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					                                                           LETTERS
                                                      .. . From you

                                               adapt to this new element of tile com-          In the USDA embargo study and
                                               petitive market place and less able to       subsequent          commentaries--until
                                               capture: the potential benefits. This is     Brookins--no mention was made
                                               due to a foreign policy aversion to          about the costly negative effect of the
                                               making commitments to many poten-            embargo in perpetuating the view
                                               tial customers interested in such            that ".. . if the government is going to
                                               agreements, and our own trading in-          do tilis (embargo my grain) . .. then it
                                               stitutions which suffer diminished           ought to do this (higher loans and
                                               competitive advantage compared to            targets and increased farmer-held
    From: Jim Miller                           quasi-public agencies, such as the Ca-       grain storage) ... to offset the out-of-
    President, National Association of         nadian Wheat Board, when markets             pocket costs to farmers. "
    Wheat Growers                              become guaranteed rather than                   Brookin's article is real world.
                                               based on competitive bidding.                While academics can debate until the
    Re: McCalla, White, and Clay-                 The 1980 embargo against USSR             cows come home whether farmers
    ton's "Embargoes, S'!'rplus                while Significantly different from pre-      were adequately compensated for
    Disposal, and U. S. Agricul-               vious restrictions, further exacerbat-       the embargo, much of what farmers
    ture"                                      ed agriculture's export problems.            and their elected leaders are trying to
                                               The change in trading patterns pro-          sort out today can be traced to the
       The Economic Research Service
                                               vided even greater guarantees for our        post-embargo policy actions and tile
    study of the embargoes of the 1970s,
                                               competitors. This prompted in-               course these policy decisions !let for
    and potential for surplus disposal
                                               creased investment in production             the 1981 and 1985 farm policy de-
    programs, while offering an analytical
                                               around the world. The reactionary            bates.
    frame work for academic exercise,
                                               domestic policy, which was certainly            As Brookins points out, think of
    falls short of providing a viable policy
                                               a political as well as an economic ne-       where we would be today if the 1981
    analysis for future use. The attempt to
                                               cessity artificially stabilized prices and   farm bill debate had started with tlle
    isolate singular events fails because a
    column of numbers cannot identify
                                               income not only in the US. but also          $2.35Ibu. wheat loan rate instead of
                                               for other producers, encouraging tlle        the embargo-adjusted wheat loan rate
    the political or social ramifications of
                                               creation of even greater production          of $3.20Ibu. Likewise, where would
    those actions. Furthermore, it does
                                               capacity.                                    we be if tlle pre-embargo target price
    not identify cause-effect relationships
                                                  The fact that macroeconomic con-          for wheat of $3.08lbu. had been the
    which become multiplied over time
                                               ditions in tlle 1980s have Significantly     benchmark for beginning tlle 1981
    in a dynamic global economy where
                                               impacted U.S. farmers in terms or            debate instead of the post-embargo
    even subtle market reactions should
                                               both market volume and prices                target of $3.63Ibu.?
    indicate the necessity of change but
                                               should not be used to ignore the neg-           These higher price and income re-
    institutions dampen those signals on
                                               ative ran1ifications of past sales sus-      sponses were bad enough in terms of
    the basis of short term individual na-
                                               pensions. Domestic and export agri-          long-term market damage. Still worse
    tional interest.
                                               cultural programs as well as foreign         was the further manipulation of tile
       The short supply embargoes of the
                                               policy issues will continue to have a        federal         farmer-held     (govern-
    early 1970s, whether general or tar-
                                               high profile in the public policy de-        ment-managed) grain reserve into
    geted, encouraged a more rapid
                                               bate. The embargo study has contrib-         the status of a permanent price sup-
    movement to self suffiCiency and sup-
                                               uted little to a responsible resolution      port and supply management tool,
    ply diversification by importing na-
                                               of those issues now or in the future.        not a buffer stocks program.
    tions than would have occurred in
    their absence. The response of im-
    porters and exporters was to seek
                                                                   •                          Again, tile loan, target and reserve
                                                                                            manipulation responses to tile em-
                                               From: John K. Hosemann                       bargo gave tile inlpression that, as
    long term supply agreements and
    production expansion to fulfill those      American Farm Bureau                         bad as tile embargo was, government
    guarantees. The inlpact for the U.S.       Federation                                   offsetting poliCies would make farm-
    was to experience a loss of reputation     Re: McCalla, White, and                      ers whole. Well, we're out of tile short
    as a reliable supplier, and join the       Clayton's "Embargoes,                        run (1980) and into the long run
    growing movement in signing                                                             (1981-86) and farmers are still paying
    LTGA's. Unfortunately both are nega-
                                               Surplus Disposal, and U. S.                  in terms of policy damage to their
    tive for US. agricultural interests in     Agriculture"                                 markets.
    tlle long run. The implications of a          Carol Brookins deserves praise for           In preparing for tile next embargo,
    tarnished reputation are obvious. The      her insightful piece on the long-term        economists and policymakers would
    explosion in the absolute number           damage to US. markets tl1fough the           be well served not to read the USDA
    and size of LTGA's was generally con-      farm policy manipulations done in            embargo study but ratiler Brookins'
    sidered counter to our more open           order to "help farmers" inlmediately         one-pager. The old rule tilat one bad
    trade policies. The U.S. was slow to       after the embargo.                           policy begets anotiler did not apply in


Secorui Quarter 19B7                                                                                                       CHOICESo41
   the case of the embargo. It got at least     lower by the full amount of increases       alter political perceptions of econom-
   three! And worse yet, the Soviet             in 1980 ($2.35 to $3.00 for wheat and       ic impacts. His comments on dle ap-
   troops are still in Afghanistan!             $2.00 to $2.25 for corn). Our analysis,     proach of concentrated policy analy-
                                               the majority of our interviewees, and        sis are wordly of continued study. A
                      •                        all dle information we could bring
                                               together on dle subject indicated dlat
                                                                                            single researcher or even agency
                                                                                            could not have done this study in dle
   From: Alex F. McCalla                        had dlere been no embargo, world            time frame. Whether it is a model for
   University of Californ'ia, Davis             prices and exports would still have         odler studies remains to be seen.
