Innovative Agr-Food Policies: Are They Out There?

Innovative Agr-Food Policies: Are They Out There? Daryll E. Ray University of Tennessee Agricultural Policy Analysis Center Global Agri-Food Forum 2009 Mexico City, Mexico September 17, 2009

U.S. Farm 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

U.S. Ag Policy Did Not Start in 1932 • Historic policy of plenty • Land distribution mechanisms – 1620 onward • Canals, railroads, farm-to-market roads • Land Grant Colleges – 1862, 1890, 1994 • Experiment Stations – 1887 • Cooperative Extension Service – 1914 • Federal Farm Credit Act - 1916 • This policy of plenty often resulted in production outstripping demand

U.S. Farm 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

We have dropped the “Managing Plenty” Part • In the past farm policies included • Floor Price • Supply management tools • Price stabilization and reserves • Over the years and especially since 1996 • All three were eliminated • Replaced with payment programs: • Coupled to price and production (Deficiency Payments) and Decoupled (Direct Payments) • Partially funded insurance schemes • In 2008 added another revenue based insurance scheme (ACRE)

Why Do We Have Chronic Price and Income Problems? The Logic is Straight Forward • Over time, increasing amounts of land have come into production (Just a matter of where) • Technology expands output faster than population and incomes expand demand • Market failure: lower prices do not solve the problem

Why Do We Have Chronic Price and Income Problems? The Logic is Straight Forward • Little self-correction on the demand side • People will pay 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 that will allow it to come back into production when needed

Current U.S. Policy Can CauseEconomic Crisis When supply outruns demand: • U.S. Commodity prices plummet • U.S. grain farmers become wards of the state • U.S. livestock producers, other grain users and farm input suppliers are subsidized • Low grain prices are triggered internationally • Many countries, especially developing countries, are unable to neutralize impacts of low prices • U.S. accused of dumping

Current U.S. Policy Can CauseEconomic Crisis When demand outstrips supply: • Short-Run • Prices explode • Livestock producers go bankrupt • Food prices increase at alarming rates • Countries hoard rather than export • Additional millions become undernourished/starve in developing countries • Long-Run • High prices bring big resources into ag production worldwide • Prices crash again

Food Is Different • From caveman to present • First things first: Secure food to survive (also water) • Last summer we relearned that: • “FOOD RULES”: Countries quickly take drastic measures to protect/secure food supplies • REMEMBER: • With total free trade—same would be true • With increased use of decoupled payments—same would be true • With increased widespread use of insurance—same would be true

Food Is Different • National security issue—just like military security is to countries like the U.S. So … • Countries want to produce domestically as much of their food as possible • Political considerations: • Need to feed the population • Need an orderly exit of workers out of agriculture (eventually) • Not pushed out of agriculture but • Pulled out of agriculture as opportunities arise in the nonfarm sector

Policy for the Future • All Countries • Agricultural and food policy should be driven by the domestic needs of the country • Trade is secondary • Developed Countries • Create system of storable agricultural commodity reserves (provides price floor and makes food available when supply is thin) • Unilateral and multilateral supply management agreements

Policy for the Future • Developing Countries • Invest in agriculture • Labor investment on the part of peasants and small holder agriculturalists • Research, collaborative work between agriculturalists and researchers • Provide production incentives • Design policies that favor feeding the populace

Summary of Unhelpful and Helpful Policies (From a Global Perspective) • Unhelpful: • Relying on payments (when output > demand) • Makes grain farmers wards of state • Shifts price and income problems to farmers in other countries • Subsidizes users of grains (grain prices are pushed below the cost of production) • Subsidizes input suppliers and services of nonfarm agribusinesses ( because “too much” output being produced)

Summary of Unhelpful and Helpful Policies (From a Global Perspective) • Unhelpful: • Relying on payments (when demand > output) • Prices skyrocket • Hoarding all around • Paralyzes trade • Causes additional (excess) resources to be brought into agriculture which wring out slowly • Relying on Insurance • Makes no sense for systemic price and income problems • Ditto all the unhelpful “relying on payments” statements

Summary of Unhelpful and Helpful Policies (From a Global Perspective) • Helpful: • Must be driven by domestic needs • Take into account (as opposed to work against or ignore) the nature of food and agriculture • Invest in agriculture; help farmers become as productive as possible • Provide price stabilization via price bands, food reserves and crop rotations or fallow as needed • Promote and participate in multinational food and price stabilization efforts

A Final Thought • WTO… • Rules suggest that maximizing agricultural trade should be countries’ primary goal • Seems to ignore countries’ overriding need to adequately feed their people • Trade is only one of several means to help secure ample food supplies at reasonable prices • WTO… • Should levy sanctions for dumping on international markets • Encourage—not interfere with—countries’ policies to produce for themselves • Recognize that reserves facilitate—not impede—trade

Thank You

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Innovative Agr-Food Policies: Are They Out There?