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Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide
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Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide

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The Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide slideshow gives a brief overview of policy barriers farmers face and smart solutions.

The Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide slideshow gives a brief overview of policy barriers farmers face and smart solutions.

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  • 1. Rethinking US Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide Daryll E. Ray Daniel G. De La Torre Ugarte Agricultural Policy Analysis Center Kelly J. Tiller The University of Tennessee
  • 2. Agriculture: In a Policy-Caused Economic Crisis • US commodity prices have plummeted • Lower US prices triggered low prices in international ag commodity markets • Accusations of US dumping • Countries in the South unable to neutralize impacts of low prices AA PC
  • 3. US Six Cereals and FAO Cereals Price Indices 130 FAO Cereals Adoption of Price Index 1996 Farm Bill 110 90 70 US Six Cereal Price Index 50 1980 1985 1990 1995 2000 After 1996 • US prices plummeted • World prices followed AA PC
  • 4. US Net Farm Income and Government Payments 60 Net Farm Income 50 Billion Dollars 40 30 Total Government Payments 20 10 0 1990 1992 1994 1996 1998 2000 Since 1996 US • Government payments are up over 100% • Net Farm Income declined anyway AA PC
  • 5. US Prices and Cost of Production 2001-2002 Average $3.00 $1.00 Cost of Production $2.50 $0.80 $2.00 $0.60 $1.50 $0.40 $1.00 Price $0.20 $0.50 $0.00 $0.00 Corn Cotton • Prices cover only 60 to 75% for cotton and corn, respectively • Even less for other crops AA PC
  • 6. Exports and Government Payments 1.6 25 1.4 US Export of 8 Major Crops* 20 1.2 Index: 1979=100 Billion Dollars 1 15 0.8 10 0.6 5 0.4 US Government Payments Simple Correlation: - 0.27 0.2 0 1979 1983 1987 1991 1995 1999 After skyrocketing government payments following the adoption of the 1996 Farm Bill • US export volume for 8 major crops remained on flat trend *Adjusted for grain exported in meat AA PC
  • 7. US Net Export Acreage 140 for 8 Major Crops 120 100 Million Acres 80 103.6 60 76-85 Average 86.8 40 86-95 Average 77.0 20 96-02 Average 0 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 27 million fewer acres are currently used for eight major crop exports than in the 1976-1985 period AA PC
  • 8. Who Benefits from Low Crop Prices? • Hurts all crop farmers: US and worldwide • Users of agricultural commodities benefit by not paying full cost of production: – Large livestock producers – Agribusinesses: input and machinery, processors, marketing and retailers – Importers – Consumers, if marketing system transmits lower prices AA PC
  • 9. Historical Background • Longstanding publicly supported research and consequent expansion in productive capacity • Implementation of policy mechanisms to manage productive capacity and compensate farmers as consumers accrued benefits of productivity gains AA PC
  • 10. 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 finally materialized in the 1996 FAIR Act: – Elimination of supply control instrument: set aside program – Elimination of non-recourse loan as support price mechanism AA PC
  • 11. Exports Did Not Deliver Index of US Population, US Demand* for 8 Crops and US Exports* of 8 Crops 1979=100 1.6 1.4 US Domestic Demand 1.2 US Population 1 0.8 0.6 US Exports 0.4 *Adjusted for grain exported in meat 0.2 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 • 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 AA PC
  • 12. 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 AA PC
  • 13. Acreage Response to Lower Prices? 120 Eight Crop Acreage Index (1996=100) 100 80 60 Eight Crop Price 40 1996 1997 1998 1999 2000 2001 Since 1996 US • Eight major crops maintain acreage • Eight-crop price drops by 36% AA PC
  • 14. Acreage Response to Lower Prices? 120 Four Crop Acreage Index (1996=100) 100 Four Crop Price Adjusted for Coupled and Decoupled Payments 80 60 Four Crop Price Adjusted for Coupled Payments Four Crop Price 40 1996 1997 1998 1999 2000 Since 1996 • Aggregate US corn, wheat, soybean, and cotton acreage changed little • While “prices” (take your pick) dropped by 40, 30 or 22% AA PC
  • 15. 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 AA PC
  • 16. Corn Price: US and Argentina 200 Argentina Corn Price U.S. Corn Price Dollars per Metric Ton 150 100 50 Simple Correlation: + 0.88 0 1975 1978 1981 1984 1987 1990 1993 1996 1999 US and Argentine prices move together AA PC