                                               fallen sharply in the early 1980's. This        The comments by John Hoseman
   Re: The Author Replies                      alone likely would have generated            essentially argue dlat Brookins says
      I suppose most economists, widl          dle necessalY political and economic         more in a page dlan dle study did in
   policy interests, dream of dle defmi-       atmosphere in the farm belt to pass          500 + pages. One might cautiou ly
   tive study-so overwhelming in its            higher loan rates. Despite dle appar-       wonder how much of the study critics
   logic, analytical rigor and empirical       ent consensus dlat price levels in the       have read. Clearly, as noted above,
   validity-dlat it lays a major issue to      1981 Act were independent of the             Brookins addresses cogendy one
   rest-forever. If any of us on the Em-       embargo, most of our "no" embargo            piece of the complex puzzle dlat had
   bargo study group had such dreams,          scenarios (see chart p. 13-2) assumed        to be studied but by no means aU of it.
   dley have long since been dashed.           loan rates would have been 15 cents             TIle comments by Jim Miller
   One more study, however large and           and 10 cents lower for wheat and             tempts one to defend our approach
   ponderous, is not going to remove           corn, respectively. We did not attri-        as being applied policy analysis rath-
   from the public debate, a subject so        bute dle increases in the loan rate in       er than an academic exercise. An aca-
   politically volatile as export embar-       July of 1980 (50 cents for wheat and         demic exercise would probably have
   goes. Thus, it should not be surpris-       15 cents for corn) solely to the em-         involved building a new global eco-
   ing that most all of the criticism of the   bargo. However, whedler we as-               nomic model which would have tak-
   study has been that it reached dle          sumed post-embargo support levels            en at least two years. The approach
   "wrong" answer. The "right" answer          were lower or not, it made little dif-       taken was to use all analytical ap-
   should have been that embargoes             ference to the aggregate outcomes.           proaches available to Simultaneously
   caused U.S. farm income losses, cost        Embargoes in the larger scheme of            attack the problem. That we did not
   the United States export markets and        things showed little empirical impact.       fully capture dle political .dimensions
   in general must be blamed for every-            I believe the study team would           is the major charge which is hard to
   dling that has gone wrong widl U.S.         have little quarrel with Brookins' pre-      refute on economic terms alone.
   agriculture since 1973.                     mise that increases in support prices        Miller raises two continuing argu-
      No one to my knowledge-in the            in the 1981 Act were a Significant fac-      ments. First, that embargoes caused
   many press commentaries as well as          tor in the problems of U.S. agricul-         importers, especially Japan, to diver-
   in the irate responses from farm and        ture in dle early 1980s. Our disagree-       sify sources and invest in new sup-
   commodity groups-has challenged             ment would be over how much of dle          .plies. The study's analysis of produc-
   the conceptual framework, the em-           domestic policy response of the early        tion trends and trade flows shows dlat
   pirical models nor the economic sub-        1980s to attribute to the embargo and        dlere is simply no concrete evidence
   stance of dle results. Two of the many      how much to odler political and eco-         of dlis.
   commentaries appeared in dle previ-         nomic considerations. I suspect we              The second point relates to the re-
   ous issue of CHOICES and two lette(s        would also agree that dle FOR                liable supplier issue. There is no
   precede this comment in this issue.         changed from a stabilization to a sup-       question that embargoes increased
   My purpose is to comment briefly on         port operation but we would not see          protectionist rhetoric in importing
   dlese four items and close widl some        the embargo as the major cause of            countries and gave our export com-
   general comments.                           dlat change. Overall we agree with           petitors talking points for long-term
      Carol Brookins' comments focus           Brookins that the political impact of        agreement'). But it is hard to find em-
   on an issue dlat we from dle outset         embargoes on subsequent legislation          pirical evidence to demonstrate dlat
   recognized as important-namely              is a critical issue. A reference to Chap-    u.s. embargoes changed the poliCies
   did the increase in ~he loan rates and      ter 15 will show how we dealt with it.       of importers or competitors from
   FOR entry prices dlat occurred at dle       It is quite possible that Carol Broo-        what dley otherwise would have
   time of dle embargo, cause these            kins' political instinct'i may be a'i        been. Even for the Soviet Union,
   rates to be higher in dle 1981 Farm         good or better than ours but ba'ied          there wa'i little evidence that the 1980
   Bill than would otherwise have been         on the evidence available to us, we          embargo did much more than
   the case. This question wa'i a'>ked in      found litde alternative to our final         change the sources and commodity
   all of our interviews and caused a          conclusions.                                 mix of import'i with a minimal impact
   lengthy and spirited debate in the              I find little to disagree with in Ken    on dle total volume of Soviet ahTricul-
   study team. The interviewees had re-        Farrell's comment'i. It is obvious that      tural import'i. Finally we agree widl
   sponses ranging from no impact to           his second point is well taken. A big-       Miller dlat it wa'i a complex set of
   full impact, Le., loan and FOR rates in     ger, better, and more comprehensive          event<;. We tried to put the embargo
   dle 1981 Farm Bill would have been          economic study does not necessarily          in perspective. Our conclusions


42·CHOICES                                                                                                         Second QU£lrter 1987
                                                            LETTERS
                                                the world sugar price becomes less            import quotas were eliminated as do-
                                                and less a reliable measure of the            mestic refiners look to fo re ign
                                                econo mic value. If tile U S. e liminated     sources fo r less expensive sugar. The
                                                its sugar program, tile price of world        price effects could be substantial in
                                                sugar wo uld , in all probability, rise a')   tile sho rt run but the resulting expan-
                                                it would if otiler governments elimi-         sio n in foreign production would
                                                nated their sugar programs. Thus, it is       probably lead to a world sugar price
                                                inappropriate to use tile world mar-          not much above the old one.
