CHOICES · 2015-07-20 · CHOICES The magazine of food, farm, and resource issues 4th Quarter 2006...

CHOICESThe magazine of food, farm, and resource issues

4th Quarter 2006 • 21(4) CHOICES 209

A publication of theAmerican AgriculturalEconomics Association

4th Quarter 2006 • 21(4)

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Domestic Farm Policy for 2007: Forces for Changeby Stephanie Mercier and Vince Smith

JEL Classification: Q18

The fundamental political rationale of U.S. farm policy,to support and stabilize the incomes of family farmers, hasbeen embodied in farm bills since the early 1930s. U.S.agriculture has changed dramatically since the GreatDepression in ways that matter from the perspective ofpolicy makers. In the 1930s, farm household incomes andwealth were lower on average than nonfarm householdincomes and wealth. In 2006, that situation has reversed.In the 1930s, the average farm size was much smaller thanin 2006, both in land area and value of sales. The types ofproducts being produced were also far less diverse. In the1930s, more than 75% of all farms raised commodity pro-gram crops such as corn and wheat. Today, only about aquarter of all farms grow such crops. In the 1930s, agricul-tural resource policy was focused on enhancing farmlandproductivity. In 2006, preserving natural resourceattributes of that farmland is also a major policy concern.

These changes in structure and focus have created sub-stantive policy issues. Some ideas, such as imposing tighterlimitations on government payments to individual farmsand proposals to target assistance more towards lowincome households, have been sources of controversy forseveral decades. Other issues, such as expanding the scopeof government support to be provided to other commodi-ties, including fruits and vegetables and livestock, are rela-tively new concerns. All are in play in the context of cur-rent debate over the likely shape of the 2007 Farm Bill. Inaddition, since 1994, U.S. farm policy has been con-strained to some degree by the U.S. Government’s com-mitments under the Uruguay Round Agreement on Agri-culture (URAA), as implemented through the WorldTrade Organization (WTO). Further, funding for farmprograms, and therefore the scope and structure of thoseprograms, are contingent on the status of the federal bud-

get during the period in which a new farm bill is debated.The next farm bill is also likely to reflect broader societalinterests, with particular attention paid to the environ-mental and energy impact of farm policy.

Budget IssuesWhen legislators have been faced with substantial federalbudget deficits, as in the 1990s, many farm programs havebeen cut back or eliminated. In contrast, the 2002 FarmBill was developed in a brief era of budget surpluses whenfunding was much less constrained. The March 2001 bud-get baseline released by the Congressional Budget Office(CBO) projected a $5.7 trillion budget surplus in the fed-eral budget over the period 2002-2011. In this environ-ment, farm state members of Congress were able to obtain$73.5 billion of additional funding for the 2002 Farm Bill.The August 2006 CBO baseline assessment paints a verydifferent picture, projecting a ten-year cumulative deficitof $1.8 trillion.

Moreover, this official or ‘status quo’ CBO baselineprojection does not account for the potential extension ofexpiring tax cuts after 2010, changes in the AlternativeMinimum Tax to reduce its adverse tax impacts on mid-dle-class Americans, and the cost of a continuing militaryrole in Afghanistan and Iraq. A separate CBO analysis,which accounted for these impacts, results in annual bud-

Articles in this Theme:What Happens if You Try to Run Current Farm Programs on a

Tighter Budget?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

The Evolution of the Rationale for Government Involvement in Agriculture . . . . . . . . . . . . . . . . . . . . . . . . 221

210 CHOICES 4th Quarter 2006 • 21(4)

get deficits averaging more than $500billion over the next ten years. Inaddition, the increase in the nationaldebt implied by these deficits willraise federal debt service interestcosts. In this fiscal environment,framers of the next farm bill are likelyto have to work with no more thancurrent baseline funding, and con-ceivably less (Figure 1).

Under the budget resolution forfiscal 2006, the House and SenateAgriculture Committees wererequired to cut spending by $3 bil-lion over five years, along with simi-lar cuts required for other Congres-sional Committees. For agriculture,the largest cuts were in commodityand conservation programs and agri-cultural research funding. For recon-ciliation, CBO projected that spend-ing for all mandatory farm programs(including food stamps) over the five-year period 2006-2010 would be$278 billion. Since the effort to makecuts in the fiscal 2006 budget wassuccessful, Congress is more likely torepeat the exercise in the future, fur-ther reducing funding for the 2007Farm Bill.

The Farm Security and RuralInvestment Act of 2002 consisted often separate titles. These includedcommodity and conservation pro-grams, trade (including food aid),nutrition, farm credit, rural develop-ment, agricultural research, forestry,renewable energy, and miscellaneousissues. Under the August 2006 CBObaseline, spending on farm bill pro-grams (other than nutrition pro-grams) is expected to be about $195billion over the ten-year periodbeginning in 2008.1 Proposals fornew programs or modifications tocurrent programs in the 2007 FarmBill will likely have to fit within thebaseline funding level to be projectedby CBO in March 2007.

Changing DemographicsFarm bills are not written in a vac-uum. Although farmers and ruralcommunities are the direct beneficia-ries of farm programs, the interests ofother groups also matter in the cur-rent political environment. In theU.S. House of Representatives, agri-cultural interests are not the forcethey once were. Every decade, seatsare reallocated to states on the basisof new Census population estimatesand Congressional District reappor-tioned by state legislatures. Over thelast 50 years, the regions in whichagriculture is economically importanthave shrunk significantly. An analysisby USDA’s Economic Research Ser-vice (ERS) shows changes in farm-ing-dependent counties between1950 and 2000.2 In 1950, farming-dependent counties were located in

nearly every state. By 2000, thesecounties had dwindled in numberand had become concentrated in abelt 1-2 states wide stretching fromeastern Montana to the Texas pan-handle.

The political implications of thisdemographic shift are important.Data from the 2002 Census of Agri-culture indicate that among all Con-gressional District (representing anaverage of 646,000 residents), fewerthan half contain more than 1,500farmers. Thus, only a minority ofmembers in Congress have substan-tial farm-based constituencies thatare committed to maintaining fund-ing for federal farm programs. More-over, the proportion of families in theUnited States directly involved infarming has become very small,about 2% of the population. MostAmericans have no, or only distant,connections with agriculture as asource of income and a way of life. 1. The current CBO baseline runs for

2007-2016. The $195 billion fig-ure extrapolates spending trends for 2017, the last year of a ten-year baseline for a 2007 Farm Bill, excluding food stamp spending.

2. ERS defines farming-dependent counties as those with at least 15% of income from farming.

Figure 1. U.S. budget projections, 2007-2016.Source: CBO budget baseline, August 2006.

