Upload
kaiya
View
21
Download
0
Tags:
Embed Size (px)
DESCRIPTION
The Economics and Politics of U.S. Agricultural Policy . James Dunn Pennsylvania State University. Since 1990, 17% of political contributions from agriculture have come from sugar growers. Sugar is less than 1% of agricultural output Why?. Sugar in New Farm Bill. - PowerPoint PPT Presentation
Citation preview
The Economics and Politics of U.S. Agricultural Policy
James DunnPennsylvania State University
Since 1990, 17% of political contributions from agriculture
have come from sugar growers. Sugar is less than 1% of
agricultural outputWhy?
Sugar in New Farm Bill
• Traditionally sugar program cost nothing• NAFTA changes that Mexican sugar comes
in w/o tariff or quota since Jan 2008• Buy Mexican sugar for 21 cts/lb and sell it
to ethanol producers for 6 cts/lb• $140 million per year cost to taxpayer, plus
much more to consumer ($1.5 bil.)
Impact of technological change in agriculture
History
• Started in 1930s as temporary measure• Political support remained after depression• Farm problems recur regularly• Lots of programs – I’ll talk about price and
income programs
Economics of Agricultural Policy
• Idea- raise farm incomes, end farm failures• Give one time boost• Don’t work in long run• Don’t stop farm exit• Subsidize large farms more• Subsidize rich at expense of others -average farm
family has higher income and much higher wealth than the average US household
Types of Policies
• Simple price supports – creates surplus that must be purchased and sold at loss – usually exported - expensive
• Quotas – limits production – makes it difficult to expand – quota gains value if sold
Price support
Government purchases
Purchases
• What do you do with the surplus you buy?• If you give it away what about the farmers
trying to compete with free food?
Quota
Dairy Cows
• If milk price is high, what happens to price of cows?
• Who will pay the most?• Do higher cost farmers make any money?
Rentable Quota
• Who will pay the most to rent the quota?• How much will they pay?• Who will pay the least rent?• How much will they pay?• Who makes money?
Capitalization of Programs
• Farmers learn program will continue• Price of land and cows and other
specialized assets reflects value to best farmers
• Artificially high milk prices drive up prices of cows
• Poorest farmers still lose money
Loss of markets
• Price supports reduce competitiveness in international markets, e.g., loss of soybean exports to Brazilian producers
• Higher prices stimulate substitution by other commodities in consumption, e.g., high fructose corn syrup
Some important points
• Very few farmers• House of Representatives based on population –
disproportionately urban• Senate – two members per state – more rural
interests represented• Often control of Congress very close - in 2008
– Senate 49-49-2 (independents caucus w/ Dems)– House 232 -200 (3 vacant)
Other Points
• Farmers vote together• In a close election farm vote can be very
important• No one wants to tell farmers no
The Coalition
• Farmers• Consumers• Environmentalists• Other food sector participants, e.g.,
fertilizer companies
DemRepBoth
Senate Ag Committee2008
Program Commodities
• Feed grains – mostly corn• Oil seeds – mostly soybeans• Wheat • Cotton, rice, sugar, peanuts• Dairy products• Wool, mohair, honey, dry peas• 13% of Farm Bill spending
Bio-Fuels
• Subsidies for corn from ethanol• Loans for bio-refineries• Corn and soybean prices are very high• Vegetable oil prices very high• Very little savings in petroleum use
Ratio of government paymentsto farm gross cash income
0.1 - 0.20.2 - 0.250.25 - 0.30.3 - 0.350.35 - 0.40.4 - 0.450.45 or higher
Geographic dependence on direct government payments, 2002Geographic dependence on direct government payments, 2002
Geographic distribution of government payments as a proportion of gross cash income from farming
Source: USDASource:USDA
Main Milk Producing States
Bill. lbs.0 to 55 to 1010 to 1520 to 2535 to 40
Non-controversial Parts
• Can’t fight over everything• Rest is non-controversial
– Research– Extension– Trade– Environment
• No change unless everyone agrees• Inertia
Policy and GATT
• Small countries walked out in Cancun. Why?
Policy and freer trade• Free trade agreement with Australia (January 1,
2005)• Duties on most industrial goods eliminated• Special treatment for agriculture, especially sugar
and dairy products• Central American Free Trade Agreement was held
up over agriculture (sugar) but passed in 2005• NAFTA disputes - many over agriculture
(tomatoes, sugar)
Concluding Comments
• Not a big success• Very costly• Extremely important politically –
domestically and internationally• With close elections – won’t go away