   From: Vernon R. McMinimy                     ket price of sugar as a basis to meas-           Our o riginal analysis of tile social
   Director, Economic Research, AE.             ure tile cost of the U S. sugar program       cost') from impo rt quotas yie lds maxi-
   Staley Manufacturing Company                 to U S. consumers.                            mum producer benefits, co nsume r
                                                   One should use the world price             cost'), and net social costs. In a forth-
   Re: Babcock and Schmitz                      tilat would exist if tilere were a world      coming AJAE article, autho rs Leu,
    uLook at Hidden Costs"                      market free of intervention by any            Schmitz, and Knutson relax o ur small
       Evaluation of the true cost of any       government. True, we don't know ex-           country assumption wi~h a rest-of-
   farm program is a complex process.           actly what tilat price wo uld be, but it      wo rld excess supply elastiCity of 2.37.
   That is because one is always in-            can be estimated. The estimated price         They calculate that in 1983 US. sugar
   volved with the question of what             would provide us Witil better info r-         producers received benefits totaling
   would be the value or price of the           mation fo r evaluating tile cost or ben-      $575 millio n. The social cost of this
   product if government were not in-           efits of government policy.                   transfer was $981 millio n. Thus, our
   volved. It is clear tilat tile involvement
   of the US. Government affects tile                               •                         basic point tilat the present US. sugar
                                                                                              program is a costly means of enhanc-
   do mestic price of sugar. Yet, the au-       From: Bruce Babcock and                       ing tile wealth of a relatively small
   tho rs seem content yvith assuming           Andrew Schmitz                                numbe r of domestic sugar producers
   that tile world price of sugar repre-        University of California, Berkeley            is not dependent on tile small coun-
   sents the economic value of sugar in                                                       try assumption.
                                                Re: The Authors Reply
   tile world, in spite of essentially uni-
   versal governmental intervention.               Vernon McMinimy correctiy notes
                                                                                                                  •
       When we choose a standard fo r the       tilat tile world price of sugar depends
   basis of measuring, we have an obli-         on the government poliCies of pro-
   gation to examine that standard, test        ducing and consuming countries.
   it, to ensure that it is an appropriate      Therefo re, the fundamental de mand
   and va lid standard by whidl to meas-        and supply relationships cannot be
   ure. The price of sugar in the world         estimated witilout accounting for
   market ove r tile past few years is tile     government's influence. But simply
   prod uct of the interventio n by essen-       including past government actio ns in
   tially every government witilin who's        an econometric mode l to estimate
   bo rders sugar is consumed and pro-          demand and supply elasticities is not
   duced. The world price is, thereby,          enough. The reactio ns of fore ign gov-
   tile net result of tilat involvement.        ernments to changes in US. policy
   How tilen, can one assume tilat tile         must also be predicted. Attempts at
   world market price is a proper stan-          building these necessarily elaborate
   dard by which to measure tile value           mode ls have only just begun. Given
   of sugar? How tilen, can one use tile        the difficulties in predicting the re-
   world price to calculate the cost of         sponses of fo re ign governments, the
   tile US. Sugar Program to the US.             most we can expect from such a mod-          From: Charles 1. Frazier
   consumer?                                    el is a range of estimates of tile world      Director, Washington Office,
       The crux of the problem is tilat          prices.                                      National Farmers Organizations
   when governments become involved                As a result, a better approach to this
   in altering tile production and mar-         problem is to (1) acknowledge that
                                                                                              Re: 'Targeting Farm Program
   keting of a commodity th rough subsi-        the world price W     itilout US. import      Benefits"
   dies, quotas, or by whatever means,          quotas cannot be known, and (2) cal-             The pletho ra of statistics, histo rical
   the market price of tilat commod ity         culate the social costs of the present        references and qualified observations
   becomes a distorted representation           sugar program under different                 by tile panel o n "Targeting Farm Pro-
   of tile economic value of tilat com-         post-quota world sugar prices. If tile        gram Benefits" do not really deal with
   mod ity. So, it is with sugar, and unfo r-   relative costs and benefits do not ap-        the targeting of benefi ts so much as
   tunately, more and more agricultural         preciably dlange, then neitiler               they illustrate tile utter confusion sur-
   commodities today.                           sho uld tile recommended policy.              rounding tlle design and administra-
       The sad fact is tilat because of ever       It is most likely u·ue that tile world     tio n of modern farm programs.
   increasing governme nt involvement,          sugar price would rise if US. sugar              Professor Bre imyer's contribLltio n



44 ' CHOICES                                                                                                          Second Quarter 1987
                                                              LETTERS

   about its relative importance are at                                                    es on taxes, and dle history of the
   variance with many people's strongly                                                    food stamp participation.
   held convictions.                                                                           One can quibble with dle food ex-
      I have four general comments                                                         penditure number they used but it
      It is curious that in all the furor                                                  wouldn't change dle fact dlat the
   over the study, little or nothing has                  •                                poorest 20 percent of U.S. house-
   been said about the surplus disposal              •                                     hold" already spend 37 percent of
   part of the study. Is this because peo-
                                               •                                   •       dleir income on food. The proposed
   ple agree with the conclusions or be-                                                   tax would raise it to 40 percent.
   cause they never got that far? During                                                       Since almost all restaurant food (40
   the evolution of the study we were                                                      percent oftotal food expenditures) is
   very concerned about the potential                                                      subject to sales taxes and 17 states tax
   implications for current policy of this                      Farm Income Support        food in the grocery store, dlis propos-
   analysis.                                                                               al raises dle question of taxes on tax-
      Several commentators have im-                                                        es. If the new federal excise tax were
   plied dlat the study "supports dle use                                                  not assessed on total food expendi-
   of embargoes." It seems almost im-          From: Jean Kinsey                           tures, whicll include current taxes,
   possible to draw that conclusion. The       University ofMinnesota, Visiting            dlen dle tax ba"e is less dlan $3,830
   analysis shows that die 1980 embargo        Fellow, Resources for the Future            and the required new tax would be
   did not have much impact on the So-                                                     more dlan 6.4 percent. This would
   viet Union because international mar-
                                               Re: Runge and Halbach "Sales                increase its regressivity and perhaps
   kets in primary products are flexible.      Tax on Food"                                its political saleability.
