January 5-8, 2007 So Why Are There Farm Bills? Daryll E. Ray Blasingame Chair of Excellence Agricultural Policy Analysis Center University of Tennessee

Ag 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  Cooperative Extension Service – 1914  This policy of plenty often results in production outstripping demand

Characteristics 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

Characteristics 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

When Policy of Plenty is Too Much  Given agriculture’s inability to quickly adjust to overproduction and low prices, there are 3 policy strategies:  Supply side  Demand side  Just pay money

Exports, Exports, Exports  For the last quarter century, exports have been heralded—and continue to be by some—as 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?”

What about Exports? Billion Dollars Bulk Exports Total Agricultural Exports

What about Exports? Index of US Population, US Demand for 8 Crops and US Exports* of 8 Crops 1979=1.0 US Population US Exports US Domestic Demand *Adjusted for grain exported in meat

What about Exports? Dollars per Bushel Corn Exports Corn Price Thousand Metric Tons

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

Implications for the WTO  Market access may not be sufficient  May benefit beef and Anjou pears  What about crops covered by the Farm Bill?

What about Exports? Developing competitors: Argentina, Brazil, China, India, Pakistan, Thailand, Vietnam 15 Crops: Wheat, Corn, Rice, Sorghum, Oats, Rye, Barley, Millet, Soybeans, Peanuts, Cottonseed, Rapeseed, Sunflower, Copra, and Palm Kernel Thousand Metric Tons US Developing Competitors

Questions to Ask  When you are provided with an ag policy proposal ask yourself:  Does this proposal take into account the behavior of consumers both domestic and foreign?  Does this proposal take into account what we know about the behavior of producers?

Decoupled/Direct Payments  Examine these using the test I have suggested:  Direct payments—  Do not affect consumer behavior  Do not result in increased exports  Do not result in fewer planted acres when prices are low  Are paid out even when farm prices and income are high  Same is paid when prices are in the tank

In Times of Exploding Demand  The current program will work  Environmental payments will work  Rural developments will work  Any farm program will work  NO program at all will work  But times of exploding demand always come to an end

What Does Agriculture Need?  A “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

Thank You Agricultual Policy Analysis Center