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Many members of the generalpublic who do hold opinions on U.S.farm policy base their views on infor-mation from the mass media, whichis often critical of the distribution offarm program funds. For example, in2001, data on farm program pay-ment recipients disseminated by theEnvironmental Working Groupsparked public interest and debateabout whether wealthy farmers withlarge operations should receive sub-stantial annual government pay-ments. An amendment to sharplylimit payments was added to the Sen-ate version of the 2002 Farm Bill, butdropped from the final legislation atthe insistence of conferees from theHouse Agriculture Committee. Thisissue has already resurfaced in discus-sions about the 2007 Farm Bill, butfaces opposition from commoditygroups, especially rice and cottonproducers in California and theSouth, which include most recipientsof large payments because of thestructure of their farms.

The Evolving Structure of Political Interest Groups

The politics of agricultural pol-icy have generally become more com-plicated over the past two decades.Arguably, the major commodity pol-icy elements of the 1985 Farm Billwere framed to address the concernsof feed grains, cotton, rice, soybean,sugar, wool and mohair and wheatproducers along with environmentalinterest groups concerned about con-servation. Among livestock produc-ers, dairy operators with a price sup-port program to preserve wereprobably the most active participantsin the policy process. Players in thecurrent debate over the future offarm programs are more numerous.In the last Farm Bill, along with theproducers of traditional program

commodities and sugar and dairy,growers of minor oil seeds and pulsecrops sought and acquired loan ratesfor their crops. They too have a stakein maintaining loan rate programs ornegotiating other means of support ifloan rate benefits were to be reduced. In addition, producers of fruitsand vegetables have become activelyengaged in the 2007 policy debate.This is partly because of the increasedimportance of the federal crop insur-ance program as a source of subsidiesand risk management for these com-modities. Beef cattle producers alsohave recently become involved incrop insurance debates as new poli-cies covering grazing land and live-stock price risks have been intro-duced.

Advocates for low income house-hold programs such as food stampsand school lunches and breakfasts arealso participants in farm bill debates,although child nutrition programsare usually handled in separate legis-lation. Further, in addition to envi-ronmental interest groups, advocatesfor renewable energy production arenow active advocates for certain farmbill programs. Given the recent sharpincreases in oil prices and the result-ing expansion of interest in renew-able fuels, lobbyists for the ethanoland biodiesel industries may be effec-tive voices in the writing of the nextfarm bill. These groups seek energy-related incentives or mandates aimedat increasing domestic demand formajor commodities such as corn andoilseeds and reducing exportable sur-pluses. Energy programs that increasedomestic consumption of grains mayalso be viewed benignly by othercountries and could therefore reso-nate with legislators.

Other groups without a directstake in agriculture are also seeking tobe heard in the policy process.Humanitarian groups such as Oxfam

America are raising questions aboutthe adverse impact of U.S. farm pro-grams on farmers in developingcountries. Some conservative or liber-tarian groups, such as the Cato Insti-tute and Heritage Foundation, assertthat farm programs represent corpo-rate welfare and should be ended.

Inertia is also an important factorin policy formation. Gary Beckerpointed out that major policy shiftstend to occur only when the eco-nomic and political benefits ofchange outweigh the costs. Theincreased income flow from farmlandresulting from most U.S. commoditypolicies has led to an increase in thevalue of U.S. farmland over time.Ending some of these programs orreducing the subsidies they providewill inevitably lower land values, withconcomitant impacts on farm wealth.By some estimates, for example,abandoning loan rate programs anddirect payments could reduce pricesfor agricultural land in several statesby 20% or more. Farm interestgroups are deeply concerned aboutsuch effects, and policy makers,therefore, have to be conscious of theimpacts of proposed policy changeson land prices in evaluating the 2007Farm Bill.

Implications of the WTO Agreements for the 2007 Farm BillFor the first time, under the terms ofthe 1994 URAA, agricultural policiesthat affect trade were to be subject toan agreed set of international rules.The URAA also introduced new andbinding procedures to resolve dis-putes between member countriesover whether specific trade policieswere consistent with WTO obliga-tions. Previously, individual membercountries had been able to block theimplementation of panel findings.


In September 2002, the govern-ment of Brazil filed a landmark caseagainst the U.S. Government’s cottonsupport programs, the first in whichone country claimed that anothercountry’s domestic support pro-grams were incompatible with thatcountry’s WTO obligations. Severalimportant elements of Brazil’s claimswere supported by a WTO panel’srulings in August 2004 and were sub-sequently upheld by the WTO appel-late body in March 2005. The WTOpanel found that the United Stateshad forfeited protection under thepeace clause of the URAA by spend-ing more each year on domestic sup-port for cotton between 1999 and2002 than in 1992, the benchmarkyear.3 Further, U.S. price-related sup-port programs had depressed pricesin the world cotton market. TheWTO panel therefore determinedthat the U.S. government must mod-ify or eliminate those programs. Thepanel also found that the Step 2 cot-ton program and U.S. export creditguarantees were export subsidy pro-grams, and should be modified oreliminated.

In response, the U.S. Govern-ment took some steps to bring therelevant programs into compliance.USDA modified the operation of theexport credit program by issuing newregulations, basing fees that countriesmust pay on the risk of nonrepay-ment of loans made under the pro-gram. The Step 2 cotton programwas terminated August 1, 2006,

Congress having let the programcomplete the 2005 marketing year.

The WTO panel report offeredno further guidance on U.S. compli-ance. However, Congress may alsoneed to make changes to domesticprice-related programs, chiefly themarketing assistance loan and coun-tercyclical payments (CCPs), to com-ply with the panel’s findings. In addi-tion, current limits on the use of landfor the production of fruits and vege-tables associated with the direct pay-ment program may have to be modi-fied. Within policy circles, Congressis expected to incorporate anychanges it deems necessary into the2007 Farm Bill and, for reasons ofpolitical balance, will likely makesimilar changes to programs for allcrops, not just cotton.

Since November 2001, WTOmember countries have also beenengaged in agricultural negotiationsin the Doha Round, aimed at furtherreductions in domestic support,improved market access, and elimina-tion of export subsidy programs, inaddition to reforms in trade in ser-vices and market access for manufac-tured goods. However, in July 2006negotiations appeared to collapse,mainly over gaping differencesbetween the United States and othercountries such as India and the Euro-pean Union with respect to agricul-tural provisions, and negotiationswere formally suspended. There iswidespread agreement that TradePromotion Authority (TPA) for thePresident is a necessary prerequisitefor any new WTO agreement toinsulate legislation to implement theagreement from Congressionalamendments. Current TPA legisla-tion expires July 1, 2007, and there isno guarantee it will be renewedbeyond that date. Thus, the DohaRound of WTO negotiations mayhave very few implications for the

2007 Farm Bill. However, some farmgroups are advocating an extension ofthe 2002 Farm Bill for a few yearsuntil the Doha Round can be com-pleted. Under those circumstances,the 2007 Farm Bill could have a veryshort lifetime, and significant policychange could come in response to adelayed Doha Round Agreement.

