Transcript An Historical Perspective - University of California, Berkeley

An Historical Perspective
• Peter Berck
• Agricultural and Resource Economics and
Policy
Copyright 1998 by Peter Berck
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
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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
Demand
Gov’t Purchases
PL
Supply
QD
Lost
Additional
Cons.
Producer
Value at World
Price
Willingness
Costs
QL
Loan Rate Algebra
• X = S (PL) - D(PL)
– gov’t purchase
• G = PL X
D(p)
– gov’t cost
PL
S(p)
QD
QL
Dead Weight Loss
QE
QL
DWL   D (q)dq   S 1 (q)dq PW X
1
QD
•
•
•
•
QD = D(PL)
QL= S(PL)
X = S (PL) - D(PL)
d(DWL)/dPL = ???
QE
Set Aside
• Suppose S(p) is
decreased by setting
aside a percent of the
land: a S(p).
– Not quite true: worst
land set aside
– Set aside goes unused:
also not quite true
Added Cost from Set Aside
aS(p)
D(p)
PL
S(p)
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
Demand
PT
Treasury Outlay
Pc
D.W.L.Deficiency
Payment
Supply
QT
Agriculture and Consumer
Protection Act of 1973
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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
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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
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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
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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