Agricultural Protectionism in the Industrialized World

Fred H. Sanderson

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317310808
• Edition: 1
• Topic: Biological Sciences
• Subtopic: Ecology
• Index: Biological Sciences

Originally published in 1990, Agricultural Protectionism in the Industrialized World takes a detailed look into the domestic and international agricultural policies of the United States, Europe, Canada, Japan, Australia and New Zealand. These areas are some of the most industrialised in the world and this study focuses on the benefits, policies and costs related to protectionism of their agriculture. These papers offer detailed analysis of the evolution, objections and domestic and international implications related to agriculture in specific countries as well as taking a global view of issues such as policy, trends and costs and concluding with a discussion on the effects of free trade. This title will be of interest to students of environmental studies.

Part 1
The Why, How, and Consequences of Agricultural Policies

1
The United States

BRUCE L. GARDNER

Origin and Evolution of U.S. Farm Policies

The U.S. government has been intervening in agricultural commodity markets for more than fifty years. Much experimentation has occurred, but the policies in place in the 1980s were similar to those of the 1930s. Both decades started with government-controlled commodity stock accumulation and soon moved into acreage controls induced by payments to producers as surplus production persisted. However, payments were larger in the 1980s than in the 1930s, and the percentage of cropland idled was the largest in history. The 1980s differed in more fundamental ways also, because of the greatly changed macroeconomic and international environments.

This chapter assesses the U.S. experience in protecting agriculture, emphasizing events of the 1980s and proposing where policy might go in the future. It first reviews past U.S. agricultural policies, then analyzes current programs, and finally discusses options for both the short run and the long run.

Objectives of Agricultural Policy

Why is agriculture protected? Among the many reasons given, the following seem most prevalent:

• to cushion farmers' incomes against adverse economic developments;
• to provide a more stable economic environment in which risky but productive investments in agriculture are fostered;
• to promote food security;
• to preserve the traditional system of family farming;
• to foster conservation of productive farmland by protecting it against erosion and other natural hazards and by preventing conversion of prime cropland to nonfarm uses.

Farm income support was clearly the top priority during the depression of the 1930s, and it was again in the 1980s. The New Deal wanted first and foremost to get increased purchasing power in the hands of rural people. In the 1980s, the primary force moving the now overwhelmingly urban electorate to support agriculture was the perception that a great many farms are, through no fault of their own, on the verge of bankruptcy. On the other hand, economists have emphasized economic stability. Kenneth Boulding (1983) puts the point as follows: "The uncertainty involved in meaningless market fluctuations discourages innovations and investment and limits our getting richer. This is a point too much neglected by economists, as the remarkable history of American agriculture since price supports should have shown."

In the United States, the threat of food shortages is not so strong a political force as it seems to be in Japan and other food-importing countries, but food security is a concern nonetheless. In the mid-1970s, consumer interests for a time even overrode those of farmers when the two conflicted. In more normal times there is a perception that an economically healthy agriculture is a kind of food-supply insurance for consumers, and this contributes to support for protection of agriculture.

The virtues of an economic organization of agriculture in which family farms predominate are regularly invoked in farm policy debates, but the idea of a family farm is hazy. It is clear that farming corporations that hire professional managers, issue stock, and distribute profits to people who do not live on farms are not family farms. Neither are "hobby" farms, on which a person with mostly off-farm income raises a couple of horses and grows hay. But the precise line is difficult to define. Newspaper stories such as an article in the Washington Post detailing how the crown prince of Liechtenstein's Texas farm received $2.2 million in farm program payments convey strong antiprotection sentiment. The objective of farm policy is not seen as providing aid to this type of farm.

The pursuit of these objectives can be complicated and is often indirect. Sending cash to farmers is not the usual way to support farm income. Instead, steps are taken either to increase farmers' receipts or decrease their costs. Costs are seldom reduced directly by input subsidies (such as the fertilizer subsidies that exist in many countries). Rather, indirect subsidies are more common, the most important being governmental provision of research, extension, and technical education in agriculture. Farmers may also receive subsidized crop insurance, electric power, credit, and exemption from environmental and minimum wage regulation.