U.S. negotiators did submit asubstantive proposal to the WTO onagricultural reform in October 2005,whereby the United States wouldreduce the ceiling for its trade-dis-torting domestic programs from$19.1 billion annually under theURAA by 60%, to a maximum of$7.6 billion annually. Had the U.S.proposal been adopted, the U.S.Government would have obligateditself to make changes in many of theprograms that make up the farmsafety net. Congress could respond tosuch constraints in three ways: 1)simply cut program spending, 2)transfer a portion of spending intodirect payments while maintaining areduced farm safety net within thenew caps, or 3) undertake a funda-mental shift from price-related sup-port to decoupled, ‘green box’ pro-grams, including those which addressbroader societal objectives such asconservation and rural development.Whether these policy reform propos-als will now receive much attentionin the 2007 Farm Bill debate is muchless clear, although budgetary pres-sures may be an important drivingforce for some changes in these areas.

In the current policy mix, theU.S. Government provides a portionof support to farmers through greenbox programs that are deemed to beminimally trade-distorting, includingdirect payments and conservationpayments. Other U.S. green boxprograms support development ofinfrastructure or improved economicopportunities through rural develop-

3. The peace clause is contained in Article XIII of the URAA, and exempted countries from actions against their domestic agricultural policies under other Agreements if support remained below the level provided in 1992. It expired in 2004.


ment initiatives and agriculturalresearch programs. To compensatefor potential reductions in price-related subsidies resulting from theBrazil cotton case or a resuscitatedDoha Round, the United Statescould choose to expand funding forthese programs, while phasing out orsubstantially reducing domestic sub-sidies provided by the marketing loanand countercyclical payments pro-grams. Concerns have been raisedabout the use of decoupled directpayments by some farm groups.These groups have argued that a sub-stantial proportion of all direct pay-ments accrue to ‘absentee’ land own-ers who are not involved in farming.Second, such payments drive up landvalues and land rents. Finally, becausedirect payments are not linked toproduction–the very characteristicthat makes them tenable under cur-rent WTO rules–many legislatorsand the general public could perceivethem to be analogous to welfarechecks. This perspective, some farmgroups suggest, could make directpayments vulnerable to Congres-sional reduction in periods of fiscalconstraint.

Other Free Trade AgreementsWhile the Bush Administration hasundertaken the negotiation of 11 freetrade agreements (FTAs)–six in forceand five still underway–no FTA hasdirectly obligated the U.S. Govern-ment to make changes in domesticfarm programs. In fact, U.S. tradenegotiators have steadfastly resistedsuch commitments, reserving domes-tic policy issues for multilateral nego-tiations within the WTO. However,providing increases in market accessfor FTA partners for products thatare protected by the use of tariff-ratequotas incrementally reduces theeffectiveness of U.S. price support

programs for commodities such assugar and dairy. These indirect effectsled the U.S. sugar industry to unsuc-cessfully oppose the Central Ameri-can FTA in 2005, fearing a long-termdegradation in their support system ifmore market access is provided infuture FTAs.

ConclusionsThe 2007 Farm Bill will be devel-oped in a very different political envi-ronment than the 2002 Farm Bill. In2002, Congress and the Administra-tion were enjoying the flexibility inpolicy making provided by substan-tial federal budget surpluses. The2007 Farm Bill will be developed inthe context of official federal budgetdeficits on the order of $300 billionper year, or about 2% of currentGross Domestic Product. Past budgetproposals indicate the Administra-tion is willing to support some reduc-tion in funding for agricultural com-modity programs; this perspectiveresonates with many members ofCongress.

Federal budgetary constraints arealso being reinforced by some recentdevelopments with respect to theobligations of the United Statesunder its WTO commitments. Spe-cifically, the recent WTO DisputeResolution determination in the Bra-zil cotton case, that several elementsof U.S. cotton programs violate U.S.commitments under the 1994 Uru-guay Round Agreement, raises simi-lar questions about U.S. programs forother commodities such as corn, oil-seeds, and wheat. Price supports andthe level of funding for subsidiesderived from marketing loan pro-grams and CCPs have all beenbrought into question. The Brazilcase findings have even raised ques-tions about the validity of direct pay-ments to producers of program com-

modities under the WTO. The U.S.responses to the Brazil Cotton Casefindings, including actions alreadytaken and those that may yet occur,and the U.S. WTO proposal in 2005to cut amber box payments by 60%,reflect both the domestic budgetaryand WTO-related pressures forchanges in the structure and fundingof farm programs.

Other pressures may also comeinto play. Domestic agricultural com-modity groups may resist changes inthe funding and structure of farmprograms that adversely affect farmincomes, farm household wealth, andfarmland values. Changes in farmprograms that fail to largely maintainthe benefits currently accruing to theagricultural sector would be resistedby most farm groups. Within theagricultural sector, however, abroader array of interest groups islikely to be involved in the policyprocess because livestock producersand growers of fruits and vegetablesnow have a more direct stake in arange of federal programs, includingconservation, crop insurance, tradepromotion, and agricultural research.Environmental and wildlife groupswill also seek to maintain and expandconservation programs that improveenvironmental amenities in ruralareas. In the face of recent spikes inenergy prices, a wide range of groupsseeking to reduce reliance onimported petroleum may seek addi-tional incentives or research fundingfor processing agricultural commodi-ties or new dedicated energy cropsinto biofuels.

This mix of budgetary concerns,political commitments under theWTO, and the broadening of issuesto be encompassed in agriculturalpolicy raise an intriguing possibility.While funding for agricultural com-modity programs is almost certainlynot going to be expanded and most


likely will be somewhat reduced, thepotential for substantial changes inthe structure of U.S. farm programsgenuinely exists. Major changescould be made to the marketing assis-tance loan programs and other pro-grams that are linked to domesticproduction. However, farm statemembers of Congress will be reluc-tant to approve substantial reduc-tions in funding for programs thatsupport farm incomes. Therefore,major reductions in existing pro-grams are likely to be offset by expan-sions of other existing programs orintroduction of new programs thatfall into the WTO green box cate-

gory of agricultural support pro-grams. The results of all of these fac-tors, some of them with pressuresmoving in opposite directions, couldmake for a very lively 2007 Farm Billdebate.

For Further Information:Just, R., & Miranowski, J. (1993).

Understanding farmland price changes. American Journal of Agricultural Economics, 75, 156-68.

Westcott, P., Young, C.E., & Price, J.M. (2002). The 2002 Farm Act: Provisions and implications for

commodity markets. Economic Research Service, U.S. Dept. of Agriculture, Agricultural Information Bulletin No. 778, Washington, D.C.