  • 17. Continuation of Present US Agricultural Policies • More of the same • Prices and net farm income will remain largely flat • Government payments will remain high AA PC
  • 18. FAPRI Projected US Prices of Five Major Crops Under Current Farm Policy $7.00 $0.70 Rice $/bu. (corn, soybeans, wheat) $6.00 $0.60 $5.00 $0.50 $/lb. (cotton) $/cwt. (rice) $4.00 Wheat $0.40 Cotton Soybeans $3.00 $0.30 $2.00 $0.20 $1.00 Corn $0.10 $0.00 $0.00 2003 2005 2007 2009 2011 • Corn, wheat, soybean prices at $2, $3, $5 per bushel over period • Some improvement in rice and cotton prices AA PC
  • 19. FAPRI Projected US Net Farm Income and Government Payments 60 US Net Farm Income 50 Billion Dollars 40 Total Government Payments 30 20 10 0 2003 2005 2007 2009 2011 • Net Farm Income flat through 2011 • Large government payments over full period AA PC
  • 20. Problems with Continuing Current US Agricultural Policy • Prices projected to remain below the cost of production • Continued “dumping” • Large government payments in the US • Depressed crop prices worldwide AA PC
  • 21. Conflicting Views: How to Fix Broken Policy • Free Market Solution – Eliminate trade barriers and government distortions – Producers and consumers will properly adjust to market signals • Farmer Oriented Solution – Recognizes unique characteristics of agriculture – Policy should recognize farmers’ actual behavior AA PC
  • 22. What If We Did Get Rid of Subsidies • Worldwide price impacts • US price impacts • Supporting evidence from other countries: –Canada –Australia –Mexico AA PC
  • 23. IFPRI - IMPACT No US Subsidies: Worldwide Price Impacts, 2020 25 20 Percent 15 10 5 0 M W Ri Be Po Po Sh C or ilk he ce ef rk ul ee n at tr p y & In 2020, worldwide G oa • Corn price increases by less than 3% over baseline t • Wheat price increases by less than 1% over baseline • Rice price increases by less than 2% over baseline AA PC
  • 24. APAC - POLYSYS No US Subsidies: US Price Impacts, 2011 Baseline No Subsidy 2.5 Dollars per Bushel or Pound 2 1.5 1 Baseline No Subsidy 0.5 0 Corn Cotton Corn prices decline slightly, while cotton prices edge upward AA PC
  • 25. APAC - POLYSYS No US Subsidies: US Farm Income Impacts, 2011 60 Baseline 50 No Billion Dollars Subsidy 40 30 Baseline 20 No Subsidy 10 0 Net Farm Income Government Payments • Net Farm income drops by $12 billion or 25% in 2011 • Government payments drop by $14 billion or 77% in 2011 AA PC
  • 26. Canada: Farmland Planted 70 60 Other Oilseeds 50 Other Grains Canola Million Acres 40 Barley 30 20 Wheat 10 0 1981 1986 1991 1996 2001 • Canada reduced subsidies in 1990s • Eliminated grain transportation subsidies in 1995 • Crop mix changed, total acreage remained flat AA PC
  • 27. Australia: Farmland Planted 60 50 Oilseeds 40 Coarse Million Acres Grains 30 20 Wheat 10 0 1981-85 1986-90 1991-95 1996-00 2001-02 • Australia dramatically reduced wool subsidies in 1991 • Acreage shifted from pasture to crops • All the while, prices declined AA PC
  • 28. Mexico: Farmland Planted 40 Sugarcane 35 Green Coffee 30 Wheat Sorghum 25 Million Acres 20 Dry Beans 15 10 Corn 5 0 1981-85 1986-90 1991-95 1996-00 2001-02 • 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 AA PC
  • 29. Farmer-Oriented Policy Blueprint • Elimination of Government Payments • Stock Management • Set-Aside / Short-Term Land Retirement Program • Price Support Mechanism AA PC
  • 30. APAC - POLYSYS Farmer-Oriented Blueprint: US Price Impacts, 2011 Farmer- Oriented Blueprint 3.5 Dollars per Bushel or Pound 3 No Baseline Subsidy 2.5 2 1.5 Farmer- No Oriented Blueprint 1 Baseline Subsidy 0.5 0 Corn Cotton AA PC
  • 31. APAC - POLYSYS Farmer-Oriented Blueprint: US Farm Income Impacts, 2011 Farmer- Oriented 60 Blueprint Baseline 50 No Subsidy Billion Dollars 40 30 Baseline Farmer- 20 Oriented No Blueprint 10 Subsidy 0 Net Income Government Payment AA PC
  • 32. Farmer-Oriented Blueprint: US Corn Price Variability 5.50 5.00 4.50 4.00 dollars per bushel 3.50 3.00 2.50 2.00 } Price band under Farmer-Oriented Blueprint 1.50 Baseline 1.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 Higher and more stable corn prices AA PC
  • 33. Farmer-Oriented Blueprint: US Net Farm Income Variability 65,000 60,000 55,000 50,000 } Price band under Farmer-Oriented million dollars Blueprint 45,000 40,000 Baseline 35,000 30,000 25,000 20,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 Slightly higher and reduced variability in Net Farm Income AA PC
  • 34. This Is Only A Blueprint 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 AA PC
  • 35. 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 subsides • 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 AA PC
  • 36. Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN 37996-4519 www.agpolicy.org AA PC

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