Ag Policy, Lecture 8 Knutson 6th Edition, Chapters 2

1
Ag Policy, Lecture 8 Knutson 6th Edition,
Chapters 2 7Knutson (Fourth Edition), Chapter
10

• Farm Policy History

2
Farm Program Options

• Free Market
• Price Supports
• Price guarantees
• Government purchase programs
• Supply Controls
• Land retirement
• Acreage reduction
• Acreage Allotments Quotas
• Direct Payments
• Crop Insurance
• Buyouts

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Historical Overview of U.S. Agricultural Policy

• 1776-1929 The Settlement Period
• 1929-1954 The New Deal Era
• 1954-1970 Flexible Price Supports
• 1970-1996 Coupled Direct Payments
• 1996-Present Decoupled payments

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1776-1929 The Settlement Period

• U.S. declared independence from Great Britain
  largely because of repressive ag policies
• Taxing and controlling exports
• Limiting westward settlement
• Collecting fees on settlers land purchases
• Homestead Act (1862)
• Citizens or any person who intended to become a
  citizen
• Homestead 160 acres of public land
• Purchase at nominal fee after living on the land
  for 5 years

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1776-1929 The Settlement Period

• Morrill Act (1862)
• Donated Public Lands to the States and
  Territories to support Colleges Agriculture and
  the Mechanic Arts
• Hatch Act (1887)
• Established agricultural experiment stations
• Smith-Lever Act (1914)
• Set up the Cooperative Extension system to
  communicate new technologies directly to farmers.

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1929-1954 The New Deal Era

• Following WWI (1920-21) ag prices dropped and the
  farm economy became depressed
• Things got worse through the 1920s and the
  beginning of the Great Depression
• 1929-1932, index of ag prices dropped 56
• 1929-1932, net farm income fell 70
• Did the Farm Depression lead to the Great
  Depression?

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1929-1954 The New Deal Era

• President Roosevelt was elected (1932) on the
  promise of a new deal
• Many program provisions of today began with
  Agricultural Adjustment Act of 1933
• Price Support Loans
• Production Controls
• Commodity Storage
• Crop Insurance

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Agricultural Adjustment Act 1933

• Gave the Secretary of Ag authority to
• Reduce acreage
• Agreements with processors to control prices paid
  to producers
• USDA could spend money to expand markets or
  remove surpluses
• Financed by a processing tax
• Secretary Wallace, The present program for
  readjusting productive acreage to market
  requirements is admittedly but a temporary method
  of dealing with an emergency.
• Milton Friedman, Nothing is so permanent as a
  temporary government program

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Agricultural Adjustment Act 1933

• Consequences of AAA 1933
• Over thrown by the Husac-Mills case over
  processor fees
• Idled millions of acres of land
• 30 million acres of cotton before 33 Act 15
  million afterwards
• Passed AAA 1936 as a replacement
• Basic price support program used for 60 years
• Reduced output by paying producers to idle land
  or kill cattle and sheep
• Financed by drawing money from Appropriated funds

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1929-1954 The New Deal Era

• Farm Credit Administration (June 1933)
• Emergency and long-term credit programs
• Soil Conservation Service (now NRCS National
  Resource and Conservation Service) established in
  1935
• In 1933, federal government began nutrition
  assistance
• Direct distribution of surplus foods, school
  lunch, and food stamps

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1929-1954 The New Deal Era

• World War II brought a new farm program that
  encouraged expanded production
• 49 million acres added to production
• Agriculture Act of 1949
• Last farm bill enacted without an expiration date
• A goal was to transition to peace time levels of
  production
• Permanent Legislation

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1954-1970 Flexible Price Supports

• 1954 Farm Bill
• Gave Secretary discretion on setting support
  prices
• Major program crops treated as a group
• Began to focus on export market potential
• Agricultural Act of 1956 established the Soil
  Bank
• Goal was to adjust supply by taking land (49
  million acres) out of production

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1970-1996 Coupled Direct Payments

• Move toward market orientation
• 1970 and 1973 Legislation
• Introduced income support through direct
  payments to farmers. Payments triggered below
  target price
• Attempt to become more competitive in world
  markets by shifting to direct payments and
  lowering support prices
• Payment Limits
• Production Controls

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The Golden Years

• Early 1970s
• Bad weather in U.S. and around the World
• Russians started buying grain (wheat and corn)
• Prices high parity
• Parity prices that price which today gives a
  unit of the commodity (bushel or pound) the same
  purchasing power as it had in 1910-1914 (the
  Golden Era of Agriculture)
• 73 increase in real net farm income 1970-73
• Land values rose 376 in the 1970s

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1980s _at__at_

• Double digit inflation and depression lead to
  tight money policy of Reagan years
• Exports were shut off
• Prices fell
• Land values dropped
• Farm financial crisis
• Prices rested at the support price and Government
  stocks accumulated

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1980s _at__at_

• Efforts to reduce surplus and government stocks
• PIK (Payment In Kind) 1983
• Switch to Marketing Loans (1985)
• CRP, Conservation Reserve Program (1985)

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1990s Budget/Trade Driven Policies

• 1990 Farm Bill and Budget Reconciliation
• Across the board 15 reduction in direct farm
  payments
• 1996 Farm Bill (Freedom to Farm)
• Decoupled, Fixed income support
• Transition out ?
• Satisfied Budget and Trade issues
• Congress showed no restraint in the face of low
  prices

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Today

• 2002 Farm Bill
• Kept fixed transition payments, now call Direct
  Payments
• Added Counter-cyclical payments, Return of target
  price
• Kept Decoupled provisions

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Lecture 8, Wrap up

• Know the significance of each of the six policy
  periods
• Know the Policy Acts that established the Texas
  AM University System
• Next Class
• Policy Tools (chapter 7)