Stephanie Mercier (Stephanie_ [email protected]) is ChiefEconomist, Democratic Staff of theSenate Committee on Agriculture,Nutrition, and Forestry, Washing-ton, DC. Vince Smith([email protected]) is Professor,Dept. of Agricultural Economics andEconomics, Montana State Univer-sity. Bozeman, MT. Seniority isshared equally between authors.




4th Quarter 2006 • 21(4)


What Happens if You Try to Run Current Farm Programs on a Tighter Budget?by Pat Westhoff and Scott Brown

JEL Classification: Q11, Q18

Congress gave the committees writing the 2002 FarmBill permission to increase farm program spending by bil-lions of dollars per year. The committees writing the nextfarm bill are unlikely to have the same luxury.

Since the beginning of the 2002 Farm Bill debate, thefederal budget has gone from surplus to deficit. In early2006, Congress passed a deficit reduction bill that reducedestimated U.S. Department of Agriculture spending by$2.7 billion over the next five years. Unless the budget pic-ture significantly improves, Congress could face pressureto make further cuts in spending on farm and other pro-grams.

Trade agreements are also a factor in writing futurefarm legislation. Under existing World Trade Organization(WTO) rules, Brazil successfully challenged particularaspects of U.S. cotton programs. In the Doha Round ofWTO negotiations, there was general agreement that cer-tain types of producer support should face tighter limits.Those talks were suspended in 2006, in part because of adispute over just how tight the limits on domestic supportshould be.

Current Farm Programs with Less MoneyBudgetary and WTO considerations are certain to beimportant in the next farm bill debate, but it is too early topredict the precise shape of new legislation. Congresscould examine a wide variety of options, including someradical departures from current programs. The one optionCongress seems almost certain to consider is a simpleextension of current farm programs, perhaps with minorchanges required to address budgetary or WTO concerns.

What might such a “status quo minus” approach meanfor U.S. agriculture? We examine three policy options toreduce government farm program spending:

1. a 22.2% reduction in direct payments (DPs), 2. a 47.1% reduction in countercyclical payments

(CCPs), and 3. a 38.0% reduction in marketing loan benefits

(MLBs—loan deficiency payments and marketingloan gains.

Assuming that changes are implemented effective with thecrop harvested in 2008, we estimate that each of theseoptions would reduce government farm program spendingby a total of $5 billion over fiscal years 2008-2012.

Baselines and Analysis ApproachThe point of comparison for the analysis is the 10-yearstochastic baseline prepared by the Food and AgriculturalPolicy Research Institute (FAPRI) based on informationavailable in January 2006 (FAPRI, 2006a). The stochasticbaseline is a set of 500 possible outcomes for U.S. agricul-tural commodity markets. These outcomes share the com-mon assumption that current farm policies remain inplace, but make different assumptions about the weatherand other factors affecting supply and demand.

DPs are fixed and total $5.3 billion per year. In con-trast, CCPs and MLBs depend on market prices—thelower the market price, the greater the payments. Based onFarm Service Agency reports, FAPRI estimates that annualCCPs averaged $2.9 billion, and MLBs averaged $3.5 bil-lion over the 2002-2005 period.

The stochastic baseline projects modest increases inprices for most major crops that reduce average spendingon CCPs and MLBs. For example, average corn prices inthe stochastic baseline rise from less than $2.00 per bushelin the 2005/06 marketing year to over $2.40 per bushel by2010/11. Across the 500 baseline outcomes for the 2008-2012 crop years, baseline CCPs average $2.7 billion per


year, and MLBs average $2.5 billionper year. In many of the stochasticoutcomes, prices are high enoughthat there are no MLBs or CCPs; inother outcomes, low prices result invery large payments.

Some suggest that rapid growthin production of ethanol is likely toresult in strong growth in prices forcorn and other commodities. Ashort-term baseline update, preparedin July 2006 (FAPRI 2006b), pro-jected higher prices than in the sto-chastic baseline used for this analysis.All else equal, higher average marketprices would reduce estimated CCPsand MLBs—and would suggest thatlarger proportional cuts would berequired to achieve a certain level ofbudgetary savings relative to the base-line.

One way to achieve the assumedreductions in payments would be tomake appropriate adjustments to tar-get prices, loan rates, and direct pay-ment rates. Instead, this analysisassumes that those measures remainunchanged at 2002 Farm Bill levels,but that USDA would be instructedto withhold a proportion of eachpayment otherwise due to produc-ers. This approach could raise imple-mentation issues ignored in the anal-ysis. For example, producers couldchoose to forfeit on commodity loansif marketing loan benefits are insuffi-cient to compensate producers formarket prices below the loan rate.

Government Spending by CommodityBy design, each of the three optionswould reduce average governmentfarm program spending by $5 billionover a five-year period (fiscal years2008-2012). In each scenario, theproportional cut in a particular typeof payment is the same across allcommodities. As shown in Table 1,

however, the impacts on governmentspending on each commodity differgreatly across the options.

In the case of direct payments,the results are fairly simple. Cornaccounts for approximately 40% oftotal direct payments in the baseline.Reducing direct payments has onlyvery limited effects on market prices,countercyclical payments, and mar-keting loan benefits. Corn, there-fore, accounts for about 40% of theoverall estimated savings, or about $2billion over the five-year period.Wheat cost savings exceed $1 billionover the same period, with soybeans,rice, cotton, and all the other pro-gram crops sharing the remaining $2billion in cuts.

The picture is more complicatedin the scenarios that cut countercycli-cal payments and marketing loanbenefits. First, the baseline level ofspending on each commodity is sen-sitive to market price projections.Second, changes in CCPs and MLBshave larger effects on commodityproduction and prices than changesin DPs. For example, if reducedMLBs result in acreage shifting out ofcotton and into wheat, the resultingchanges in prices will affect MLBsand CCPs for both commodities.

The three scenarios have very dif-ferent impacts on spending for par-

ticular commodities. Consistent withdifferences in baseline spending,wheat outlays are far more sensitiveto proportional cuts in DPs than tothe corresponding reductions inCCPs and MLBs. Cotton spending isparticularly affected by cuts in CCPs,and soybean spending is mostaffected by changes in MLBs. Forboth corn and rice, proportional cutsin DPs have slightly larger averageimpacts than proportional cuts inother payments.

Producer ReturnsReducing government paymentsreduces estimated per-acre returns(Table 2). For corn, a 22.2% reduc-tion in DPs would reduce annualgovernment payments per base acreof corn by more than $5. Changes indirect payments have only minimaleffects on corn production andprices, so the market value of cornproduction, CCPs, and MLBs are alllargely unaffected. For a producerwith one acre of corn base for everyacre of corn harvested, annual per-acre income would be reduced by alittle over $5 per acre.

Limiting CCPs and MLBs wouldhave no effect on payments if pricesare high, but could have very largeimpacts if prices are low. If CCPs are

Table 1. Impacts on government outlay.