Generally, the role of government in these areas has been seen by historians as benign. A fairly typical view is that expressed by Schlesinger (1984):

No sector of the economy has received more systematic government attention, more technical assistance, more subsidy for research and development, more public investment in education, in energy supply, and in infrastructure, more price stabilization, more export promotion, more credit and mortgage relief. National planning thus transformed a weak, disorganized and poverty-prone sector of the economy into America's most spectacular productive success.

Such broad consequences of policies are difficult to assess. This chapter concentrates on the aspect of agricultural protection that focuses on the commodity markets. U.S. farm policy since the 1930s has been aimed at protecting farmers' market receipts. This is achieved by supporting prices received by farmers, either by boosting market prices or by payments to farmers to supplement their market receipts, or both.

Evolution of Farm Policies and Farming

Over the past fifty years, U.S. farm policy has provided support for major commodities such as wheat, feed grain, cotton, and dairy products. Commodities such as sugar, rice, peanuts, tobacco, and wool have also received support and protection. But several other important commodities, including hogs, poultry, soybeans, and many vegetables, have not received significant protection.

Table 1-1 shows the historical record of the main indicators of intervention in commodity markets. The programs of the 1930s were viewed as massive interventions at the time but were dwarfed in the 1960s and again in the 1980s. During the past fifty years, the number of U.S. farms fell from about 6.5 million to 2.2 million, a trend rate of about 2 percent annually. This suggests a declining sector, but while labor used in agriculture has fallen sharply, other inputs have increased and land in crops has been about constant. Indexes of input and output quantities are given in table 1-2. Increased investment and total factor productivity rising at a trend rate of 2 percent annually since 1940 indicate a quite dynamic sector. And as the number of farmers has declined, the standard of living of rural people has improved. Income per capita has grown faster among farm families than in the United States as a whole. An outline of the program chronologies is given in table 1-3.

The problem in the 1980s was the large buildup of commodity stocks that resulted from the weakening of the strong export markets of the 1970s. As support prices continued to maintain farmers' production incentives, federal outlays increased for deficiency payments, diversion payments, and Commodity Credit Corporation (CCC) purchases and loans between 1980 and 1986 (table 1-4).

Table 1-1. Historical Record of Main Indicators of Intervention in Agriculture, 1933-1987

			Government payments to farmers
Year	Diverted acres (millions)	Government stocks (millions of 1967 dollars)^a	(millions of 1967 dollars)^a	(1967 dollars per farm)
1933	0	0	337	50
1934	35	0	1,112	164
1935	30	0	1,394	204
1936	31	0	669	99
1937	26	0	781	117
1938	0	21	1,056	161
1939	0	26	1,834	284
1940	0	1,126	1,721	282
1941	0	1,646	1,233	196
1942	0	1,389	1,331	214
1943	0	1,729	1,245	204
1944	0	1,633	1,472	245
1945	0	1,710	1,376	234
1946	0	837	1,319	222
1947	0	439	469	79
1948	0	208	356	61
1949	0	1,515	259	45
1950	0	3,639	392	72
1951	0	1,841	367	67
1952	0	1,349	345	66
1953	0	2,694	265	53
1954	0	4,260	319	66
1955	0	5,700	285	61
1956	14	6,614	680	150
1957	28	5,620	1,205	275
1958	27	5,430	1,257	297
1959	22	6,024	781	210
1960	28	6,788	791	199
1961	53	6,208	1,666	436
1962	64	4,938	1,928	523
1963	56	5,153	1,849	517
1964	55	4,963	2,347	743
1965	57	4,349	2,606	776
1966	63	2,407	3,371	1,035
1967	40	1,005	3,079	973
1968	49	1,021	3,322	1,081
1969	58	1,624	3,455	1,265
1970	57	1,370	3,196	1,081
1971	37	921	2,592	893
1972	62	662	3,161	1,105
1973	19	296	1,958	693
1974	3	127	359	128
1975	2	249	500	187
1976	2	371	430	157
1977	0	608	1,002	370
1978	16	606	1,550	580
1979	11	570	647	271
1980	0	1,134	515	218
1981	0	1,387	709	301
1982	11	1,905	1,208	516
1983	78	3,551	3,115	1,331
1984	27	2,443	2,711	1,164
1985	34	2,662	2,400	1,050
1986	49	3,500	3,598	1,400
1987	60	2,847	4,912	2,340

