Feb 6 2004 Am Corn Growers

Slide1: 

Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide Daryll E. Ray Daniel G. De La Torre Ugarte Kelly J. Tiller Agricultural Policy Analysis Center The University of Tennessee

What’s the Situation?: 

What’s the Situation? Crop prices have plummeted in recent years affecting farmers worldwide US is annually paying $20 billion in cash subsidies to farmers; Total for developed countries worldwide is $300 billion Integrated livestock, processors, importers primarily benefit from low crop prices Farmers in other countries accuse US of dumping crops onto the international market at below the cost of production Developing countries can’t provide cash subsidies to offset low crop prices.

Questions: 

Questions Were these policy-caused problems? To a large extent, yes. If so, why didn’t the policies work? Markets and policies work differently in agriculture. What needs to be considered when evaluating alternative policies? Must consider the nature of food and agriculture.

Historically—there have been Two Major Components of Farm\Commodity Policy: 

Historically—there have been Two Major Components of Farm\Commodity Policy Policy of Plenty: Ongoing public support to expand agricultural productive capacity through research, extension and other means Policy to Manage Plenty: Mechanisms to manage productive capacity and to compensate farmers for consumers’ accrued benefits of productivity gains

Critical Changes in U.S. Policy: 

Critical Changes in U.S. Policy Since 1985 “policy makers” believed that to allow exports to drive agricultural growth, markets should be allowed to work This view culminated in the 1996 FAIR Act: Elimination of supply control instrument: set aside program Replaced “price floors” with government payments

Exports Did Not Deliver: 

Exports Did Not Deliver Index of US Population, US Demand* for 8 Crops and US Exports* of 8 Crops 1979=100 *Adjusted for grain exported in meat Exports down to flat for last two decades Domestic demand increases steadily Since 1979, exports have NOT been the driving force in US crop markets

Nature of Crop Markets: 

Nature of Crop Markets Technology expands output faster than population and exports expand demand Market failure: lower prices do not solve the problem Little self-correction on the demand side People will pay almost anything when food is short Low prices do not induce people to eat more Little self-correction on the supply side Farmers tend to produce on all their acreage Few alternate uses for most cropland

Impacts of Low Prices on Farmers in Developing Countries: 

Impacts of Low Prices on Farmers in Developing Countries No protection mechanisms: Pressure to deregulate economy Eliminated tariffs in compliance with trade agreements Unable to provide payments to farmers Mexico: corn price halved and tortilla prices doubled Haiti: from self-sufficient to malnourished Africa and SE Asia in downward spiral

Corn Price: US and Argentina: 

Corn Price: US and Argentina U.S. Corn Price Argentina Corn Price Dollars per Metric Ton US and Argentine prices move together Simple Correlation: + 0.88

Possible Directions: 

Possible Directions Stay the Course Intensify the Free Market Prescription A More Managed Prescription

Stay the Course: 

Stay the Course More of the same Can expect: Continued low prices: $2 corn; $3 wheat $5 soybeans Continued scheduled large government payments in US and developed world Continued accusations of dumping Continued benefits to livestock, importers and agribusinesses

Stay the Course: 

Corn, wheat, soybean prices at $2, $3, $5 per bushel over period Some improvement in rice and cotton prices FAPRI Projected US Prices of Five Major Crops Under Current Farm Policy Stay the Course

Stay the Course: 

Stay the Course Net Farm Income flat through 2011 Large government payments over full period FAPRI Projected US Net Farm Income and Government Payments

Conflicting Views: How to Fix Broken Policy: 

Conflicting Views: How to Fix Broken Policy Free Market Solution Eliminate trade barriers and government distortions And all will be fine if producers and consumers properly adjust to market signals (aaah hah) Farmer Oriented Solution Recognizes unique characteristics of agriculture Policy should recognize farmers’ actual behavior

What If We Did Get Rid of Subsidies: 

What If We Did Get Rid of Subsidies Worldwide price impacts US price impacts Supporting evidence from other countries: Canada Australia Mexico