Cut Direct Payments

Cut Counter-Cyclical Payments

Cut Marketing Loan Benefits

(billion dollars, 2008-2012 total)

Corn -2.00 -1.68 -1.24

Wheat -1.08 -0.44 -0.11

Soybeans -0.58 -0.36 -1.38

Upland cotton -0.58 -1.92 -1.40

Rice -0.40 -0.22 -0.37

All other -0.36 -0.38 -0.52

Total outlays -5.00 -5.00 -5.00


reduced by 47.1%, annual cornCCPs are reduced by approximately$5 per corn base acre, averagingacross the 500 stochastic outcomes.The reduction in CCPs would causea slight reduction in corn productionand increase in corn prices, and thesechanges would result in a very slightincrease in the value of corn produc-tion and an even smaller reduction inloan program benefits. The net effectof these changes is to leave averagecorn producer returns down relativeto the baseline by slightly under $5per harvested base acre.

Reducing MLBs by 38.0%reduces corn MLBs and has modesteffects on the market value of cornproduction and CCPs. Overall, corn

producer returns decline relative tothe baseline by a little over $3 perharvested base acre. Note that theseproducer return estimates for cornare consistent with the estimates ofgovernment spending—reducingDPs has the largest effect on cornproducers, followed closely by reduc-tions in CCPs, with reductions inMLBs having the smallest effects.

The patterns for other crops arealso consistent with the governmentexpenditure results. For soybeans,restrictions on MLBs have the largestnet effects on producer income,while limitations on DPs are of great-est importance to wheat producerincome, and reductions in CCPshave the largest impacts on cotton

producer income. In all cases,changes in the market value of pro-duction are small relative to thechanges in government payments.

An important note of caution isin order: for sake of simplicity, thereported calculations of per-acrereturns assume producers have onebase acre of the commodity in ques-tion for every acre they harvest. Thisis not the norm. For the country as awhole, base acreage for wheat, corn,and upland cotton exceeds harvestedarea, while the reverse is true for soy-beans. On particular farms, theremay be little or no correlationbetween the current crop mix and thebase acreage used to determine DPsand CCPs.

Market ImpactsReducing government payments hasimportant impacts on producerincome, but has only modest impactson crop production and prices (Table3). Market effects are especially smallwhen DPs are reduced. DPs do notrequire production of any particularcrop, or even of any crop at all, andthe payments are unaffected bychanges in market prices. One minorrestriction is that DPs are not avail-able if base acreage is used to producefruits, vegetables, or dry beans. Econ-omists differ in their estimates of justhow much such largely “decoupled”payments affect production choices,but most would agree that any pro-duction effects of such payments arelikely to be smaller, on a dollar-for-dollar basis, than effects of paymentsthat are more closely tied to produc-tion or prices.

Reducing CCPs has only slightlylarger impacts on production andprices. Like DPs, CCPs are not tiedto production of particular crops oreven of any crop at all. However,CCPs are affected by changes in mar-

Table 2. Impacts on producer returns.

Cut Direct Payments

Cut Counter-cyclical Payments


(dollars/acre, 2008-2012 average)

Corn

Market value 0.18 0.39 0.17

Payments -5.49 -5.05 -3.59

Sum -5.31 -4.66 -3.41

Soybeans


Payments -2.63 -1.96 -4.74

Sum -2.48 -1.95 -4.32

Wheat

Market value 0.13 0.14 -0.12

Payments -3.42 -1.35 -0.46

Sum -3.29 -1.22 -0.58

Upland cotton


Payments -7.65 -30.29 -20.61

Sum -7.58 -28.51 -16.81

Notes: Market value and loan benefits are reported per harvested acre. Direct and countercyclical pay-ments are reported per base acre. Total payments and the sum of payments and market value are reported per harvested base acre. For individual producers and the country as a whole, base area and har-vested area differ significantly.


ket prices—within certain ranges,lower season-average prices translateinto larger CCPs. As a result, CCPsmay play a price insurance role notplayed by DPs, and thus might beexpected to have slightly largerimpacts on production. Only in thecase of cotton (the crop most depen-dent on CCPs) does estimated acre-age change as much as 1% whenCCPs are reduced by 47.1%.

MLBs, in contrast, are only avail-able on actual production. Becauseproducers have to harvest the crop toget MLBs, it seems reasonable toexpect that changes in MLBs wouldhave larger impacts on crop produc-tion patterns than changes in DPs orCCPs. When MLBs are reduced,estimated acreage declines for cropsmost dependent on MLBs in thebaseline—cotton and soybeans—butactually increases slightly for wheat,the major crop least dependent onMLBs in the baseline. Note that eventhough cotton producers are moredependent on CCPs than MLBs,estimated effects of reductions inMLBs on cotton acreage are largerthan the estimated effects of reduc-tions in CCPs.

Even in the case of reducedMLBs, the main effect of reducedpayments is to encourage producersto shift production from one crop toanother, rather than to reduce theoverall amount of land used for cropproduction. Total acreage devoted toproduction of 12 major crops onlydeclines by a little over 0.1% whenMLBs are reduced by 38.0%.

Net Farm IncomePolicy changes that reduce govern-ment spending by $5.0 billion overfiscal years 2008-2012 are estimatedto reduce net farm income by $3.3billion to $3.9 billion over calendaryears 2008-2012 (Table 4).

As discussed, the three options toreduce government spending haveonly small impacts on crop produc-tion and prices, so it should not besurprising that crop and livestockreceipts are largely unaffected. Whatmay be surprising is that the reportedchanges in government payments sig-nificantly exceed the $5 billionchange in government outlays. Thisoccurs primarily because of differ-ences between the fiscal years used tomeasure farm program spending andthe calendar years used to report netfarm income. Payments madebetween October 1 and December31, 2012 would affect net farmincome for calendar years 2008-2012, but not farm program spend-ing for fiscal years 2008-2012, aperiod which ends on September 30,

2012. This seemingly arcane pointmay be more important than itseems, as budgetary rules requireCongress to stay within spendinglimits over a specified period of fiscalyears, not calendar years.

Reductions in payments do nothave a dollar-for-dollar effect on netfarm income. Smaller governmentpayments reduce the value to produc-ers of rented farmland, so over timeone would expect rental payments tononoperator landlords to adjust. Inother words, at least part of theimpact of lower government pay-ments is absorbed by landlords.Other production expenses alsodecline in response to lower pay-ments.

Table 3. Impacts on acreage and prices.