   A gO-it-alone embargo does not pre-            Runge and Halbach should be con-             Implementation problems widl
   vent our competitors from filling in        gratulated for a courageous and inno-       dle third proposal are numerous and
   behind us. And it showed dut it is          vative proposal that, if taken in its en-   complex. More importantly, some
   very expensive to offset domestic im-       tirety, would revolutionize food and        misleading assumptions were posit-
   pacts of export embargoes. In sum,          agricultural policy in the Uruted           ed. First, a wider distribution of food
   the analysis seems to be a strong           States. For those who may be wearied        stamps designed to offset higher food
   statement that embargoes simply             by a morass of farm policy rhetoriC,        prices would help alleviate hunger
   don't work, period. How that conclu-        this proposal is a gust of cold wind.       and malnutrition. Second, expanded
   sion can be interpreted as encourag-           Anyone of dle dlfee parts of dleir       food stamp and nutrition program el-
   ing embargoes is difficult to fathom.       proposal could be adopted indepen-          igibility would increase dle consum-
      The study elucidated dle fact that       dendy; each of the d1fee are equally        er demand for surplus agricultural
   macroeconomic forces are of over-           controversial. The first is a variation     surpluses. Studies have shown dlat
   whelming importance to U.S. and             on "decoupling" scllemes. It aims to        food stamps increase dle total de-
   world agriculture. Agricultural policy      provide rural households with in-           mand for food very little and increase
   pundits should learn from this con-         come sufficient to maintain a reason-       net farm income by only 1 percent.
   clusion.                                    able standard of liVing. No particular      Direct distribution of surplus food
      We showed that export dumping            level of income support is guaran-          commodities helps diminish excess
   via export subsidies is expensive and       teed. If it is tied to a fixed budget for   supplies and may relieve some stor-
   is not a panacea for farm surpluses.        dle sector, income support levels           age costs, but food stamp recipients
      Exercises of this magnitude are dif-     could be conSiderably lower than dle        do not necessarily chose to eat more
   ficult to organize and execute, but for     1985 average farm household in-              butter, cheese, and corn. In fact, dle
   a fleeting moment as the product            come of $23,250. A switch from sup-         authors contradict themselves by lat-
   rolls off the presses, one feels that the   porting the farm business to support-       er pointing out dlat food stamps act as
   job is done and dle issue settled. But      ing the farm household is a funda-          fungible currency.
   only politically naive academics            mental c1lange. It make possible the            Finally, it should be remembered
   could believe dlat. The study has re-       goal of supporting farm families; it         that low food costs leave households
   opened old wounds and stirred a             kills the idea of supporting family         widl more disposable income. Poli-
   smoldering political issue. Despite         farms.                                       cies that reverse the trend towards
   the charges that came from many                Second, taxing food is regressive,        low food prices imperil all economic
   sources, it is possible that in future      even if the taxes are targeted for recy-     activity. Federal budget transparency
   debates the economic consequences           cling to poor farmers and non-farm-          and stability are laudable goal , but
   of embargoes will be better under-          ers alike. Runge and Halbach ac-             are dley worth the costs and political
   stood. How that understanding will          knowledge the regressivity problem           risk of taxing food? I suggest we find
   influence policy is anodler story.          but fail to discuss its degree and pro-      that they are not.
                                               pose an unachievable solution. Odler
                                               problems with this tax reimburse-
                      •                        ment scheme involve the distribution                           •
                                               of household food expenditures, tax-


Second Quarter 1987                                                                                                       CHOICES· 43
   is out')tanding. He is well qualified to     .cused on targeting as means 'of pro-         crease their production beyond cer-
   define the conflict') reflected in earli-     viding financial ae;sistance to econom-      tain modest pOints, tl1eir benefits
   er farm program decisions. After that,        ically stressed family.farms. However,       from direct government support pro-
   however, little is accomplished ex-           beyond proViding ae;sistance to tl10se       grams should decrease, eventually to
    cept a demonstration of uncertainty          who are in need, a 'national commod-         be eliminated.
    as to our proper objectives.                 ity support program that explicitly             Targeted support would eliminate
      We seem to have lost our way in            target., benefite; to moderate-sized         many of the distortions caused by the
    recent years. We have surpluses, low         family farms would improve the effi-         current programs. Farmers who have
    prices, high cost') of operation, failure    ciency of our farm sector and would          large operations would find that their
   of financial institutions and a continu-      best serve the interest of farmers,          economies of scale would be offset
    ing march toward bankruptcy.                 consumers and taxpayers.                     by the reduced stability of tl1e price of
      Those who conceived and imple-                 Current commodity support pr:o-          tl1eir product in tl1e market. The larg-
    mented earlier farm programs gener-          grams promote inefficiencies be-             er far-mer would find his relative ad-
   ally were in agreement on certain             cause they provide botl1 direct and          vantage in bidding for input re-
    principles and goals. They sought to         indirect income and price support on         sources offset by a policy thatputs his
   provide for the survival of the individ-      virtually every unit of production.          smaller neighbor on a level playing
    ual owner-operator unit in farming.          This includes production beyond the          field. Such a program would encour-
   Due regard was given to safeguarding          point needed .to fulfill domestic con-       age large farmers to become truly ef-
   an adequate food supply and careful           sumption and world demand. Ironic-           ficient by working to maximize out-
   attention was given to the infrae;truc-       ally, commodity support programs             put while minimizing inputs.
