1. 1 WHAT ARE THE KEY AGRIBUSINESS POLICY ISSUES? Rodney B. Holcomb Fall 2005 Dept. of Ag Economics Oklahoma State University

2. 2 INTRODUCTION u Purpose: –to become aware of agribusiness policy issues & options u Learning Objectives: 1.Become aware of the broad nature of agribusiness. 2.Become aware of policy impacts on agribusiness. 3. Understand agribusiness involvement in agribusiness policy.

3. 3 AGRIBUSINESS--DEFINED u NARROW: FIRMS WHOSE MAIN BUSINESS IS RELATED TO PROVIDING FOOD/FIBER u BROAD: FIRMS + FARMS & RANCHES (Business firms & production ag)

4. 4 AGRIBUSINESS SECTORS FARM SUPPLIES Feed Fertilizer Mach/Equip Fuel Trans Seed Other *Farm/Ranch* Handling/Processing IndustrialFoodFiberOther Retail RestaurantInstitutions

5. 5 AGRIBUSINESS POLICY GOALS u Abundant, readily available supply u Increase domestic & international markets u Less regulations* u Responsive markets u Resist change POLICY AGENDA: Market-oriented with low* government intervention (*) Note: “some” government intervention is sought/expected (i.e., infrastructure, rent-seeking, protective regulations).

6. 6 POLICY IMPACTS ON AGRIBUSINESS 1.TRADE POLICY –Free Trade: »Increased trade volume –exports and imports »Increased agribusiness functions – marketing margins »Increased agribusiness market power »Increased price variability –Marketing Boards: »Decreased role

7. 7 POLICY IMPACTS ON AGRIBUSINESS--continued 2.PRICE/INCOME SUPPORTS –Price Support Loan: »Decreased exports & decreased profit opportunities for grain traders (but producers like it) –Target Price Policy: »Increased competition & increased profit opportunities (producers and traders like this) 3.STOCKS POLICY –Complex; generally less favorable to agribusiness than money reserve policy

8. 8 POLICY IMPACTS ON AGRIBUSINESS--continued 4.PRODUCTION CONTROLS –General reduction in economic activity »Example: Conservation Reserve Program 5.STRUCTURE/RESOURCE POLICY –Cooperative Policy: »Some antitrust exemptions (be as big as you want) »Loan program benefits (e.g. B&I loans) –Research/Patent Policy: »Increased competitiveness/profit opportunities »Possible inefficient allocation of resources & investment dollars u Pork barrel projects, redundant research, etc.

9. 9 POLICY IMPACTS ON AGRIBUSINESS--continued 6.FOOD POLICY –Welfare Programs: »Minimal price impacts (demand vs. effective demand) »Affect food habits –Advertising/Promotion: »Market demand expansion »Possible inefficient allocation of resources (How much bang for the buck?)

10. 10 AGRIBUSINESS INVOLVEMENT IN POLICY FORMATION u OFFENSIVE –Rent-seeking (e.g. requiring biofuels) –Market growth/expansion (e.g. hard white wheat & 2002 Farm Bill) u DEFENSIVE –Minimize cost/profit/volume impacts –Risk reduction (e.g. ethanol and biodiesel tax incentives)

11. 11 AGRIBUSINESS POLICY IN THE 2002 FARM BILL u Major emphasis on value-added agriculture, specifically producer-owned –More specifically in rural areas u Sec. 6401 – Value Added Ag Product Market Development Grants (VADG or VAPG) –Up to $40 million annually through 2007 ($14.5 million in 2005) –Producers/majority-owned producer businesses –Business planning, marketing strategies, working capital

12. 12 AGRIBUSINESS PROGRAMS IN THE 2002 FARM BILL u Ag Innovation Centers –State ag departments, 2 largest producer groups, 4 largest commodity groups, land grant university –Development of value-added programs and centers in many states u Rural Electronic Commerce Extension u RBOG and RBEG u Training Workers for Higher-Valued Crops u Business & Industry (B&I) Loans –For the purchase of cooperative stock –To cooperatives

13. 13 AGRIBUSINESS PROGRAMS IN OKLAHOMA u Oklahoma Agricultural Enhancement & Diversification Act –$250,000/year for loans, applied research grants –Promote agribusiness growth in OK u Oklahoma Agricultural Producers Credit –Currently 30% for new value-added businesses –Can be utilized over a 7-year period –Includes a 15% tax credit for the business, also over 7 years