Cut Direct Payments



(2008-2012 average)

Corn

Acreage -0.01% -0.07% -0.02%

Prices 0.05% 0.11% 0.05%

Soybeans

Acreage -0.03% 0.04% -0.08%

Prices 0.06% 0.00% 0.18%

Wheat

Acreage -0.13% -0.10% 0.27%

Prices 0.08% 0.09% -0.08%

Upland cotton

Acreage -0.04% -1.00% -2.18%

Prices 0.01% 0.38% 0.82%

12 crops*

Acreage -0.06% -0.11% -0.12%

*Corn, soybeans, wheat, upland cotton, rice, sorghum, barley, oats, sunflowers, peanuts, sugar beets, and sugarcane.


WTO ConsiderationsWTO considerations could also haveimportant impacts on the design ofnew farm legislation. In response to aWTO ruling on a case brought byBrazil, the United States has alreadyeliminated a program subsidizing theuse of U.S. cotton and modified itsexport credit program. Brazil hasargued that further changes in otherU.S. farm programs are also requiredby existing WTO rules.

Before negotiations for a newWTO agreement were suspended,the United States tabled a proposal inOctober 2005 that would place lim-its on certain types of producer sup-port programs. The U.S. proposalwould have reduced the allowed levelof “amber box” support from $19.1billion per year to $7.6 billion peryear. Based on past U.S. reports tothe WTO and discussions with U.S.officials, we assume that U.S. amberbox support would include govern-ment spending on the marketingloan program for grains, oilseed, andcotton, as well as the imputed valueto producers of the dairy and sugar

price support programs (these valuesare set by a formula tied to currentsupport prices and past world prices,and generally far exceed actual bud-getary expenditures on the dairy andsugar programs).

Whether the United States wouldhave to make changes in farm pro-grams to comply with its proposedlimits on amber support is a matterof contention. If market prices arehigh, marketing loan expendituresare low, and it is conceivable thattotal U.S. amber box support couldfall below the proposed limit with nochanges in current policies. However,low prices could translate into largemarketing loan benefits that wouldcause measured levels of U.S. amberbox support to balloon.

In 53% of the stochastic out-comes for 2012, the baseline level ofU.S. amber box support wouldexceed the proposed $7.6 billionlimit. Reducing DPs or CCPs wouldhave only minimal impacts on thisproportion. Reducing marketingloan benefits by 38%, however,would reduce the proportion of out-

comes exceeding the U.S.-proposedlimit to 37%. One reason the pro-portion does not decline even moresharply is that imputed support fromthe dairy and sugar programs makesup a very large share (approximately$6.4 billion) of the total, and theassumed policy changes would haveno effect on that estimate.

The U.S. proposal would alsoredefine “blue box” support toinclude CCPs, and limit such sup-port to $4.8 billion per year. In 11%of the baseline stochastic outcomesfor 2012, CCPs would exceed thisproposed limit. Reducing DPs orMLBs would have little or no impacton this proportion, but reducingCCPs by 47.1% would eliminate anypossibility of exceeding the proposedcap on blue box support.

If the U.S. proposal wereadopted, there could be pressure toplace limits on MLBs and CCPs andto make changes in the sugar anddairy price support programs. Onepractical question could be how onegoes about deciding what probabilityof exceeding support limits is accept-able? If policies would result in sup-port exceeding proposed limits 37%(or 20% or 10% or 5%) of the timegiven normal variation in marketprices, is that sufficient, or are furtherreductions in support levels neces-sary?

Other countries have soughtdeeper cuts in U.S. supports than inthe October 2005 U.S. proposal. Ifthe negotiations resume, there islikely to be continued pressure on theUnited States to put in place strictlimits on producer support measures.MLBs and CCPs are especially likelyto be under close scrutiny, and evenin the case of DPs, some policychanges may be needed to ensurethat payments qualify for the “greenbox” designation that would makethem exempt from limits.

Table 4. Impacts on net farm income.

Cut Direct Payments



(billion dollars, 2008-2012 totals)

Crop receipts 0.04 -0.06 -0.19

Livestock receipts 0.02 0.03 0.07

Gov't payments -5.33 -5.68 -5.11

Sum of above -5.27 -5.70 -5.24

Rental payments -1.44 -1.42 -1.29

Other expenses -0.36 -0.58 -0.90

Total expenses -1.80 -2.00 -2.19

All other net income -0.17 -0.16 -0.23

Net farm income -3.64 -3.86 -3.27


Other ScenariosThe discussion here has focused onsimple modifications to current farmprograms. The last two farm billshave made significant shifts in policy,and it is very possible that the nextfarm bill may also result in a changein direction.

WTO concerns may encourage atleast some consideration of alterna-tive policy directions. The variabilityin spending on marketing loan andCCP programs complicates efforts tostay within the types of limits onamber and blue box subsidies thathave been proposed. Our results sug-gest, for example, that with a scaled-back version of current policies, theaverage level of support provided toproducers would have to be wellbelow the proposed limits in order tomake sure that the limits are notexceeded when prices are lower thananticipated. Likewise, some mightexamine the sugar and dairy pro-grams to see if there might be a wayto provide a similar level of supportto producers without such a large

charge in terms of amber box supportmeasures.

Purely domestic concerns couldalso encourage examination of otherpolicy options. For example, somehave suggested examining policiesthat make payments tied to producerrevenue shortfalls rather than to mar-ket prices. Other groups importantin the farm bill debate—rangingfrom environmental groups to bio-fuel advocates to budget hawks—arealso likely to recommend other pol-icy options. While many options willbe considered, current programs arelikely to serve as a benchmark, andbudgetary and WTO concerns arelikely to receive considerable atten-tion in choosing among the alterna-tives.

For More InformationFood and Agricultural Policy

Research Institute (FAPRI). (2006a). FAPRI 2006 U.S. Baseline Briefing Book (FAPRI-UMC Report #01-06). Columbia, MO: University of

Missouri Food and Agricultural Policy Research Institute. Available online: http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_1_06.pdf

Food and Agricultural Policy Research Institute (FAPRI). (2006b). FAPRI July 2006 Baseline Update for U.S. Agricultural Markets (FAPRI-UMC Report #12-06). Columbia, MO: University of Missouri Food and Agricultural Policy Research Institute. Available online: http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_12_06.pdf.

Pat Westhoff ([email protected]) is Research Associate Pro-fessor and Scott Brown([email protected]) is ResearchAssistant Professor, Department ofAgricultural Economics, University ofMissouri, Columbia, MO.

http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_12_06.pdf

http://www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_12_06.pdf

mailto:westhoffp@missouri.

mailto:[email protected]




4th Quarter 2006 • 21(4)


The Evolution of the Rationale for Government Involvement in Agricultureby Otto Doering and Joe L. Outlaw

JEL Classification Codes: Q18, Q10

Before change can be introduced successfully, we have toknow why we are where we are today. This is as true of pol-icy as it is of individual behavior. There are a number ofsuggestions for substantial change in our agricultural pol-icy. Few address up front the issue of whether governmentshould be involved in agriculture. Thinking about the evo-lution of today’s policy may encourage us to dig a littledeeper into our objectives for agricultural policy and askwhether we are attempting to reach these most effectively.

