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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

Today

  • 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

www.whitehouse.gov/omb/budget/fy2003/pdf/hist.pdf

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.

policy
Policy
  • 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

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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
Technology
  • 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
environment
Environment
  • Food Safety
    • Biotechnology
    • Imports
  • Water/Air Quality
    • Confined Animal Operations
    • Chemical Use
  • Conservation
    • Land, Water, Endangered Species
    • Environmental Issues & Trade Policy
industrialization
Industrialization
  • 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
politics
Politics
  • 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