An Historical Perspective Peter Berck Agricultural and Resource Economics and Policy


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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

  • 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)



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


Agricultural Adjustment Act (1933)

    • marketing orders
      • generic advertising
      • prorate: not entirely conspiracy to raise prices
      • also response to chaotic markets


Loan Rate



Loan Rate Algebra

  • 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 = ???



Set Aside

  • Suppose S(p) is decreased by setting aside  percent of the land: 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



The War till Johnson



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



Target Price-Deficiency Payment



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




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