BackgroundThe Jeffersonian notion of agricultural fundamentalismwas more a rationale for a kind of democratic societyrather than a rationale for government involvement inagriculture. This prescribed the maintenance of a popula-tion of yeoman farmers who would be the backbone ofdemocracy as small, independent-propertied individuals.The Louisiana Purchase extended the opportunity for theexpansion (geographically and in numbers) of this citi-zenry, while shutting out the British and the Spanish. Gov-ernment’s involvement in agriculture for the first hundredyears was largely land policy (Northwest Territories Actand Lewis & Clark expedition, for example) to create aproperty survey and rights system and settle the centralexpanse of the country and the land west of the Missis-sippi. The creation of the extensive public domainthrough expansion also involved moving these lands intoprivate hands through veterans’ programs and homesteadacts.

Government also helped create infrastructure – themost notable early example being the Erie Canal, whichopened up the middle of the country to export markets inEurope and set the future for New York as the commercialcenter of the nation. Agricultural interests agitated for

public infrastructure that would ease the transport ofgoods to market. Later came support for railroads, andultimately the regulation of rail rates to prevent monopolycharges for transport of agricultural inputs and commodi-ties.

In the 1860s, the Department of Agriculture wasestablished and both the Homestead Act and the MorrillAct were passed. All three were critical to the developmentof agriculture and all three brought benefits to the farmer,providing resources and infrastructure, but not proscribingproduction. The rationale for these actions was one ofhelping agriculture prosper and with it the economicdevelopment of the country. Monetary policy and tradealso became key issues for agriculture.

One early major role of the Department of Agriculturehad been seed distribution. However, under Secretary ofAgriculture, Wilson (in the early 1900s), the Departmentbecame a scientific establishment capable of leading agri-cultural research. The early 1900s were a golden age foragriculture. From the Civil War, agriculture had sufferedthrough both the nation’s business cycles and the extensionof agricultural lands and production that constantly drovedown prices. In the early 1900s, the frontier closed andindustrialization and immigrant population growth surgedand increased net demand for agricultural commodities. Itis no accident that farmers chose 1909 to 1914 as the basefor parity.

Yet, rural agriculture was still disadvantaged relative tourban industry. Teddy Roosevelt’s Country Life Commis-sion (1908) looked into the deficiencies of agriculture andcountry life and the means by which they might be reme-died. From this report came rural free mail delivery, theSmith Lever Act and the state experiment stations, andimprovements in rural health and education. Whatever


the rationale, the tradition of govern-ment involvement in agriculture wasstill indirect, helping stimulate settle-ment, defining boundaries and prop-erty rights, building transportationand infrastructure, and improvingcommunications, technology, andeducation. It was not until the greatagricultural collapse after the FirstWorld War that government, with arationale born of prolonged depres-sion, began to enter directly intoagricultural markets, production, andthe livelihood of farmers.

Agricultural prices broke aroundthe world in the summer of 1920.This was a quick end to the bubble ofland prices and input costs that hadbeen occurring since the First WorldWar. A national agricultural confer-ence assembled in 1923 that calledfor economic equality for agriculture(a fair share of the national income)and adjustment of farm productionto demand. From 1923 on, farmgroups lobbied for governmentaction to relieve rural distress. TheMcNary-Haugen Bill became thecentral vehicle for a policy to helpagriculture. This policy would allo-cate a reduced portion of the crop todomestic demand and raise domesticprices, while the “surplus” would goto the export market. Now govern-ment is seen in a price and supplydetermining role. The AgriculturalMarketing Act of 1929 put the gov-ernment in the role of influencingmarkets with a Federal Farm Boardadministering a revolving fund of500 million dollars to loan to cooper-atives to store and withhold com-modities. This proved to be futile(Benedict, 1953).

By 1933, the exchange value offarm products to industrial goodswas 50% of the pre-war average(Davis, 1940, p. 313). The casheconomy in rural areas had ground toa halt. When the Roosevelt Adminis-

tration came to Washington, therewas fear that there would be revolu-tion in the countryside if somethingwere not done.

The New Deal prescribed a newrole for government involving directintervention into markets and indi-vidual production decisions by farm-ers. Much of the discussion of theperiod was about raising rural stan-dards of living to be more compara-ble to urban standards. This was dif-ferent from the earlier concept ofpurchasing parity based on the 1909-1914 relative industrial and agricul-tural costs and prices.

Chester Davis, in the 1940 Agri-cultural Yearbook, set forth a broadview of the range of governmentactions that affected agriculture incontrast to the narrow view that onlyFarm Bills affected the sector

“A nation’s agricultural pol-icy is not set forth in a singlelaw, or even in a system oflaws dealing directly withcurrent farm problems. It isexpressed in a complexity oflaws and attitudes which, inthe importance of theirinfluence on agriculture,shade off from direct mea-sures like the AgriculturalAdjustment Act through thealmost infinite fields of taxa-tion, tariffs, internationaltrade, and labor, money,credit, and banking policy”(Davis, p. 325).

Today we can add environmentalpolicy, food safety, and more. Thesethings now set the larger environ-ment for agriculture, and like PaulVolker’s decision to stop inflation inthe early 1980s, can be the overridinggovernment influence on the sector.

Where does this leave us? Thebroadening of interests and policyimpacts works both ways. Policiesthat are not thought of as agricultural

can have a determining impact onagriculture. In addition, what arethought of as agricultural policies(the “Farm Bill”) can exert stronginfluence on areas beyond the narrowscope of agriculture. As such, thesebroad aspects become part of the fab-ric of what happens in agricultureand beyond.

Reviewing the LegislationA review of the preambles to 14major pieces of agricultural legisla-tion from 1933 to 2002 (generallythose we now refer to as Farm Bills)provides another characterization ofthe evolution of the rationale for gov-ernment involvement agriculture.These broadly defined categories ofgoals – both explicitly stated and/orimplicitly implied reflecting pro-grammatic intent as determined bythe authors – are portrayed in Figure1. Generally, the goals (as indicatedin Figure 1) are the perceived prob-lems that the programs provided forin the legislation attempted to allevi-ate. A few broad conclusions can bemade from reviewing the goals. First,many of the goals have been consis-tently addressed over time. Second,there have been very few recentchanges in direction other than mak-ing agricultural programs moreresponsive to market forces and pro-moting agriculture as an alternativesource of energy.