   ture of the rural communities where           tl'lat treat all unite; of production           Taxpayers would also benefit from
   the economy depended primarily on             equally have helped to make u.s. ag-         a targeted approach. If the largest 7.2
   a profitable income for producers.            riculture remarkably inequitable.            percent of qualifying farmers who re-
      In recent times the tugging and                They have this effect because sup-       ceive direct government payments
   hauling surrounding passage of a              porting tl1e last ·units of production ·of   averaging $72,000 a year were instead
   farm bill all too often reflect the con-      large farms equally with the first units     to receive payments at tl1e average of
   cerns of those furnishing the inputs          of production of all farmers distorts        the medium-sized farmers, which are
   for commercial agriculture, the trans-        the distribution of farm input re-           less tl1an $23,000, tl1en tl1e costs of
   portation and storage of commod-              sources. Using economies of scale,           direct farm support programs could
   ities, the processing and manufactur-         larger farms increase tl1eir ability to      be reduced by almost $5.75 billion a
   ing of finished products and, quite           outbid and command input re-                 year. These funds could be redirect-
   Significantly, the welfare of interna-        sources, such as land, labor, capital,       ed to deficit reduction, soil conserva-
   tional traders involved in the export         chemicals, etc. Untargeted commocli-         tion, rural development, refinanCing
   markets.                                      ty programs distort this system by fail-     agricultural debt, or providing assis-
      Many farmers strongly favor getting        ing to provide adequate mar-                 tance to farmers based on need.
   tl1eir income from the markets rather         ket-based signals to large and ex-              There is an important difference
   tl1an to depend upon government               panding producers tl1at the value to         between targeting program benefits
   checks which could be the cost with           the market and society of each subse-        to achieve better efficiency in farm
   targeting. However, farmers will re-          quent unit of tl1eir production is di-       policy and targeting to. provide assis-
   ceive adequate income from markets            minishing.                                   tance to farmers based on need.
   only if programs deal clirectly and ef-           To compensate for large farmers'         While the National Grange favors
   fectively with supply management,             unneeded last units of production,           both concepts, my purpose here is to
   marketing and better prices for pro-          we have forced others to bear tl1e           emphasize targeting to direct the
   ducers.                                       burden of adjustment. We have re-            farm sector toward greater effiCiency
      That is where responsible people           quired all farmers to participate in         and a better distribution of benefits
   should really apply tl1eir talent.            mandatOLY acreage set-aside in order         and resources to the largest number
                                                 to qualify for program benefits. We          of farmers, consumers, and taxpayers.
                       •                         require taxpayers to bear the coste; of
                                                 commodity storage or product sale at
                                                                                                 A targeted program offers family
                                                                                              farmers the clear hope of improved
                                                 a loss. Finally, and more frequently         supply and demand balances for the
   From: Edward Andersen                         tl1an anyone desires, we compensate          commodities that tl1ey produce and
   National Grange Master                        for large farmers' w1needed last units       an important safety net for family in-
                                                 of production by encouraging the             come. It does this without increasing
   Re: 'Targeting Farm Program                   elimination of another farmer's first        government costs, imposing unnec-
   Benefits"                                     unit (and subsequent units) of pro-          essary costs on consumers and family
     The targeting of farm program               duction.                                     farmers, it is time that we seriously
   benefits has recently received a great            The National Grange believes that        consider the targeting of benefits
   deal of attention as an alternative ap-       the meclium-sized family farms               from commodity support programs
   proach to current farm programs.              should receive targeted benefits from        as tl1e keystone of tl1is nation's food
   Much of tl1e current debate has fo-           government programs. As farmers in-          and agricultural policy.



Second Quarter 1987                                                                                                           CHOICES· 45
                      •                       the inordinate amount of time and
                                              effort required of government em-
                                                                                          come would have a direct impact on
                                                                                         od1er businesses in the rural commu-
                                              ployees and farmers to comply with          nity. According to a May 1986 repolt
    From: Bert Greenwalt                      the details of the present system. This    of the Senate Subcommittee on Inter-
    FarmerlAg Economist, Arkansas             is surely a non-productive use of hu-      governmental Relations, for every
    State University                          man resources.                              $1,000 change in net farm income,
                                                 A system where production deci-         there is a difference of $200 in spend-
    Re: 'Targeting Farm Program               sions are based on market prices,          ing power. And each $64,000 change
    Benefits"                                 acreage reduction, if necessary, is        in net farm income in a community
        Harold Breimyer does a good job       done by direct land rental, and in-        either adds or loses one job on Main
    in explaining the true nature of the      come subsidies are made by direct          Street.
    various government farm program           payment would help clear up the                As your earlier discussion notes,
    payments Dean Kleckner referred to        confusion and inefficiencies of d1e        the Economic Research Service finds
    as "a hodgepodge of payments to           present system. This is probably the       that in 1985, farms wid1 total annual
    farmers for doing things." I agree        reason this sort of policy will be hard    sales of $40,000 to $500,000 received
    with Breimyer's idea that where the       to obtain. Many politicians and inter-     nearly four-fifths of total farm pay-
    farm economy is far out of balance,       est groups would prefer to compli-         ments. While these mid-sized farmers
    acreage reduction payments should         cate the issue and hide·d1e subsidies.     accounted for less d1an one-fourth of
    be separated from income support-                                                    all farms, they accounted for more
                                                                                         than one durd of total US. crop and
    ing deficiency payments. 11us is a pre-
    requisite for any sensible targeting                         •                       livestock sales. Our nation cannot af-
    plan and is also compatible with Sen-                                                ford to continue forcing this impor-
    ator Boschwitz's decoupling propos-       From: Cy Carpenter                         tant segment of our productive capa-
    al.                                       President, National Farmers Union          bility d1rough the greatest number of
        Only true income support pay-                                                    rural bankrupticies in l1istory. We
    ments can be logically targeted. Any
                                              Re: 'Targeting Program                     cannot tolerate poliCies that require
    acreage reduction plan based on           Benefits"                                  family farmers to sustain an addition-
    renting land from farmers has to di-          Because the 1985 Farm Bill is ful-     al drag on d1e US. economy of their
    rect a large share of the payments to     filling its purpose of killing off the     $225 billion debt.
