Copyright 1998 by Peter Berck

An Historical Perspective

• Peter Berck

• Agricultural and Resource Economics and Policy

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

• 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

QLQD

Gov’t PurchasesPL

Demand

Supply

Lost Cons. Willingness

AdditionalProducerCostsValue at World Price

Loan Rate Algebra

QLQD

PL

D(p)

S(p)

• X = S (PL) - D(PL)– gov’t purchase

• G = PL X– gov’t cost

Dead Weight Loss

• QD = D(PL)

• QL= S(PL)

• X = S (PL) - D(PL)

• d(DWL)/dPL = ???

XPdqqSdqqDDWL W

Q

Q

Q

Q

L

E

E

D )()( 11

Set Aside

• Suppose S(p) is decreased by setting aside percent of the land: S(p).– Not quite true: worst

land set aside

– Set aside goes unused: also not quite true

PL

D(p)

S(p)

S(p)

Added Cost from Set Aside

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

QT

PT

Demand

SupplyPc

DeficiencyPayment

D.W.L.Treasury Outlay

Agriculture and Consumer Protection Act of 1973

• 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– 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• 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

– 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