Asking Questions about the RationaleThere has only been one attempt inrecent decades to determine somenational rationale for agriculturalpolicy. In 1994, the staff of the Sen-ate Committee on Agriculture,Nutrition and Forestry prepared forSenator Richard Lugar a set of ques-tions on prospective farm policy thatwere circulated around the country


(Schertz & Doering, 1999). Ques-tions were asked about commodity,conservation, export, nutrition, andrural development programs. A sum-mary of these indicates that theattempt was made to ask the ques-tion, why do we have the farm policywe do? (i.e., what is the rationale, andare the programs effective in terms ofwhat they purport to do?) Theanswers the committee received rela-tive to the request were very broadand at least to some degree reflectiveof the conditions in agriculture at thetime. The answers would certainlyhave been much different if the ques-tion had been asked at the height ofthe record prices in 1995 or at thevery low prices realized less than twoyears later.

The Broad Response to Rationale for Involvement in AgricultureIf one were asked 20 years ago, whatis the rationale for U.S. Governmentinvolvement in agriculture, aresponse might have been to increasefarm incomes to the levels of urbanincomes. Admitting the complicationof off-farm income, this objective hasbeen achieved. In addition, “farmers”

have more accumulated wealth thantheir urban cousins, usually in theform of land.

Another response might be a stra-tegic one, i.e., that the nation needsto be self- sufficient in food. Withoutgovernment involvement, wouldthere still be an abundant food sup-ply, would agricultural exports drop,and would less acres be cultivated?Few seem to be concerned that notenough food would be grown fordomestic consumption. However,government involvement of somesort might be justified if food self-sufficiency were a national concern(in spite of the fact we wish othercountries to do otherwise so we canincrease our exports to them).

There is a strong rationale forgovernment involvement in agricul-ture to reduce risk from naturalcauses – drought and flood. Weaccomplish this partially throughsubsidized crop insurance and par-tially through ad hoc disaster pay-ments. There is a rationale forinvolvement and we are doing it,though probably less cost effectivelythan we might.

One broad rationale for govern-ment involvement under the “reduc-

ing risk” heading is the desire to havea stable industry over time. Invest-ments in machinery, buildings, andhuman capital are relatively large inU.S. agriculture. It would be costly tothe sector and to the public, throughhigher food prices, if there werecycles of capitalization and de-capi-talization of these assets over time.This is different from decreases inland values, which the producer (orlandowner) bears directly (decreaseswhich farm groups fight to prevent).The banking community also has alarge stake in this rationale, especiallyduring times when loans have beenbased on asset values rather than onthe ability to repay, as in the farmfinancial crisis of the late 1980s.

Price stability is another leg of the“reducing risk” rationale. Traditionalfarm programs after the 1930s used a“price stability” rationale to boostfarm incomes by setting loan ratesand later target prices above long-term average prices (contrary to Wal-lace’s “ever-normal granary” con-cept). Fred Waugh’s concern with theuse of price stability as a vehicle forincreasing farm incomes and theensuing treasury exposure led him towrite an article attempting to show

Figure 1. Agricultural policy goals: 1933-present.Sources: Flinchbaugh and Knutson (2004); The National Agricultural Law Center (2007).


that price stability was not alwaysbest for the consumer (Waugh,1994). The protection from risk,whether through price supports,direct payments, or insurance, fornatural disasters involves a number ofrationales for government involve-ment depending upon where one’sinterests are – helping beginningfarmers, ensuring an inexpensivefood supply, keeping farmers on theland, etc. Most have some credenceas being in the national interest.

In some ways, agricultural policyand the rationale for it is becomingmore closely tied to conservation ofthe land and the sustainability ofagriculture than ever before. Whileconservation during the dust bowlsof the 1930s was a rationale thatcould stand alone, it also became thevehicle for moving cash into ruralareas to meet income needs throughpayments to farmers for adoptingconserving practices and setting landaside. Today, conservation is a strongindependent rationale for agriculturalpolicy. The 1985 Farm Bill’s crosscompliance provision was to enforcebasic national conservation stan-dards on those farmers wishing toobtain the risk and income protec-tion of commodity programs. Thecompliance standards have beenreduced and enforcement has provedunpopular so this device has lessimpact. However, we see that thenewer programs for conservation onworking lands, EQIP, CSP, etc.,reflect a public concern that conser-vation be a primary rationale for gov-ernment involvement in agriculture.Programs like the ConservationReserve Program have brought newsupportive constituencies to agricul-tural conservation – in this casesportsmen and others interested inwildlife habitat, as well as improvedwater quality.

Nutrition programs are out of theinner circle of what is consideredessential to government’s involve-ment in agriculture. If these pro-grams are to remain within theDepartment of Agriculture, they mayhave to become more closely linkedto the traditional agricultural pro-grams – if for no other reason thantheir political importance to theseprograms. The photos in most Con-gressional offices show the Congress-man involved in the school lunchprogram, not in production agricul-ture. Food safety is in the same polit-ical situation. While nutrition andfood safety largely stand on theirown, other efforts, like exportenhancement and trade liberaliza-tion, are intended to increase and/orstabilize the incomes of farmers.

While rural development andthings like the FMHA programsremain part of government’s involve-ment, they have not been of majorimportance since the Great Society.Given the current availability ofcredit from a variety of sources, thereis less argument that a governmentcredit role is as essential as it was inthe 1930s. For example, Farmer Machas not played the role that was envi-sioned for it and does not appear tobe a least cost way to provide a func-tion that may not be essential forgovernment today.

ConclusionThe rationale for governmentinvolvement in agriculture hasevolved from indirect involvement inthe early years of the United Statesand income parity and the creditavailability of the 1930s. Currently,the central remaining issues are riskreduction and the public’s willingnessto continue to provide income trans-fers and other assistance to this sectorbased on its strategic importance or

uniqueness. Senator Lugar’s ques-tions focused on whether govern-ment needed to continue to beinvolved, and what the most costeffective way to be involved would beif that is required. Few today ask ifgovernment involvement is needed,what the rationale is for the involve-ment, and then what the best way isto provide support. This may changeas agriculture becomes viewed as aproducer of biofuels and other bio-products in competition with foodand at a potentially higher cost to theenvironment from more intensiveand/or extensive production.

For More InformationBenedict, M.R., (1953). Farm policies

of the United States, 1790-1950. New York: Twentieth Century Fund.

Davis, C.C. (1940). The development of agricultural policy since the end of the World War. Farmers in a Changing World; The Yearbook of Agriculture, 1940, p. 325. Washington: Government Printing Office.

Schertz, L., & Doering, O. (1999). The Making of the 1996 Farm Act, Appendix 1. Ames, IA: Iowa State University Press.

Waugh, F. (August 1944). Does the consumer benefit from price instability? The Quarterly Journal of Economics, 58, 602-614.

Joe Outlaw ([email protected]) isProfessor, Extension Economist, andCo-Director of the Agriculture andFood Policy Center, Department ofAgricultural Economics, Texas A&MUniversity, College Station, TX. OttoDoering ([email protected]) isProfessor of Agricultural Economicsand Public Policy Specialist, Depart-ment of Agricultural Economics, Pur-due University, West Lafayette, IN.

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