    the larger farmers who control d1e        family farm system of agriculture,             Congress has repeatedly stated its
    land. 111ese payments cannot be lim-      changes must be make during this           national policy goal of retaining d1e
    ited or targeted and achieve the de-      session of Congress. That theme was        family farm system. We see that goal
    sired effect. To the extent society       sounded recendy in Washington D.C.         as a responsibility that must be up-
    wishes to supplement d1e income of        by four major farm organizations, in-      held for the well-being of the entire
    farmers, d1is can most efficiendy be      cluding National Farmers Union. But        rural American structure.
    done through direct payments limit-       more imponandy, they were joined               Delegates to our recent National
    ed or targeted as desired.                by eight other citizens' groups, in-       Farmers Union convention said,
        The present system of deficiency      cluding the nation 's premiere con-        "Tiered marketing quotas, set-asides,
    payments and CCC loan progran1s           sumer organization, d1e labor unions,      and price supports, toged1er with re-
    gready reduces the economic effi-         the senior citizens and religiOUS          alistic overall and per-program limita-
    ciency of US. agriculture. To receive     organizations of all denominations.        tions should be enacted and effective-
    subsidies, producers are forced to        All were united in the cry, 'J\ction       ly enforced on all farm program pro-
    idle fixed resources (land, tnachin-      Now-No Excuses!" to increase net           visions so program benefits are
    ery, and some labor) whose opportu-       farm income and revitalize produc-         targeted to small- and medium-sized
    nity cost is near zero. They must d1en    tive sectors of the rural and national     farmers ba<;ed on d1e number of
    produce particular program crops          economies.                                 bushels and a limit on the total (dol-
    even though in some cases the vari-           In order for new farm program ac-      lar) amount of CCC loans d1at any
    able cost of production is greater        tion to meet the demands of these          farmer could receive in one year."
    than the open market price. This re-      diverse family farm supporters, we             Congressman Dan Glickman's
    quirement to produce particular           must more selectively target benefir.'i    comment in CHOICES explains why
    crops is delaying the appropriate pro-    offarm progra~s to mid-size produc-        NFU members believe d1is: targeting
    duction adjustments among com-            ers. Taxpayers (farmers included)          "means that those who need the pro-
    modities in marginal areas. In addi-      simply cannot sit still as we continue     gram benefir.'i will suffer lea'it" a'i a
    tion, the loan rates which are gr.eater   to spend more and more money on            result of overall government spend-
    than the open market price send d1e       less and less effective programs. It is    ing cut'i.
    producer a signal which encourages        clear that supply management would            Targeting offarm program henefit'i
    him to use a higher level of scarce       mea'iurably improve farm income at         has been developed from the very
    variable inputs (Le., energy and wa-      only a fraction of the cost of current     beginning of farm legislation. This
    ter) than is appropriate.                 farm programs or the Administra-           wa'i done in recognition of the best
        Another source of inefficiency is     tion's alternatives. Higher net farm in-   use of democracy-to protect farm-

-
46· CHOICES                                                                                                      Second Quarter 1987
                                                           LETTERS
    ers and odlers who are exploited as                                                       From: Manuel Vanegas, Snr.
    minorities or are in a reduced bar-
                                                Farmers 55 and Over                           Staff Member, United Nations,
    gaining position in our American                                                          World Food Council
    business world. In his comments, Dr.
    Harold F. Breimyer told CHOICES                                                           Re: Dale Hathaway's, 'Trade
    there is "little original under (the)                                                     Negotiations"
    farm policy sun." AldlOUgh this is                                                           Dale Hathaway's article represents
    true, it should not lead us away from                                                     an interesting reflection and his sharp
    the proven recipe of targeting bene-                                                      analytical view of what the American
    fits to mid-size family farmers. In fact,                                                 farmers should expect, at least in the
    farm progranls of dle 1940s, 1950s,                                                       short run, from dle GAlT-Uruguay
    and 1960s were effectively targeted                                                       Round.
    and proved very successful, in help-        From: Marvin Julius                              It is very important for all trading
    ing both the family farmer and the          Professor (retired), Iowa State               partners to recognize and reach con-
    total rural economy.                        University                                    sensus on some selected conditions
        NFU members also passed a spe-                                                        and elements to be dealt with in the
    cial order of business to "support the
                                                Re: Boxley's '14ging Farmers:                 context of dle present negotiations.
    concepts of the Harkin-Gephardt             Not a Crisis"                                 First, total openness by all to the inter-
    bill." We will work to improve and             Boxley's scenario of extended en-          national market forces will be a tre-
    pass it. One of its important elements      try and delayed exit is not dle only          mendous task. Most countries--de-
    is targeting.                               way to produce a high average age of          veloping and developed-are unwill-
        Under Harkin-Gephardt, greater          farmers. A pattern of early-age entry         ing to fully subject their food and
    set-asides would be required as farm        and retirement-age exit for most              economic security to the economic
    size increases. In no event would an        farmers will give dle same result if the      and political forces of other coun-
    unpaid set-aside on anyone farm ex-         entry flow is smaller dlaJl the exit          tries.
