Embed Size (px)
DESCRIPTION
Copyright 2008 The McGraw-Hill Companies 19-3 Economics of Agriculture Economics of Farm Policy Economics of Price Supports Reduction of Surpluses Politics of Farm Policy Last Word Key Terms End Show Economics of Agriculture Extreme Diversity Farm Products or Farm Commodities Food Products Short-Run: Price and Income Instability –Inelastic Demand for Agricultural Products –Fluctuations in Farm Output –Shifts in the Demand Curve for Farm Products
Citation preview
Copyright 2008 The McGraw-Hill Companies19-1
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
19Agriculture: Economics and Policy
Copyright 2008 The McGraw-Hill Companies19-2
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Chapter Objectives• Why Agricultural Prices and Farm
Income are Unstable• Why Huge Numbers of Labor
Resources Have Exited U.S. Agriculture During the Past Several Decades
• The Rationale for Farm Subsidies and the Economics and Politics of Price Supports (Price Floors)
• Major Criticisms of the Price-Support System in Agriculture
• The Main Elements of Existing Federal Farm Policy
Copyright 2008 The McGraw-Hill Companies19-3
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Agriculture• Extreme Diversity• Farm Products or Farm
Commodities• Food Products• Short-Run: Price and Income
Instability– Inelastic Demand for
Agricultural Products– Fluctuations in Farm Output– Shifts in the Demand Curve for
Farm Products
Copyright 2008 The McGraw-Hill Companies19-4
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of AgricultureThe Effects of Changes in Farm Output on Agricultural Prices and Income
D
Qp
Pp
Q0
P
Pn
Pb
Qn Qb
Normal FarmIncome
n
p
b
Copyright 2008 The McGraw-Hill Companies19-5
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of AgricultureThe Effects of Changes in Farm Output on Agricultural Prices and Income
D1
P1
Q0
P
P2
Qn
b
a
D2
Copyright 2008 The McGraw-Hill Companies19-6
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Agriculture• Long-Run: A Declining
Industry–Supply Has Increased
Rapidly Due to Technological Progress
–Demand Has Increased Slowly
–Inelastic With Respect to Income
Copyright 2008 The McGraw-Hill Companies19-7
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Agriculture• Risk Management
Techniques– Futures Markets–Contracting with Processors
–Crop Revenue Insurance
–Leasing Land–Nonfarm Income
Copyright 2008 The McGraw-Hill Companies19-8
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Agriculture• Technology and
Supply Increases• Lagging Demand
–Income Beyond Subsistence
–Population Growth Not as Rapid as Supply
Graphically…
Copyright 2008 The McGraw-Hill Companies19-9
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of AgricultureThe Long-Run Decline of Agricultural Prices and Farm Income
D1
P1
Q0
P
P2
Q1
b
a
D2
S1 S2
Q2
c
Copyright 2008 The McGraw-Hill Companies19-10
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Agriculture• Consequences
–Increased M.E.S.–Agribusiness–Subsidies Boost Farm-
Household IncomeU.S. Farm Employment and Number of Farms 1950-2004
As a PercentageOf Total
Employment
Farm Employment
In MillionsOf PeopleYear
NumberOf Farms,
Thousands1950196019701980199020002004
Source: USDA, Economic Research Service, Commerce Dept.
9.97.14.53.72.93.03.1
171164222
5388396229542440214621722113
Copyright 2008 The McGraw-Hill Companies19-11
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Percentage of the Labor Force in Agriculture, Selected Nations
GLOBAL PERSPECTIVE
EthiopiaMozambique
ChinaIndia
BrazilRussiaJapan
FranceUnited States
Germany
0 25 50 75 100
82.080.3
66.059.2
16.110.2
3.83.2
2.0
Source: World Resources Institute, Latest Data
Economics of Agriculture
2.4
Copyright 2008 The McGraw-Hill Companies19-12
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Farm Policy• Subsidized Since 1930s
–Support for Agricultural Prices, Income, and Output
–Soil and Water Conservation–Agricultural Research–Farm Credit–Crop Insurance–Subsidized Sale of Farm
Products in World Markets
Copyright 2008 The McGraw-Hill Companies19-13
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Agricultural Subsidies, Selected Nations
GLOBAL PERSPECTIVE
SwitzerlandNorway
North KoreaJapan
European UnionTurkey
CanadaUnited States
MexicoAustralia
0 20 40 60 80
6868
6356
3327
2118
17
Source: Organization for Economic Cooperation and Development
Economics of Farm Policy
4
Copyright 2008 The McGraw-Hill Companies19-14
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Farm Policy• Rationale for Farm
Subsidies–Necessities of Life–“Family Farm” Institution–Extraordinary Hazards–Competitive Markets for
Output While Inputs Have Significant Market Power
Copyright 2008 The McGraw-Hill Companies19-15
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Farm Policy• Agricultural Adjustment
Act of 1931–The Parity Concept–Parity Ratio
Parity Ratio =Prices Received by Farmers
Prices Paid by Farmers
Copyright 2008 The McGraw-Hill Companies19-16
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Price Supports• Price Supports• Surplus Output• Gain to Farmers• Loss to Consumers• Efficiency Losses• Other Social Losses• Environmental Costs• International Costs
Copyright 2008 The McGraw-Hill Companies19-17
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Economics of Price Supports
Q0
P
b
c
a
S D
S
Surplus
D
Pe
Qe
Ps
Tax BurdenOf Surplus
Qc Qs
Copyright 2008 The McGraw-Hill Companies19-18
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Reduction of Surpluses• Restricting Supply
–Acreage Allotments• Bolstering Demand
–Gasohol• Criticisms and Politics
–Criticisms of Parity Concept–Criticisms of Price Supports–Symptoms Not Causes–Misguided Subsidies–Policy Contradictions
Copyright 2008 The McGraw-Hill Companies19-19
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
The Politics of Farm Policy• Public Choice Theory
Revisited• Changing Politics• Declining Political Support• World Trade Considerations• Recent Reform
– Freedom to Farm Act of 1996– Farm Act of 2002– Direct Payments– Countercyclical Payments (CCP)– Marketing Loan Program
Copyright 2008 The McGraw-Hill Companies19-20
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
The Sugar Program
• Price Supports and Import Quotas to Guarantee Minimum Price of Sugar to Domestic Producers
• Domestic Costs• Import Quotas• Developing Countries• U.S. Efficiency Loss• Global Resource Misallocation
Last
Word …A Sweet Deal
Copyright 2008 The McGraw-Hill Companies19-21
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Key Terms• farm commodities• food products• agribusiness• parity concept• parity ratio• price supports• acreage allotments• Freedom to Farm Act• Farm Act of 2002• direct payments• countercyclical payments (CCPs)• marketing loan program
Copyright 2008 The McGraw-Hill Companies19-22
Economics of AgricultureEconomics of Farm PolicyEconomics of Price SupportsReduction of SurplusesPolitics of Farm PolicyLast Word
Key Terms
End Show
Next Chapter Preview…
Income Inequality and Poverty
