apca agriculture and agricultural policy daryll e. ray university of tennessee agricultural policy...
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AAPPCCAA
Agriculture and Agricultural Agriculture and Agricultural PolicyPolicy
Daryll E. RayUniversity of Tennessee
Agricultural Policy Analysis Center
Congressional StaffWashington DC
January 26, 2007
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High Alert IssuesHigh Alert Issues
• Reason for farm/commodity programs
• Exports—present and future
• Importance of agriculture
• Farm income
• In a “New Era”—prices will never again be below…
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High Alert IssuesHigh Alert Issues
• Reason for farm/commodity programs– Econ 101 says the market self corrects– Response to price, response to price,
response to price
• In a new era—prices will never again be below…
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Ag Policy Did Not Start in 1932Ag Policy Did Not Start in 1932
• Historic policy of plenty– Land distribution mechanisms – 1620
onward– Canals, railroads, farm to market roads– Land Grant Colleges – 1862, 1890, 1994– Experiment Stations – 1887– Cooperative Extension Service – 1914– Federal Farm Credit Act – 1916
• This policy of plenty often results in production outstripping demand
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Characteristics of Ag SectorCharacteristics of Ag Sector
• Agriculture is different from other economic sectors.On the demand side:– With low food prices—
• People don’t eat more meals a day• They may change mix of foods • Aggregate intake remains relatively stable
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Characteristics of Ag SectorCharacteristics of Ag Sector
• Agriculture is different from other economic sectors.On the supply side:– With low crop prices—
• Farmers continue to plant all their acres• Farmers don’t and “can’t afford to” reduce
their application of fertilizer and other major yield-determining inputs
• Who farms land may change• Essential resource—land—remains in
production in short- to medium-run
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Why Chronic Problems In Ag? Why Chronic Problems In Ag?
• Technology typically expands output faster than population and exports expand demand– Much of this technology has been paid
for by US taxpayers
• The growth in supply now is being additionally fueled by– increased acreages in Brazil, etc.– technological advance worldwide
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Why Chronic Problems In Ag?Why Chronic Problems In Ag?
• Lower prices should automatically correct itself—Econ 101 says so– Consumers buy more– Producers produce less– Prices recover—problem solved!
• But in agriculture lower prices do not solve the problem– Little self-correction on the demand side
• People do consume significantly more food
– Little self-correction on the supply side• Farmers do not produce significantly less output
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High Alert IssuesHigh Alert Issues
• Reason for farm/commodity programs
• Exports—present and future
• Importance of agriculture
• Farm family income
• In a new era—prices will never again be below…
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Exports, Exports, ExportsExports, Exports, Exports
• For the last quarter century, exports have been heralded—and continue to be by some—as crop agriculture’s salvation
– Exports is the production safety valve that can rebalance agricultural markets
– Exports will grow at accelerating rates
• As Dr. Phil would say, “So, how has that been workin’ for ya?”
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What About Exports?
10
20
30
40
50
60
70
1975 1980 1985 1990 1995 2000 2005
Bill
ion
Do
llars
Bulk Exports
Total Agricultural Exports
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What About ExportsWhat About Exports
Index of US Population, US Demand for 8 Crops and US Exports* of 8 Crops1979=1.0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
US Population
US Exports
US Domestic Demand
*Adjusted for grain exported in meat
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US Exported AcresUS Exported Acres
Percentage of US acres used to produce crops for export have declined from a high of 43 percent in 1980 and 1980 to 33 percent for 2006
0%
10%
20%
30%
40%
50%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
% of US Acres Producing Crops for Export
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What About Exports?
• Why have exports not fulfilled our hopes?– Export demand is braked by issues of food
security/food sovereignty– International crop production is impacted by:
• Increased acreage: Stage of development• Yield advances: World-wide distribution of
technology• US role as the leading nation in the world
– Politically, economically, technologically, and militarily– And in prices too: Others price off US prices
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Implications for the WTO
• Market access may not be sufficient– May benefit beef and Anjou pears– What about crops covered by the Farm Bill?
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What About Exports?What About Exports?
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Developing competitors: Argentina, Brazil, China, India, Pakistan, Thailand, Vietnam15 Crops: Wheat, Corn, Rice, Sorghum, Oats, Rye, Barley, Millet, Soybeans, Peanuts, Cottonseed, Rapeseed, Sunflower, Copra, and Palm Kernel
Th
ou
san
d M
etri
c T
on
s
US Exports
Developing Competitors’ Exports
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High Alert IssuesHigh Alert Issues
• Reason for farm/commodity programs
• Exports—present and future
• Importance of agriculture
• Farm family income
• In a new era—prices will never again be below…
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Farming-dependent counties, 1998-2000. (Source USDA-ERS)
Farming-Dependent CountiesFarming-Dependent Counties
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High Alert IssuesHigh Alert Issues
• Reason for farm/commodity programs
• Exports—present and future
• Importance of agriculture
• Farm Income – Farm family income??– Measures that reflect net income of farm
program crops??– What about usual financial measures?
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High Alert IssuesHigh Alert Issues
• Reason for farm/commodity programs
• Exports—present and future
• Importance of agriculture
• Farm income
• In a new era—prices will never again be below…
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In Times of Exploding Demand
– The current program will work
– Environmental payments will work
– Rural development payments will work
– Any farm program will work
– NO program at all will work
• But times of exploding demand always come to an end
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Feedstock for EnergyFeedstock for Energy**
0
200
400
600
800
2006 2011 2016
Mill
ion
Tons
Corn Grain Corn Stover Wheat Straw Energy Crop Wood Residue Soybeans
* Does not include forest harvest
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Worldwide Excess Capacity Will Again Be a Worldwide Excess Capacity Will Again Be a Long-run Problem (Despite Ethanol)Long-run Problem (Despite Ethanol)
• Dramatic yield increases in other countries (and in this country)– Cargill, Monsanto, John Deere, etc., etc., etc.
• Acreage once in production will be brought back in– Russia, Ukraine and others
• New Acreage– Brazil– China
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Evaluate Carefully Evaluate Carefully
• Reason for farm/commodity programs
• Exports—present and future
• Importance of agriculture
• Farm family income
• In a new era—prices will never again be below…
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Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN 37996-4519
www.agpolicy.org
Thank YouThank You
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Weekly Policy ColumnWeekly Policy Column
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Some Policy OptionsSome Policy Options
• Continue the Exports/Trade Liberalization Will Save Us Course – Or All We Really Need is Market Access
• Switch to Green Payments based on Conservation/Environmental/ Rural Development Considerations
• Insurance/Farm Savings Accounts
• Policy to Address Crop Agriculture’s Long-Standing Problem—“A Policy for all Seasons”
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Policy for All Seasons• Realistic about the way aggregate
agricultural markets work
• Takes into account consumer behavior
• Takes into account producer behavior
• Recognizes limited ability of exports to rebalance aggregate agricultural markets
• Recognizes demand growth seldom outstrips supply growth for long