    ceed 35 percent of acreage base, The        flow over an extended period of time ..           Second, among all trading partners
    Secretary of Agriculture is authorized      If the entry flow is also decreasing          gainers and losers would emerge.
    to offer a paid diversion program           then tile entry-age cohort can always         TIlese gains and losses will have to be
    above that 35 percent if necessary to       be smaller than its next-older cohort.        Simultaneously dealt with both in the
    bring supply in line with demand.           This size difference can persist until        national economy and internationally
    The bill also allows framers to me a        dle older cohort passes retirement            as part of trade policy.
    specific plan to reduce production by       age. TIle larger size of successively             Third, during the export food de-
    reducing inputs instead of planted          older cohorts can occur widl not ex-          mand boom of the 1970's, dle U.S.
    acres.                                      tended entry.                                 captured a large share of the export
        It is no surprise that refmements          TIle debunking of the aging farmer         growdl. During the shrinking market
    are needed for targeting the benefits       crisis is not in dispute. It is even possi-   conditions of the 1980's, the EEC
    of future farm progranls. Just as the       ble that extended entry is a fact and         gained export market shares. The
    entire agricultural industry is con-        that many farmers do not become op-            main loser has been the developing
    standy changing, so is the proper di-       erators before age 35 or so. It is, how-      countries.                 .
    rection and political pressure for tar-     ever, also possible, and I believe like-          Fourth, a distinction needs to be
    geting. Critics of farm program bene-       ly, that most farmers entered before           made between structural adjustment
    fit targeting point out dlat the largest    age 35 , but dlat in most or all years        which can be considered a longer
    individual payments in 1985 went to         dle number entering farming is less            term goal-as fully expressed by
    megafarms. Some small failure is no         man the number who exit. Age co-              Hathaway-and measures that could
    surprise in any democratic program          hort analysis alone can only suggest           be taken to ameliorate the situation in
    of such magnitude. But to throw out         possible patterns of enuy, exit and            dle short run. But what is done in an
    me targeting benefits dlat moved the        retention. Boxley has described one           eventual agreement on short-term ac-
    great majority of payments to mid-          pattern and I suggest a different one.         tion must be consistent with the
    -sized producers (as intended by
    Congress) with the bath water does                              •                          longer-run goals and negotiations.
                                                                                                  Finally, world trade in food and ag-
    not solve me problem. We prefer to                                                         riculture still is and will continue to
    refine the system and redirect farm                                                        be of major in1portance in domestic
    programs to benefit tile most effec-                                                       food security, export Profile9 and re-
    tive, careful stewards of our American                                                     gional development of many devel-
    farm production legacy.                                                                    oping, SOCialist, and some developed
                                                                                               countries.
                                                                                                  One answer to the question of
                                                                                               what can be done internationally to
                                                                                               deal widl the current excess capacity
                       •                                                                       in world agriculture is to use the pre-



Second Quarter 1987                                                                                                           CHOICES· 47
                                                         LETTERS
  sent surpluses (through the imple-         of what can and cannot be accom-           for every agricultural group. The pop-
  mentation of a targeted financial          plished in Geneva to alleviate the         ular phrase "no pain, no gain" applies
  scheme) to assist developing coun-         economic problem troubling our na-         in agricultural negotiations as well as
  tries in upgrading their rural econo-      tion's farmers and a" a corollary, en-     in other exercises designed to im-
  mies. [n doing this, world demand          able us to evaluate properly the trade-    prove overall strength.
  will be expanded significantly and de-
  veloping countries can redirect re-
                                             o!f." that will undoubtedly be pro-
                                             posed during the negotiations to gain                        •
  sources to fi'nance policy reforms.        improved agricultural access abroad.
     [n my view the trade crisis in food         During the Uruguay Round, there
  and agriculture by it" very nature and     will be enormous pressure to weak-
  context admits no easy solution. Fu-       en me Section 22 Waiver, an action to
  ture trade policy objectives in food       which the National Milk Producers
  and agriculture must be dealt with in      Federation, on behalf of tl1e nation's
  the context of dynamic interactions        dairy farmers is fundamentally op-
  among all trading partners in which        posed. Section 22 is an integral part of
  gainers and losers emerge. These           domestic price stabilization pro-
  gains and losses will have to be dealt     grams such as tl1e dairy price support
  with Simultaneously both in the na-        program. It authorizes the applica-
  tional economy and international as        tion of import quotas on price sup-
  part of trade economic policy.             ported products when unrestricted
                     •                       imports of such products would un-
                                             dermine domestic price support pro-        From: Manuel Vanegas, Snr.
  From: James C. Barr                        grams. In mis respect, Section 22          StaffMember, United Nations,
  Chief Executive Officer, National          functions no differently man such          World Food Council
  Milk Producers Federation                  programs as tl1e Canadian system of
                                                                                        Re: Derwent Renshaw's 'The
                                             import licensing or me European
  Re: Dale Hathaway's, 'Trade                                                           European View"
                                             Community system of variable im-
  Negotiations"                              port levies.                                  Derwent Renshaw has provided us
      Dale Hathaway offers a velY useful        Dr. Hatl1away's perspective allows      witl1 a detailed and far-reaching ex-
   perspective on the causes of the de-      one to conclude, as our membership         amination of me unnecessary trade
   cline in US. agricultural expOlts since   has long known mat tl1e actual value       struggle escalation between me US.
