Chapter 10- Production Controls

8/3/2019 Chapter 10- Production Controls

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Production Controls, PriceSupports, and Current farm

ProgramsJessie Winfree

&Cory Bowden


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Fair Act of 1996

Annual lump sum payments known asproductionflexibility contract payments (Agricultural MarketTransaction Act payments (AMTA)), were to be made

to producers of wheat, feed grains, and cotton. Linked to previous production

But independent of producers production in anygiven year.

Included loan rates for many commodities.


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2002 Farm Bill

Generally increased the level ofgovernment expenditures

Loan rates were increased

Marketing loans and LDPs continuedfor wheat, feed grains, and cotton

Annual lump sum payments werecontinued


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Prior to Fair Act

Participation in price support programs forcotton, rice, wheat, and feed grains was

voluntary to the producer. In the tobacco program, participation was

mandatory and production involved poundageand acreage controls.

The peanut program was similar to thetobacco program but had somewhat moreflexibility in production.


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Target Prices and Deficiency

Payments Target prices were implemented in the Agriculture

and Consumer Protection Act of 1973. Target prices were the effective price-support level

in implementing wheat, cotton, rice and feed grainprograms. If market price fell below the target price, producers

received direct government payments, referred to asdeficiency payments.

Deficiency payments were based on a farms cropacreage base. (FSA offices maintained the recordsfor these crop bases.)


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The CCC and the Nonrecourse

Loan Program The CCCcontinues to serve as the governmentsarmfor acquisition, storage, and sale of surpluscommodities. Department within the USDA

No operating personnel Activities are carried out through the FSA Borrows directly from the federal Treasury Two measures to increase prices:

1. Direct commodity purchases2. Nonrecourse loans


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The CCC and the Nonrecourse

Loan Program In a nonrecourse loan, a participating farmer obtains

a loan from the CCC by pledging a specified quantity ofa commodity as collateral.

They are made at a fixed rate per unit called the loanrate.

It provides a ready source of capital that permits theproducer to store the commodity and delay marketing,thus retaining the potential to obtain a higher price laterin the marketing season if the price increases abovethe loan rate.


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Effects of a Target Price Program

Lost production from the acres takenout of production. Costs are incurred in

planting a cover crop to place the landin a conservation reserve. Input use is distorted because the

acreage-reduction diverted productiveland to lower-valued uses.

Decreased product supply.


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Support Payments Not Linked to

Current Production The Fair Act provided income support for eligible

producers of wheat, feed grains, cotton, and rice forthe 7 year period from 1996-2002.

This removed the link between income-supportpayments and farm prices by providing for annualcontract payments for 7 years.

The 1996 farm bills support for the producers of theaffected commodities had 3 main elements:

1. A 7-year contract between the USDA and eligible producers2. Planting flexibility3. Contract payments


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Loan Rates

Only producers who signed the 7-yearproduction flexibility contracts were

eligible for price support loans forwheat, feed grains, upland cotton, andrice.

All the production of these crops wereeligible for loans.


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Income Support for Soybeans

and Other OilseedsPrior to 1996, there was no target price

for soybeans. The price was supported

through loans and purchases. These producers did not have to sign a

7-year production flexibility contracts.


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Income Support for Sugar

The Sugar Act of 1934 was the first federal sugarprogram. It has been in effect ever since, except for aperiod in the 1970s.

The objectives of the program were to retain theproduction of sugarbeet and sugarcane production inthe US and to ensure adequate sugar supplies atreasonable prices for the US consumer.

A primary policy tool has been the import quota,along with price supports, processing taxes, acreageallotments, production quotas, and assessments onproducers.


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The Tobacco Program

Why has government policy been soimportant in tobacco production?

**Tobacco has a high value per acre($3,000-$4,000/acre).

There are 3 dimensions of tobacco policy:1. Restrictions on smoking in public places

2. Efforts to reduce cigarette consumption

3. Producer price supports


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The Tobacco Program

In 1965, the tobacco program was changedfrom an acreage allotment to a poundagemarketing quota program.

An individual grower could sell no more thanhis poundage quota at the support price.

The tobacco had to be produced in the county

to which its quota was assigned. Owners had to produce their own quota, rent

it in place, or sell it.


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The Tobacco Program

This led to restricted overall output productionbecause of two types of resource

misallocations.1. There was too little production2. Restrictions on transfer of quota prevented production

from moving from higher-cost to lower-cost productionregions


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The Tobacco Program

The tobacco program was terminated inOctober 2004.

Through the tobacco buyout, a growercan receive as much as $10/pound forthe quota in their possession at the timeof the buyout.

The buyout is funded by cigarettecompanies and importers.


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The Honey Program

The honey program was instituted in1950 as a result of events during and

after WWII.During the war, honey was given the

status of a war essential commodity

because it was a substitute for sugarand because beeswax was used towaterproof bombs.


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The Honey Program

As prices dropped, beekeepers lobbiedCongress for a price-support program.

They claimed that many of them werebeing forced out of business andargued that beekeeping was essential

for agriculture because of the pollinationservices provided by bees.


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The Honey Program

The honey program was sent to its grave inthe 1990s by unacceptable high Treasury

costs that resulted from policy changes(increased support prices) that did not resultfrom beekeepers lobbying effects.

During the most of its existence, the program

provided minimal benefits to beekeepers.


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The Honey Program

The fatal problem with the pre-1993 honeyprogram was that when the market price fell

below the loan rate, there were no restrictionson imports.

What makes the 2002 program different isthat the tariffs on imports levied by the

Department of Commerce reduce theattractiveness of imports and likely will keepTreasury costs from ballooning.


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The Wool and Mohair

Program The Agricultural Act of 1949 required

that support prices be set to encourage

annual domestic production of 360million pounds of wool.

The National Wool Act of 1954

established a system of direct incentivepayments to farmers.


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The Wool and Mohair

ProgramA primary policy tool used in the wool

program was a tariff on imports.

This tariff reduced the level of woolimports into the U.S. and raisedrevenues.

These revenues were used to cover thecosts of the direct payments to growers.


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The Wool and Mohair

Program Under this program, domestic consumers pay

more for wool and domestic producers

receive a higher price for their wool. The direct payments were a major portion of

the revenues received by wool producers.

The increase in price associated with these

payments probably increased U.S. woolproduction by approximately 16%.


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The Wool and Mohair

Program The wool program was one of the

program targeted for elimination by the

Clinton administration (1993-2000).Beginning in 1994, the direct payment

portion of the program was phased out,

and this price support for wool wasterminated as of December 31, 1995.


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The Wool and Mohair

Program As a result of low market prices, Wool and

Mohair Market Loss Assistance Programs

were implemented that made producerseligible for payments of 20 cents per poundfor wool shorn in 1999 and (up to) 40 centsper pound in 2000.

Mostly recently, the 2002 farm bill includesprovisions for marketing loans and LDPs forwool and mohair.


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The Wool and Mohair

Program The wool program has been largely a

product of the lobbying efforts of the

domestic wool industry.A variety of reasons have been cited to

justify the wool program, notably

national security, but the rent-seekingtheory of government action is the mostpersuasive.


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The Wool and Mohair

ProgramMohair is the fleece from Angora goats.

The U.S. is an important exporter of

mohair, with approximately 90% of U.S.production being exported.

The primary policy tool of the program

is direct payments like those in the woolprogram.


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The Wool and Mohair

ProgramApproximately 80% of U.S. production

of mohair comes from a few counties in

Texas.As with wool, price supporters for

mohair were phased out during 1994

and 1995, terminated as of December31, 1995, and then reinstated in the2002 farm bill.

Documents

Chapter 10- Production Controls