copyright 1998 by peter berck an historical perspective peter berck agricultural and resource...
TRANSCRIPT
Copyright 1998 by Peter Berck
An Historical Perspective
• Peter Berck
• Agricultural and Resource Economics and Policy
Four Types of Program
• Give Away Land, Trees, Minerals, and Grazing
• Direct Support of Prices through Marketing Orders, Target Prices and Loan Rate
• Build Infrastructure: Railroads, Dams, Electric Lines
• Create Financial Institutions: PCA, Land Bank, Crop Insurance
Railroad land grants(1850)
• checkerboard pattern, square miles alternating
• gives railroad near monopoly on land nearby
• 131 million acres
• Railroads sold much of it very quickly and not for much
• Railroads had to carry mail and military at reduced rates
Homestead act (1862)--
– Live and work on 160 acres of 5 years; pay $10-$25; get title
– farm making costs quite large, even with free land; speculators pre-empted (bought at $1.25 acre?) and resold
– 70 million acres from 1868-1879– 100 million acres from 1898 to 1917
Land Grant Colleges
• Morrill Act 1862 land to establish Colleges
• Hatch Act 1890 money for research
• made ag more productive
• got people the hell out of agriculture (Gisser)– 1890 42% of workers in Ag. – 1930 it was 22%; Now, less than 2%
Reclamation act (1902)
• Build Water Projects– users to pay operating costs– government to pay interest on capital costs
• Benefits owners of large tracts in CA– 160 acre limitation, evaded– power subsidy not accounted for (border prices)– prices didn’t cover O&M in CA
Farm Credit
• Federal Farm Loan Act(1916)– Cooperatives of farmers borrowed from 12 Land
Banks, which borrowed by selling bonds in national markets.
• Farm Credit Act (1933) – Provided Production Credit Associations money
to lend for short-term purposes.– Compare this to Gramlin? Banks and more
generally to experience in LDCs.
Taylor Grazing Act(1934)
• 80 million acres to begin with.
• Fees for grazing thought to be too low in north
• Grazing causes pollution
• See LaFrance
Depression
• Farm depression preceded crash of 29.
• No welfare program--no checks in mail– works projects admin-
– civilian conservation corps
– rise of Robert Moses and west side highway
• Rural Electrification• COOPS
– sexton, parliament for writings
– if there is one store in town and one elevator in town, do you want to own it?
Agricultural Adjustment Act (1933)
– marketing orders• generic advertising
• prorate: not entirely conspiracy to raise prices
• also response to chaotic markets
– "the plum deal" incredibly short seasons
– day to day price variance
– support programs• non-recourse loans by
Commodity Credit Corportation
• acreage reduction (set aside)
• had antecedent in govt. attempt to stabilize through futures
Loan Rate
QLQD
Gov’t PurchasesPL
Demand
Supply
Lost Cons. Willingness
AdditionalProducerCostsValue at World Price
Loan Rate Algebra
QLQD
PL
D(p)
S(p)
• X = S (PL) - D(PL)– gov’t purchase
• G = PL X– gov’t cost
Dead Weight Loss
• QD = D(PL)
• QL= S(PL)
• X = S (PL) - D(PL)
• d(DWL)/dPL = ???
XPdqqSdqqDDWL W
Q
Q
Q
Q
L
E
E
D )()( 11
Set Aside
• Suppose S(p) is decreased by setting aside percent of the land: S(p).– Not quite true: worst
land set aside
– Set aside goes unused: also not quite true
PL
D(p)
S(p)
S(p)
Added Cost from Set Aside
Hoosac Mills Decision of ‘36
• made AAA of 33 illegal- 9 Old Men
• government got around by tying to conservation, also voluntary ’36
• Ag. Marketing Agreement Act of ’37: Milk Marketing Orders
• AAA of ’38 Crop Insurance
Dust Bowl
• high plains blew• N.Y. and Washington
dark at noon• Oakies and Arkies
– tractored out?
– blown out
• no rain-- surpluses avoided
• mould board plow– see AJAE cover
– plowed deep, loosened soil
– now use every other year cropping to concentrate moisture
– no till farming
The War till Johnson
• Wars– demand high, restricted
labor
– II, Marshall Plan, Korea
• Then surpluses. – 1.4 billion bu. Of wheat
and 2.0 bu. Of corn in Oct. of 61
– Compulsory wheat supply management rejected in ’63 referendum of farmers.
– Farm Bureau beat Kennedy. Farms Rep. Cause?
They Saw It Coming
• H. A. Wallace foresaw the whole thing. Original sec. knew economics.
• Brannan Tried to shift to an income guarantee
• Rausser (Spec. Asst. to R. Reagan) advocated decoupling– ‘87 Economic Report of President
Target Price-Deficiency Payment
QT
PT
Demand
SupplyPc
DeficiencyPayment
D.W.L.Treasury Outlay
Agriculture and Consumer Protection Act of 1973
• Target Price/Deficiency Payment
• Excess demand--market price high enough
• Russian Wheat Deal
• target price foreshadowed in previous act
‘85 act; base acreage and base creep
– deficiency payment limitation to $50,000 per farm
– set asides required to get deficiency payments– generic commodity certificates: sell surplus on
market– 50 percent plant = 90% deficiency payment– decoupling
And Even Newer Programs
• Export Enhancement a.k.a. Dumping– Not GATT legal; almost gone
• Conservation Reserve– erodable land is bid into reserve– conservation cover for 10 years– size of Maine– increased bird population by hundreds of
millions
No more "farmers"
– bimodal farm size-big and very little• 1.6 million < $40,000 gross sales; 10% gross inc.
• .5 million; $40 and $250; 41% of income
• .1 million; > $250,000; 48% income
• this is from Economic Report of President
• doesn’t add up
• .1 million farmers get 32% of government aid
Modern Agriculture
– trees are great for part timers– wheat particularly subject to returns to scale– tax laws matter a lot for part-timers and cattle– dairy and chickens are an industry. machines,
computers. – flowers depend on marketing/ Israeli coop
FAIR
• Federal Agriculture Improvement and Reform Act of 1996
• Deficiency Payment Replaced by Fixed Payout
• No need to grow program crop
• Export Enhancement Expenditures Below GATT Max
• Save Milk: At the Max