by Farm Bill Title Budget Authority, FY 2002-2011.

$782 Billion Total

Does not include funding for discretionary programs which is provided through annual appropriations.

Based on CBO’s March 2002 Baseline.

  • Definition: Guiding principle leading to course of action or specific program pursued by governments
  • Programs implement policy
  • Example:
    • Policy -- Pursuit of freer trade
    • Programs – NAFTA, FTAA
agricultural and food policy
Agricultural and Food Policy
  • Principles that guide government programs that influence:
    • Production
    • Resources used
    • Domestic and international markets
    • Food consumption
    • Conditions under whichrural people live
ag food policy is broader than the programs that support farm prices and or incomes
Ag & Food Policy is broader than the programs that support farm prices and/or incomes
  • Retirement of fragile land from production (CRP)
  • Negotiation to reduce barriers to trade (WTO)
  • Water allocation, development and pricing
  • Food safety and terrorism
  • Child nutrition (WIC)
policies and programs are constantly changing forces of change
Policies and programs are constantly changing – Forces of Change
  • Instability of agriculture
  • Globalization
  • Technology
  • Food safety
  • Environment
  • Industrialization
  • Politics
  • Unforeseen events
instability of agriculture
Instability of Agriculture
  • Inelastic demand and supply
    • 1 percent change in quantity supplied causes more than 1% change in price
    • Supply unstable due to
      • Weather and insects affect yields
      • Response to inputs is uncertain
      • Lag in production response
    • Demand is also unstable due to production in the rest of the world
      • Export demand changes from year to year causing total demand to shift in and out






globalization of markets
Globalization of Markets
  • Increased interdependence of markets, cultures, economies, and political systems
  • US Ag. depends on exports to support its investments in land and machinery
  • US Ag. exports depend on market access
  • Trade must flow both ways
  • Technology is provided to agriculture by business and Ag. Universities
  • Technology introduced in lumps
  • Farmers must adopt new technology or fall behind
  • Tread mill effect holds that technology drives down prices, farmers must adopt next tech. which drives down prices
  • Who benefits from technology?
food safety
Food Safety
  • Concerns about E. coli in hamburger, Salmonella in poultry, Listeria in dairy products, and now BSE in beef
  • Pesticide bans if carcinogenic in test animals
  • Terrorist threats on food supply
  • Food safety extends to environmental safety issues for soil, air, and water
  • Hormones in beef and GMOs are food safety issues in Europe and affects US exports
  • Food Safety
    • Biotechnology
    • Imports
  • Water/Air Quality
    • Confined Animal Operations
    • Chemical Use
  • Conservation
    • Land, Water, Endangered Species
    • Environmental Issues & Trade Policy
  • Modern agriculture depends on purchased inputs – seed, herbicides, insecticides, fertilizer, labor, fuel, equipment, etc.
  • Structure of farming has changed – small to large farms
  • More importance placed on the entire supply chain
  • Affects on rural communities
  • Political process makes farm policy and passes the farm programs
  • A myth is that the declining rural population has led to less political influence by farmers
  • Operating as a minority has led to different approaches
    • Coalition building on particular issues
    • Agriculture has political diversity, able to function with a different party in power
unforeseen events
Unforeseen Events
  • Terrorism
  • BSE
rational for government involvement in agriculture
Rational for Government Involvement in Agriculture
  • Farm Financial Health
    • Price and Income Support
    • Price and Income Instability
  • Abundant/Cheap Food Supply
    • Food Security
    • Food Safety
    • Poverty
  • Market Externalities
    • Environment
    • Other Public Concerns
constraints on government involvement in agriculture
Constraints on Government Involvement in Agriculture
  • Economic Freedom
  • Political Conservatism
  • Government Costs
  • Capitalization
  • Globalization
  • Common Sense
lecture 3 wrap up
Lecture 3, Wrap up
  • U.S. Agriculture (How important is Agriculture?)
  • Government Spending (What is spent on Agriculture?)
  • Policy
    • You should be able to define and discuss the differences between policies and programs, and provide an example
  • Forces of Change
    • You should be able to discuss intelligently any of the 8 categories of forces

Government Involvement

    • Rationale
    • Constraints
  • Next Class, Policy Process

Chapter 3