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 –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) – % 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 didnt 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 QLQL QDQD Govt Purchases PLPL Demand Supply Lost Cons. Willingness Additional Producer Costs Value at World Price

Loan Rate Algebra QLQL QDQD PLPL D(p) S(p) X = S (P L ) - D(P L ) –govt purchase G = P L X –govt cost

Dead Weight Loss Q D = D(P L ) Q L = S(P L ) X = S (P L ) - D(P L ) d(DWL)/dP L = ???

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 PLPL D(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 QTQT PTPT Demand Supply PcPc Deficiency Payment 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 doesnt 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