1 / 29

The Economics and Politics of U.S. Agricultural Policy

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.

kaiya
Download Presentation

The Economics and Politics of U.S. Agricultural Policy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Economics and Politics of U.S. Agricultural Policy James Dunn Pennsylvania State University

  2. Since 1990, 17% of political contributions from agriculture have come from sugar growers. Sugar is less than 1% of agricultural outputWhy?

  3. 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.)

  4. Impact of technological change in agriculture

  5. 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

  6. 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

  7. 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

  8. Price support Government purchases

  9. 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?

  10. Quota

  11. 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?

  12. 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?

  13. 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

  14. 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

  15. 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)

  16. Other Points • Farmers vote together • In a close election farm vote can be very important • No one wants to tell farmers no

  17. The Coalition • Farmers • Consumers • Environmentalists • Other food sector participants, e.g., fertilizer companies

  18. 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

  19. 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

  20. Geographic distribution of government payments as a proportion of gross cash income from farming Source:USDA Source: USDA

  21. Main Milk Producing States Bill. lbs. 0 to 5 5 to 10 10 to 15 20 to 25 35 to 40

  22. Non-controversial Parts • Can’t fight over everything • Rest is non-controversial • Research • Extension • Trade • Environment • No change unless everyone agrees • Inertia

  23. Policy and GATT • Small countries walked out in Cancun. Why?

  24. 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)

  25. Concluding Comments • Not a big success • Very costly • Extremely important politically – domestically and internationally • With close elections – won’t go away

More Related