Source: U.S. Department of Agriculture.

^a Deflated by consumer price index.

Table 1-2. Index of U.S. Farm Inputs and Output, 1910-1987

Farm Income. Although farm policies have remained similar in approach throughout the past fifty-five years, the economics of farming has changed considerably. In particular, the markets for farm resources have become better integrated with the nonfarm economy. This point is especially important for human resources in agriculture. The "farm problem" of the 1930s and 1950s was excess labor in agriculture. With better integration of farm and nonfarm

Table 1-3. Outline of Commodity Program Chronologies

...

Commodity	Program
Corn	Agricultural Adjustment Act (AAA) of 1933 introduced payments for idled acreage.
	AAA of 1938 introduced marketing quotas.
	Marketing quotas ended in World War II; acreage allotments continued after 1948.
	Agriculture Act of 1956 established “soil bank” payments for idled acreage.
	Feed Grain Act of 1963 introduced payments on allotment-based output.
	Food and Agriculture Act of 1977 introduced target price payments, extended to 1990 in the Food Security Act of 1985.
	Agriculture and Food Act of 1981 authorized 1983 Payment-in-Kind (PIK) program.
	Food Security Act of 1985 cut Commodity Credit Corporation (CCC) loan rates.
Wheat	AAA of 1933 introduced payments for idled acreage and also payments for production on “allotment” acreage. AAA of 1938 introduced marketing quotas.
	P.L. 480 of 1954 subsidized exports (also authorized by AAA amendments of 1935).
	Agriculture Act of 1964 eliminated marketing quotas, which had been rejected by a producer referendum, and substituted payments for diverting acreage and payments on part of each producer's base output allotment.
	Food and Agriculture Act of 1977 abolished allotments and introduced subsidy payments proportional to production, and retained payments for diverted acreage.
	Food Security Act of 1985 based payments on past production, cut loan rates, and mandated use of CCC stocks in export promotion.
Soybeans	No acreage controls or subsidies; except on vegetable oils in World War II. Low-level CCC loan rates, effective sporadically.
Rice	In 1935, payments introduced for acreage reduction under the AAA.
	AAA of 1938 introduced marketing quotas.
	P.L. 480 of 1954 subsidized exports.
	Rice Production Act of 1975 eliminated marketing quotas and introduced subsidy payments on base output.
	Food Security Act of 1985 eliminated effective CCC price support but continued payments. Acreage controls continued.
Cotton	AAA of 1933 introduced payments for idled and plowed-up acreage, and supplemental payments on products sold.
	Bankhead Act of 1934 introduced constraints on quantity marketed.
	CCC export subsidy program was introduced in 1956.
	Agriculture Act of 1964 introduced subsidy payments to domestic cotton mills.
	Marketing quotas ceased in 1970 and payments for idling land and subsidies on the allotment base were introduced.

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Agricultural Protectionism
• Author
• Original Title Page
• Original Copyright Page
• Resources for the Future
• Contents
• List of Figures
• List of Tables
• Foreword
• Preface
• Overview
• Part 1. The Why, How, and Consequences of Agricultural Policies
• Part 2. Lessons for Domestic and Trade Policies
• Appendix Participants in the 1986 and 1987 Workshops
• Index