Agriculture and Agricultural Policy

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Agriculture and Agricultural Policy

• Daryll E. Ray
• University of Tennessee
• Agricultural Policy Analysis Center

Congressional Staff Washington DC January 26,
2007
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High Alert Issues

• Reason for farm/commodity programs
• Exportspresent and future
• Importance of agriculture
• Farm income
• In a New Eraprices will never again be below

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High Alert Issues

• Reason for farm/commodity programs
• Econ 101 says the market self corrects
• Response to price, response to price, response to
  price
• In a new eraprices will never again be below

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Ag Policy Did Not Start in 1932

• Historic policy of plenty
• Land distribution mechanisms 1620 onward
• Canals, railroads, farm to market roads
• Land Grant Colleges 1862, 1890, 1994
• Experiment Stations 1887
• Cooperative Extension Service 1914
• Federal Farm Credit Act 1916
• This policy of plenty often results in production
  outstripping demand

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Characteristics of Ag Sector

• Agriculture is different from other economic
  sectors.On the demand side
• With low food prices
• People dont eat more meals a day
• They may change mix of foods
• Aggregate intake remains relatively stable

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Characteristics of Ag Sector

• Agriculture is different from other economic
  sectors.On the supply side
• With low crop prices
• Farmers continue to plant all their acres
• Farmers dont and cant afford to reduce their
  application of fertilizer and other major
  yield-determining inputs
• Who farms land may change
• Essential resourcelandremains in production in
  short- to medium-run

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Why Chronic Problems In Ag?

• Technology typically expands output faster than
  population and exports expand demand
• Much of this technology has been paid for by US
  taxpayers
• The growth in supply now is being additionally
  fueled by
• increased acreages in Brazil, etc.
• technological advance worldwide

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Why Chronic Problems In Ag?

• Lower prices should automatically correct
  itselfEcon 101 says so
• Consumers buy more
• Producers produce less
• Prices recoverproblem solved!
• But in agriculture lower prices do not solve the
  problem
• Little self-correction on the demand side
• People do consume significantly more food
• Little self-correction on the supply side
• Farmers do not produce significantly less output

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High Alert Issues

• Reason for farm/commodity programs
• Exportspresent and future
• Importance of agriculture
• Farm family income
• In a new eraprices will never again be below

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Exports, Exports, Exports

• For the last quarter century, exports have been
  heraldedand continue to be by someas crop
  agricultures salvation
• Exports is the production safety valve that can
  rebalance agricultural markets
• Exports will grow at accelerating rates
• As Dr. Phil would say, So, how has that been
  workin for ya?

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What About Exports?
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What About Exports
US Domestic Demand
US Population
US Exports
Adjusted for grain exported in meat
Index of US Population, US Demand for 8 Crops and
US Exports of 8 Crops 19791.0
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US Exported Acres
of US Acres Producing Crops for Export
Percentage of US acres used to produce crops for
export have declined from a high of 43 percent
in 1980 and 1980 to 33 percent for 2006
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What About Exports?

• Why have exports not fulfilled our hopes?
• Export demand is braked by issues of food
  security/food sovereignty
• International crop production is impacted by
• Increased acreage Stage of development
• Yield advances World-wide distribution of
  technology
• US role as the leading nation in the world
• Politically, economically, technologically, and
  militarily
• And in prices too Others price off US prices

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Implications for the WTO

• Market access may not be sufficient
• May benefit beef and Anjou pears
• What about crops covered by the Farm Bill?

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What About Exports?
US Exports
Thousand Metric Tons
Developing Competitors Exports
Developing competitors Argentina, Brazil, China,
India, Pakistan, Thailand, Vietnam 15 Crops
Wheat, Corn, Rice, Sorghum, Oats, Rye, Barley,
Millet, Soybeans, Peanuts, Cottonseed, Rapeseed,
Sunflower, Copra, and Palm Kernel
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High Alert Issues

• Reason for farm/commodity programs
• Exportspresent and future
• Importance of agriculture
• Farm family income
• In a new eraprices will never again be below

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Farming-Dependent Counties
Farming-dependent counties, 1998-2000. (Source
USDA-ERS)
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High Alert Issues

• Reason for farm/commodity programs
• Exportspresent and future
• Importance of agriculture
• Farm Income
• Farm family income??
• Measures that reflect net income of farm program
  crops??
• What about usual financial measures?

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High Alert Issues

• Reason for farm/commodity programs
• Exportspresent and future
• Importance of agriculture
• Farm income
• In a new eraprices will never again be below

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In Times of Exploding Demand

• The current program will work
• Environmental payments will work
• Rural development payments will work
• Any farm program will work
• NO program at all will work
• But times of exploding demand always come to an
  end

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Feedstock for Energy
Does not include forest harvest
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Worldwide Excess Capacity Will Again Be a
Long-run Problem (Despite Ethanol)

• Dramatic yield increases in other countries (and
  in this country)
• Cargill, Monsanto, John Deere, etc., etc., etc.
• Acreage once in production will be brought back
  in
• Russia, Ukraine and others
• New Acreage
• Brazil
• China

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Evaluate Carefully

• Reason for farm/commodity programs
• Exportspresent and future
• Importance of agriculture
• Farm family income
• In a new eraprices will never again be below

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Thank You
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Weekly Policy Column
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Policy Pennings listserv
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Some Policy Options

• Continue the Exports/Trade Liberalization Will
  Save Us Course Or All We Really Need is Market
  Access
• Switch to Green Payments based on
  Conservation/Environmental/ Rural Development
  Considerations
• Insurance/Farm Savings Accounts
• Policy to Address Crop Agricultures
  Long-Standing ProblemA Policy for all Seasons

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Policy for All Seasons

• Realistic about the way aggregate agricultural
  markets work
• Takes into account consumer behavior
• Takes into account producer behavior
• Recognizes limited ability of exports to
  rebalance aggregate agricultural markets
• Recognizes demand growth seldom outstrips supply
  growth for long