1. The Economics and Politics of U.S. Agricultural Policy James Dunn Pennsylvania State University

2. Since 1990, 17% of political contributions from agriculture have come from sugar growers. Sugar is less than 1% of agricultural output

3. Impact of technological change in agriculture

4. History Started in 1930s as temporary measure Political support remained after depression Farm problems recur regularly Lots of programs – I’ll talk about price and income programs

5. Economics of Agricultural Policy Idea- raise farm incomes, end farm failures Give one time boost Doesn’t work in long run Doesn’t stop farm exit Subsidize large farms more Subsidize rich at expense of others -average farm family has higher income and much higher wealth than the average US household

6. Types of Policies Simple price supports – create surplus that must be purchased and sold at loss – usually exported - expensive Quotas – limit production – make it difficult to expand – quota gains value if sold

7. Price support Government purchases

8. Purchases What do you do with the surplus you buy? If you give it away what about the farmers trying to compete with free food?

9. Quota

10. Capitalization of Programs Farmers learn program will continue Price of land and cows and other specialized assets reflects value to best farmers Artificially high milk prices drive up prices of cows worst farmers still lose money

11. Dairy Cows If milk price is high, what happens to price of cows? Who will pay the most? Do higher cost farmers make any money?

12. Rentable Quota Who will pay the most to rent the quota? How much will they pay? Who will pay the least rent? How much will they pay? Who makes money? Quota in Canada is $20,000/cow

13. Cash Farm Income and Government Payments

14. Agricultural Subsidies

15. Loss of markets Price supports reduce competitiveness in international markets, e.g., loss of soybean exports to Brazilian producers Higher prices stimulate substitution by other commodities in consumption, e.g., high fructose corn syrup (sugar)

16. Some important points Very few farmers House of Representatives based on population – disproportionately urban Senate – two members per state – more rural interests represented Often control of Congress very close –in 2008 –Senate 49-49-2 (independents caucus w/ Dems) –House 232 -200 (3 vacant)

17. Congress Now Senate – –54 Democrats –4 –6 Republicans House of Representatives –232 Republicans –200 Democrats –3 vacant

18. Other Points Farmers vote together In a close election farm vote can be very important No one wants to tell farmers no

20. The Coalition Farmers Consumers Environmentalists Other food sector participants, e.g., fertilizer companies, other agribusiness

23. 2013 Senate Ag Committee white Democrat, blue Republican, red both

24. Program Commodities Feed grains – mostly corn Oil seeds – mostly soybeans Wheat Cotton, rice, sugar, peanuts Dairy products Wool, mohair, honey, dry peas 13% of Farm Bill spending

25. Bio-Fuels Subsidies for corn from ethanol Loans for bio-refineries Corn and soybean prices were very high for several years Vegetable oil prices were very high as well Very little savings in petroleum use

26. Geographic distribution of government payments as a proportion of gross cash income from farming Source: USDA

33. Policy and GATT Small countries walked out in Cancun.

35. Policy and freer trade Free trade agreement with Australia (January 1, 2005) Duties on most industrial goods eliminated Special treatment for agriculture, especially sugar and dairy products Central American Free Trade Agreement was held up over agriculture (sugar) but passed in 2005 NAFTA disputes - many over agriculture (tomatoes, sugar)

36. Concluding Comments Not a big success Very costly Extremely important politically – domestically and internationally With close elections – won’t go away –very important in government shutdown