Agricultural Policies


A (very few) notes on agricultural policies.

Loan rate. Price at which government (commodity credit corporation) will purchase a program crop (e.g. wheat, corn). What really happens is that the CCC loans the farmer money with the crop as collateral. The farmer can then default on the loan and the CCC gets the crop.

Target price. A price guarantee. The government guarantees that the farmer will receive at least the target price. Two cases: The farmer sells the crop to an actual user, that is, a market sale. The government gives the farmer a deficiency payment of target price less market price. Second case. Farmer sells to CCC. Deficiency payment is then target price less loan rate. Either way farmer gets target price from some combination of CCC, market, and treasury.

Set aside. In order to participate in the program (get the goodies described above.) farmers must agree to set aside (not plant to program crops) some fraction (10% or so) of their program acreage.

Export enhancement. Government pays money to subsidize exports of program crops. Competitors call this dumping (selling abroad for less than one sells at home) and it is what we are sore at Japan for.

Flexible acreage. AKA flex acres. Farmers receive no deficiency payments for their flex acres, but they may take corn flex acres and plant them to soy beans. About 10% of base acreage. Allows some market response to differences in price between corn and beans.

Conservation reserve. Something over 30 million acres. About the size of Maine. Government rents land for 10 years. Land is planted with permanent conservation cover. Good for birds. Holds down wheat production. Erodable and other (socially) undesirable land is eligible. Government. takes low bidder as enrolled.

Food Stamps. Government gives away scrip good only for food. Important part of welfare program. Increases demand for food (probably the same as giving away money) and holds down amount of food in storage.

Sugar program. AKA Caribbean Destabilization Program. US has sugar import quotas. Quotas make for high domestic prices. About 20-22 cents per lb. World price much lower. sometimes as low as 5 cents. Because of corn sweeteners (and now improved beet growing technology) US production has grown so large as to make import quotas about nil.

Peanut program. Acreage allotments were used to limit production and raise price. Same basic deal with tobacco. Important to the owners of the allotments. Tobacco program is good for US. Keeps prices high. Peanut program is?was bad. Kids get protein from peanut butter. High prices remove this from their diet.

Marketing orders. Disguised as promoted orderly marketing, the government outlaws smaller and blemished fruit. Real point is to raise the price. Consequence is that too much fruit is grown with attendant use of pesticides and water. Bush administration let the citrus order expire. Currently the stone fruit order (nectarines?) is under attack. Made sense in the 30's when markets really were chaos, but with telephones picking is now pretty much done when there are buyers.

PL480 and school lunch program. Buy food and give to poor foreign nations/school children. expands demand. cuts down on surplus

Dairy program. complicated. point is to raise price of fluid milk. In California, I would guess that raw fluid is worth $10/hundred lb. and program increases value to about $16/hundred. Good for dairy farmers, but part of the unwritten war on children. India and Europe have similar schemes. Excess milk disposed of as cheese. Hence cheese is cheap, but import quotas keep good cheese expensive.

WIC women infant children. free food to the pregnant and nursing poor. coupons dictate what type of food, so gets maximal increase in nutritional status. very effective as preventative health measure. pays for itself (who pays the medical costs of the poor?). meaningless in terms of demand expansion.

Payment In Kind program (PIK). Instead of money, government gave farmers surplus crop back. Machine dealers hated it.

Federal Agriculture Improvement and Reform Act of 1996 (FAIR)

(This summary was written by Rachel Goodhue)

FAIR abolishes the previous American deficiency payment system for major crops, and implements a seven-year market transition program which provides producers with fixed yearly payments. Farmers may grow any crop other than fruits and vegetables on program acreage, in contrast to the previous system, where farmers had to surrender a share of their deficiency payments to reduce their plantings of the program crop below a specified percentage. The dairy support system will be revamped under the new bill, and reductions in dairy support prices will be gradually imposed. All of these changes will reduce government-imposed distortions in the relative price signals received by producers. It is anticipated that producers will become more responsive to world market conditions and that the structure of production will become more flexible. The change in production policy is expected to reduce the basic commodity surpluses that have resulted from previous U.S. agricultural trade policy.

The trade provisions of FAIR are designed to aid the U.S. in competing in a post-GATT trading environment. There is an increased emphasis on increasing value-added American agricultural exports and on establishing market relationships with buyers of American agricultural products Changes in the export credit guarantee programs include a new short-term supplier credit program and a specification of a minimum share of credit guarantees extended for high-value agricultural products. Other programs target credits and credit guarantees for emerging markets and market development. Funding levels for export enhancement programs, which subsidized primarily wheat sales (also other commodities and value-added products) are considerably reduced relative to their fiscal 1995 levels, and are well below the GATT-mandated maximum until 2000, when they are only \$1 million less. In FY1995, in contrast, export enhancement programs were funded at the maximum level allowed by GATT. The one exception to this changed focus is the Dairy Export Incentives Program: the bill specifically requires it to be continued at the maximum volume and funding levels allowed under GATT.