The Role of Government in U.S. Agriculture

1. The Role of Government in U.S. Agriculture Travis Crisp & Jordan Smith

2. Introduction • This chapter examines the roots of current farm programs, growth in farm programs over time, and possible explanations for the growth of government in the United States.

3. Government Roots in AG • The United States Department of Agriculture is a United States Federal Executive Department . Its purpose is to develop and execute policy on farming, agriculture, and food. It aims to meet the needs of farmers and ranchers, promote agricultural trade and production, work to assure food safety, protect natural resources, foster rural communities and end hunger, in America and abroad.

4. Roots of Current Farm Programs • Governmental efforts were made to intervene extensively in agriculture for most of the twentieth century. Many aspects aspects of current farm programs are firmly rooted in legislation enacted during the Great Depression or the New Deal era, the basic approach can be traced to earlier years.

5. Co-op’s • The Capper-Volstead Act of 1922, developed modern day cooperatives. • This act gave producers the legal right to work together in jointly marketing their products. • Other business firms were legally prohibited from such collusive activity by antitrust laws. • What would the Agricultural market be like today without cooperatives?

6. Federal Farm Board • Created 1929 by President Herbert Hover, who foresaw the farm problem as temporary overproduction and low prices. • The basic idea was to raise prices of wheat, cotton, and other “surplus” products through government purchases and storage. • The board attempted to support farm prices through a government-sponsored grain-storage program, no shortfalls occurred, and the board’s budget soon was exhausted. • The program failed and President Roosevelt eliminated the Federal Farm Board in 1933.

7. The Agricultural Adjustment Act(AAA) • The Agricultural Adjustment Act (AAA) of 1933 established the goals of “parity” prices and incomes in agriculture to raise product prices above the free-market level. • The 1933 AAA signaled a huge increase in government involvement in agriculture in the United States, during the depths of the Great Depression.

8. Prosperity to Poverty • 1910 to 1920 was a period of relative prosperity for U.S agriculture. The war in Europe during the second half of the decade, increased the demand for U.S. products. • 1920 and 1921, U.S. farm prices plummeted as European production recovered more quickly than expected. Corn prices fell from $1.85 to $0.41 per bushel; wheat prices fell from $2.58 to $0.92 per bushel; hog prices fell from $0.19 to $0.065 per pound. • Then came the Great Depression, which held the economy in economic chaos from 1929 to 1939.

9. Causes of the Great Depression • Government intervention in the form of high tariffs, restricted monetary policies, and policies to maintain wages and prices either caused or greatly worsened the economic chaos at that time. • The Smoot-Hawley Tariff Act of 1930, raised import tariffs to the highest levels in the twentieth century. Restrictions on imports by the United States led to retaliations by foreign trading partners. U.S. farm products, dropped immensely following the passage of the tariff bill. • In summery, the government policies during the Great Depression probably could not have been better designed had policymakers wanted to bring about economic stagnation or to prevent economic recovery.

10. New Deal Measures in Agriculture • A broad range of New Deal programs was instituted to deal with the farm problem. • Production controls and price supports • Subsidized food distribution • Export subsidies • Subsidized farm credit • Conservation of land and water resources • Crop insurances and disaster payments • Expanded agricultural research and extension services Programs in all these area are still in effect, although many changes have been made since the program began.

11. Growth of Government Farm Programs • Why did aggregate federal expenditures as a share of GDP increase from 2.5 % in 1929 to around 22 % in 1995 ? • Economist say there are four underlying factors

12. ONE: Modern Industrial Economy • The modern industrial economy has an expanding government sector to deal with the following • Public health: food supply, food safety, and market. • Environment: to protect and conserve the land and natural recourses.

13. Two: Public Goods • This is yet one more justification of the growth of government. • Economist argue that that government coercion is required to over the come free-rider problem. • (free-riders)-are actors who consume more than their fair share of a resource, or shoulder less than a fair share of the costs of its production.

14. Third: Change in Ideology • Over time the publics perception of the appropriate role of government. • Before the new deal era it was thought that the role of government should be a limited one. • Up to the new deal the governments role was a protective one only.

15. Fourth: Emergency or economic crisis • In the past there has only been two forms of crisis War and Business depression. • The new deal was the best example of this expansion of government. • Many of the new deal legislation act were attached with emergency to give the state and local government the power to act accordingly.

16. Summary • Most government programs in agriculture today have roots in pre-1933 farm programs and proposals such as the Capper-Volstead Act, and the Federal Farm Board, almost all current farm programs have a direct link to the New Deal era. • The conventional wisdom has been that the Great Depression resulted from a failure of the market process and that massive government intervention was necessary to stabilize agriculture and the rest of the economy. Evidence, however, demonstrates that government policies of high tariffs, high taxes and monetary mismanagement and prices either caused or greatly exacerbated the chaotic economic conditions of that era. • Consumer groups and the general public recognize that income redistribution is a major force behind U.S. farm programs. A change in public opinion as to the appropriate role of the state, may also be important in the growth of government in agriculture.

17. Talk Time with Travis &Jordan Question: Should the government intervene in agriculture and other areas to regulate and stabilize the economy?