chapter 10- production controls
TRANSCRIPT
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Production Controls, PriceSupports, and Current farm
ProgramsJessie Winfree
&Cory Bowden
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Fair Act of 1996
Annual lump sum payments known asproductionflexibility contract payments (Agricultural MarketTransaction Act payments (AMTA)), were to be made
to producers of wheat, feed grains, and cotton. Linked to previous production
But independent of producers production in anygiven year.
Included loan rates for many commodities.
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2002 Farm Bill
Generally increased the level ofgovernment expenditures
Loan rates were increased
Marketing loans and LDPs continuedfor wheat, feed grains, and cotton
Annual lump sum payments werecontinued
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Prior to Fair Act
Participation in price support programs forcotton, rice, wheat, and feed grains was
voluntary to the producer. In the tobacco program, participation was
mandatory and production involved poundageand acreage controls.
The peanut program was similar to thetobacco program but had somewhat moreflexibility in production.
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Target Prices and Deficiency
Payments Target prices were implemented in the Agriculture
and Consumer Protection Act of 1973. Target prices were the effective price-support level
in implementing wheat, cotton, rice and feed grainprograms. If market price fell below the target price, producers
received direct government payments, referred to asdeficiency payments.
Deficiency payments were based on a farms cropacreage base. (FSA offices maintained the recordsfor these crop bases.)
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The CCC and the Nonrecourse
Loan Program The CCCcontinues to serve as the governmentsarmfor acquisition, storage, and sale of surpluscommodities. Department within the USDA
No operating personnel Activities are carried out through the FSA Borrows directly from the federal Treasury Two measures to increase prices:
1. Direct commodity purchases2. Nonrecourse loans
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The CCC and the Nonrecourse
Loan Program In a nonrecourse loan, a participating farmer obtains
a loan from the CCC by pledging a specified quantity ofa commodity as collateral.
They are made at a fixed rate per unit called the loanrate.
It provides a ready source of capital that permits theproducer to store the commodity and delay marketing,thus retaining the potential to obtain a higher price laterin the marketing season if the price increases abovethe loan rate.
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Effects of a Target Price Program
Lost production from the acres takenout of production. Costs are incurred in
planting a cover crop to place the landin a conservation reserve. Input use is distorted because the
acreage-reduction diverted productiveland to lower-valued uses.
Decreased product supply.
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Support Payments Not Linked to
Current Production The Fair Act provided income support for eligible
producers of wheat, feed grains, cotton, and rice forthe 7 year period from 1996-2002.
This removed the link between income-supportpayments and farm prices by providing for annualcontract payments for 7 years.
The 1996 farm bills support for the producers of theaffected commodities had 3 main elements:
1. A 7-year contract between the USDA and eligible producers2. Planting flexibility3. Contract payments
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Loan Rates
Only producers who signed the 7-yearproduction flexibility contracts were
eligible for price support loans forwheat, feed grains, upland cotton, andrice.
All the production of these crops wereeligible for loans.
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Income Support for Soybeans
and Other OilseedsPrior to 1996, there was no target price
for soybeans. The price was supported
through loans and purchases. These producers did not have to sign a
7-year production flexibility contracts.
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Income Support for Sugar
The Sugar Act of 1934 was the first federal sugarprogram. It has been in effect ever since, except for aperiod in the 1970s.
The objectives of the program were to retain theproduction of sugarbeet and sugarcane production inthe US and to ensure adequate sugar supplies atreasonable prices for the US consumer.
A primary policy tool has been the import quota,along with price supports, processing taxes, acreageallotments, production quotas, and assessments onproducers.
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The Tobacco Program
Why has government policy been soimportant in tobacco production?
**Tobacco has a high value per acre($3,000-$4,000/acre).
There are 3 dimensions of tobacco policy:1. Restrictions on smoking in public places
2. Efforts to reduce cigarette consumption
3. Producer price supports
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The Tobacco Program
In 1965, the tobacco program was changedfrom an acreage allotment to a poundagemarketing quota program.
An individual grower could sell no more thanhis poundage quota at the support price.
The tobacco had to be produced in the county
to which its quota was assigned. Owners had to produce their own quota, rent
it in place, or sell it.
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The Tobacco Program
This led to restricted overall output productionbecause of two types of resource
misallocations.1. There was too little production2. Restrictions on transfer of quota prevented production
from moving from higher-cost to lower-cost productionregions
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The Tobacco Program
The tobacco program was terminated inOctober 2004.
Through the tobacco buyout, a growercan receive as much as $10/pound forthe quota in their possession at the timeof the buyout.
The buyout is funded by cigarettecompanies and importers.
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The Honey Program
The honey program was instituted in1950 as a result of events during and
after WWII.During the war, honey was given the
status of a war essential commodity
because it was a substitute for sugarand because beeswax was used towaterproof bombs.
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The Honey Program
As prices dropped, beekeepers lobbiedCongress for a price-support program.
They claimed that many of them werebeing forced out of business andargued that beekeeping was essential
for agriculture because of the pollinationservices provided by bees.
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The Honey Program
The honey program was sent to its grave inthe 1990s by unacceptable high Treasury
costs that resulted from policy changes(increased support prices) that did not resultfrom beekeepers lobbying effects.
During the most of its existence, the program
provided minimal benefits to beekeepers.
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The Honey Program
The fatal problem with the pre-1993 honeyprogram was that when the market price fell
below the loan rate, there were no restrictionson imports.
What makes the 2002 program different isthat the tariffs on imports levied by the
Department of Commerce reduce theattractiveness of imports and likely will keepTreasury costs from ballooning.
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The Wool and Mohair
Program The Agricultural Act of 1949 required
that support prices be set to encourage
annual domestic production of 360million pounds of wool.
The National Wool Act of 1954
established a system of direct incentivepayments to farmers.
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The Wool and Mohair
ProgramA primary policy tool used in the wool
program was a tariff on imports.
This tariff reduced the level of woolimports into the U.S. and raisedrevenues.
These revenues were used to cover thecosts of the direct payments to growers.
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The Wool and Mohair
Program Under this program, domestic consumers pay
more for wool and domestic producers
receive a higher price for their wool. The direct payments were a major portion of
the revenues received by wool producers.
The increase in price associated with these
payments probably increased U.S. woolproduction by approximately 16%.
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The Wool and Mohair
Program The wool program was one of the
program targeted for elimination by the
Clinton administration (1993-2000).Beginning in 1994, the direct payment
portion of the program was phased out,
and this price support for wool wasterminated as of December 31, 1995.
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The Wool and Mohair
Program As a result of low market prices, Wool and
Mohair Market Loss Assistance Programs
were implemented that made producerseligible for payments of 20 cents per poundfor wool shorn in 1999 and (up to) 40 centsper pound in 2000.
Mostly recently, the 2002 farm bill includesprovisions for marketing loans and LDPs forwool and mohair.
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The Wool and Mohair
Program The wool program has been largely a
product of the lobbying efforts of the
domestic wool industry.A variety of reasons have been cited to
justify the wool program, notably
national security, but the rent-seekingtheory of government action is the mostpersuasive.
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The Wool and Mohair
ProgramMohair is the fleece from Angora goats.
The U.S. is an important exporter of
mohair, with approximately 90% of U.S.production being exported.
The primary policy tool of the program
is direct payments like those in the woolprogram.
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The Wool and Mohair
ProgramApproximately 80% of U.S. production
of mohair comes from a few counties in
Texas.As with wool, price supporters for
mohair were phased out during 1994
and 1995, terminated as of December31, 1995, and then reinstated in the2002 farm bill.