A A P P C C A A Farm Policy Farm Policy In a Wilderness Without a Compass (Or GPS) In a Wilderness Without a Compass (Or GPS) Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center Canadian Farm Business Management Council Farm Management Innovation Workshop Ottawa, Ontario May 29, 2007
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APCA Farm Policy In a Wilderness Without a Compass (Or GPS) Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center Canadian Farm Business.
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AAPPCCAA
Farm PolicyFarm PolicyIn a Wilderness Without a Compass (Or GPS)In a Wilderness Without a Compass (Or GPS)
Daryll E. RayUniversity of Tennessee
Agricultural Policy Analysis Center
Canadian Farm Business Management CouncilFarm Management Innovation Workshop
Ottawa, Ontario May 29, 2007
AAPPCCAA
Lost Our Policy BearingsLost Our Policy Bearings
• Without a clue and highly impressionable
– When it comes to farm policy, we seem not to have a clear idea about anything including:
• what the “problem” is or
• what objectives are to be achieved
– So we are willing to believe anything!
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We Seem Willing to Believe that:We Seem Willing to Believe that:
• Staple crops are not sufficiently important to have emergency reserves(oil is sufficiently important)
• Less than full use of farm productive capacity is inefficient (SOP to not use full capacity in other sectors—currently at 77% of capacity)
• Farmers can extract billions of dollars for commodity programs—so they do
• Hence, commodity programs are a waste– do away with them or– pay out the money on some other basis
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What for, Farm Programs? What for, Farm Programs? • To address self-correction problems• Not to enrich agribusinesses• Not to provide cheap feed to livestock
integrators• Not to dump commodities on international
markets• Not to crash commodity prices in
developing countries• Not to be a mark for entrepreneurs to pull
government money through loopholes
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Ag Policy Did Not Start in 1932Ag 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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Why Chronic Problems In Ag?Why Chronic Problems In Ag?
• Lower prices should automatically correct itself– Consumers buy more– Producers produce less– Prices recover—problem solved!
• But in agriculture lower prices do not solve the problem– Little self-correction on the demand side
• People do not consume significantly more food
– Little self-correction on the supply side• Farmers do not produce significantly less output
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Why Chronic Problems In Ag?Why Chronic Problems In Ag?
• Supply and demand characteristics of aggregate agriculture cause chronic price and income problems– On average supply grows faster than
demand (Yes, even with ethanol)
– Agriculture cannot right itself when capsized by low prices
– (Always year-to-year random variability)
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Historically—there have beenHistorically—there have beenTwo Two Major Components of Farm\Major Components of Farm\
Commodity PolicyCommodity Policy
• Policy of Plenty: Ongoing public support to expand agricultural productive capacity through research, extension and other means
• Policy to Manage Plenty: Mechanisms to manage productive capacity and to compensate farmers for consumers’ accrued benefits of productivity gains
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When Policy of PlentyWhen Policy of Plentyis Too Muchis Too Much
• Given agriculture’s inability to quickly adjust to overproduction and low prices, there are 3 policy strategies:– Supply side – Demand side– Just pay money
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Traditional Farm Policy Traditional Farm Policy ElementsElements
• From 1973 (or earlier) to 1996, U.S. domestic farm policy generally included the following elements:
– Base acreage
– Acreage reduction / set-asides
– Nonrecourse loans to support prices
– Government storage of commodities
– Domestic and foreign demand expansion
– Target price for major crop commodities
• Deficiency payments for the difference between target price and market price
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Critical ChangesCritical Changesin U.S. Policyin U.S. Policy
• Since 1985 there has been:
– An export “mindset”
– A movement away from “managing plenty” to supporting income with government payments
• This view culminated in the 1996 FAIR Act:– Elimination of supply control instrument: set
aside program– Replaced “price floors” with government