Intensify Free Markets in Developed Countries: 

Intensify Free Markets in Developed Countries IFPRI IMPACT Percent In 2020, worldwide Corn price increases by less than 3% over baseline Wheat price increases by less than 1% over baseline Rice price increases by less than 2% over baseline

No US Subsidies: US Price Impacts, 2011: 

No US Subsidies: US Price Impacts, 2011 APAC - POLYSYS Baseline No Subsidy Baseline No Subsidy Dollars per Bushel or Pound Corn prices decline slightly, while cotton prices edge upward

No US Subsidies: US Farm Income Impacts, 2011: 

No US Subsidies: US Farm Income Impacts, 2011 APAC - POLYSYS Baseline No Subsidy Baseline Billion Dollars No Subsidy Net Farm income drops by $12 billion or 25% in 2011 Government payments drop by $14 billion or 77% in 2011

Canada: Farmland Planted: 

Canada: Farmland Planted Million Acres Wheat Barley Canola Other Grains Other Oilseeds Canada reduced subsidies in 1990s Eliminated grain transportation subsidies in 1995 Crop mix changed, total acreage remained flat

Australia: Farmland Planted: 

Australia: Farmland Planted Million Acres Wheat Coarse Grains Oilseeds Australia dramatically reduced wool subsidies in 1991 Acreage shifted from pasture to crops All the while, prices declined

Mexico: Farmland Planted: 

Mexico: Farmland Planted Million Acres Corn Dry Beans Wheat Sorghum Green Coffee Sugarcane Mexico eliminated or reduced supports in the 1990s Phased out import quotas under NAFTA Increased acreage of above selected major crops Total crop acreage also increases – 256 million acres in 1991, 265 million acres in 2001

A More “Managed”: 

A More “Managed” Alternative means of managing crop production could be considered Adding to existing CRP acreage Creating a shorter-term CRP-like program Reinstituting: Annual Set-asides Inventory/price support programs Energy crops

Farmer-Oriented Policy Blueprint Example: 

Farmer-Oriented Policy Blueprint Example Elimination of government payments Stock management Set-aside / short-term land retirement program Price support mechanism

Farmer-Oriented Blueprint:US Price Impacts, 2011: 

Farmer-Oriented Blueprint: US Price Impacts, 2011 Baseline No Subsidy Baseline No Subsidy dollars per bushel or pound APAC - POLYSYS Farmer-Oriented Blueprint Farmer-Oriented Blueprint

Farmer-Oriented Blueprint:US Farm Income Impacts, 2011: 

Farmer-Oriented Blueprint: US Farm Income Impacts, 2011 Baseline No Subsidy Baseline billion dollars No Subsidy APAC - POLYSYS Farmer-Oriented Blueprint Farmer-Oriented Blueprint

Farmer-Oriented Blueprint: US Corn Price Variability: 

Baseline } Price band under Farmer-Oriented Blueprint Farmer-Oriented Blueprint: US Corn Price Variability Higher and more stable corn prices

Farmer-Oriented Blueprint: US Net Farm Income Variability: 

Farmer-Oriented Blueprint: US Net Farm Income Variability Baseline } Price band under Farmer-Oriented Blueprint Slightly higher and reduced variability in net farm income

This was Only A Blueprint Example: 

This was Only A Blueprint Example Alternative means of managing crop production should be considered: Adding to existing CRP acreage Creating a shorter-term CRP-like program Energy crops – could be a win-win-win

Conclusions: 

Conclusions Low price policies benefit agribusinesses, integrated livestock producers, import customers US is exporting poverty because it no longer manages supply US farmers would produce nearly the same quantity of aggregate crop output over a wide range of subsidies Trade liberalization, by itself, is not a solution A farmer-oriented policy is possible Changing US policy alone is not enough, international cooperation is needed

Final Point: 

Final Point We May Need to Balance Supply and Demand Globally in the Future Significant additional productive capacity is being brought online in several countries around the world Technological advances now increase yields worldwide May be politically impossible for a nation to do unilaterally