   d1e 1970's and negotiations in revers-    of me U.S. agricultural sector of con-     and me EEC, his paper adds to me
   ing d1at decline. He cautions against     cessions that can be wrung from om-        growing volume of current writings
   viewing d1e new round as a panacea        er nations during tl1e new round do        mat focus upon me rising protection-
   for d1e problems currently affecting      not outweigh me losses to mis same         ist and acrimonious mood found
   US. Farm exports, arguing that these      sector mat would follow any weaken-        bom in tl1e EEC and tl1e US. Howev-
   problems stem largely from causes         ing of me Section 22 system of import      er, he neglected me dimension oftl1e
   other than agricultural trade prac-       protection fm domestic agricultural        problem, tl1at is, me present disarray
   tices. These include slow growth in       programs.                                  of world agricultural markets. For ex-
   world agricultural trade, weak com-
   petitive status of U.S. farm exports,                        •                       ample, he did not give sufficient at-
                                                                                        tention to: proliferation of in1port re-
   and world wide excess capacity in ag-     From: Dale E. Hathaway                     strictions and increasing export sub-
   riculture, factors largely beyond tl1e    Vice PreSident, The Consultants            sidization. They have contributed to
   control of international trade agree-     International Group, Inc.                  international market instability and to
   ments.                                                                               growing resource misallocations in
      I basically agree witl1 this argu-     Re: The Author Replies                     developed, as well as in developing
   ment. I expect mat me accumulating           The two commentators make two           countries. In addition, there has been
   evidence will soon, if it has not.al-     points on which I agree and which I        an important impact of me interna-
   ready, convince most people mat me        believe need to be fully understood        tional agricultural environment on
   longer-term outlook for US. agricul-      by U.S. policymakers.                      the development and d1e export
   tural export growtl1 does not, unfor-        The first is mat me only way to         earnings of many developing coun-
   tunately, include a return to me high     effectively deal wid1 tl1e current ex-     tries .
  .growtl1 rates of me 1970's, regardless    cess capacity problem is to grow out          The continued downward pres-
   of what is accomplished in tl1e Uru-      of it. That implies an outward-looking     sure on agricultural prices in world
   guay Round.                               international policy which is becom-       trade reflects excess capacity and
      This realization does not mean mat     ing harder and harder to fmd among         structural maladjustment. Lasting eco-
   those concerned witl1 tl1e economic       eimer agricultural producer groups         nomic relations between countries
   heald1 of U.S. agriculture must aban-     or policymakers.                           must be built on me principle of
   don all expectations regarding what          The second point is mat any negoti-     trade and foreign trade must be
   is ach.ievable in me new round. Rath-     ation implies giving as well as getting.   based or related to me principle of
   er, it should encourage agricultLH:al     It is possible as a nation to get more     comparative advantage, fair price
   interests to make realistic appraisals    tl1an we give, but tI1is does not follow   competition, and not on dumping.



48·CHOICFS                                                                                                     Second Quarter 1987
   Within the economy of the U.S.,        Manuel Vanegas that my piece                themselves.
EEC, but also other countries, excess     "U.5.-EC Struggle Over Agricultural            Second, the idea that trade in agri-
production, surpluses, and subsi-         Markets" did not deal exhaustively          culture should be based on competi-
dized exports represent an exorbi-        wid1 the problems afflicting world ag-      tive advantage is seductive but unfor-
tant misinvestment and waste of           ricultural markets as a whole. But that     tunately, not one which takes account
scarce resources.                         was not my brief.                           of political realities. GATT rules for
   Renshaw emphasizes the potential          Nevertheless, while undeniably           farm trade, however, do recognize
for a continued and intensified strug-    concentrated on the friction between        these inconvenient facts of life. Any
gle between the EEC and the u.s. and      the world's two leading players, d1e        improvements to the rules resulting
that both paltners should cooperate       piece, contrary to what is suggested,       from the Uruguay Round should cer-
in planning the adjustment. I concur      did recognize the difficulties facing       tainly be helpful, but I doubt whether
with this statement of the problem.       other exporters (Thailand, Argentina,       they will on tl1eir own solve tl1e
But I would add that Argentura, Aus-      Brazil, and New Zealand were men-           world's agricultural problems-a
tralia, Brazil, Canada, India, and]apan   tioned, for example) as well as the         POU1t also made by Dale Hathaway
are relevant partners and need to         damagu1g effect of weak markets on          writing in the same issue of
make adjustments as well. Agricultur-     developing countries largely depen-         CHOICES.
al trade negotiations, inside or out-     dent on farm exports for d1eir reve-           There is probably widespread
side GiITf, and of a short or             nue.                                        agreement that d1e root of tl1e trouble
long-term nature need to involve             To do justice to every aspect cited      is overproduction on a saturated mar-
d1ese countries if negotiations are to    by Mr. Vanegas as having been ne-           ket, the lack of financial resources in
be successful.                            glected would require another full          developing countries and the ever
   (The views, interpretations, and in-   length article but here are some brief      present and highly sensitive conflict
ferences are the author's own and         comments on two or three of them.           between tl1e political and social desir-
should not be attributed to the United       First, proliferation of itnport re-      ability of supporting farmers on the
Nations World Food Council.)              strictions. I detect Iitde evidence of      one hand and the needs of consum-
                                          d1is on the other side of the Atlantic      ers and taxpayers on the other.
                  •                       where tl1e EC remains d1e biggest itn-         Finally, I entirely agree wid1 Mr.
                                          porter of farm products in the world.       Vanegas tl1at all relevant parties-not
From: Derwent Renshaw                     In fact, in the case of European Com-       just the EC and U.S. alone-will need
Agricultural Counselor,                   munity sugar itnports, for example,         to cooperate and coordinate their ef-
Commission of European                    these are 15 percent greater than they      forts to find a solution. But once
Communities in Washington, D. C.          were five years ago. I leave events on      again, contralY to what he suggests,
                                          tlus side of the ocean in this particular   this was a point that was made in my
Re: The Author Replies                    sector--one of vital u11portance to         earlier piece, albeit rad1er briefly, in
  I would be the first to agree with      developing countries-to speak for           d1e penultimate paragraph.   m

				
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