Allgood, J.G.

Pugh, Charles R.

Turner, W.L.

English

Research Papers in Economics

Approach  E
CHANGING  MARKET  SUPPLY  BY
RESTRICTING  INPUTS
W.  L.  Turner,  Public Affairs  Specialist
C.  R.  Pugh and J.  G.  Allgood
Extension Farm Management Specialists
North  Carolina State  College*
Limiting  of  inputs  available  for  production,  often  coupled  with
price supports  or incentive payments,  historically has been the predom-
inant method  of controlling  market supply.  The  principal attempts  to
restrict inputs  have been acreage  allotments  and the  Soil  Bank,  direct
restrictions  of  the  land  input.  What  are  the  consequences  of  such  a
program?
Conceptually,  several  alternative  methods  (either  by  commodity
or aggregative)  may be  used in restricting inputs:
1. Restrict  a  single  input  for  individual  commodities.
2.  Restrict  a single input with farmer's choice on allocation among
farm  enterprises.
3.  Restrict  a bundle  of  resources  for  individual  commodities.
4.  Restrict  a  bundle  of  resources  leaving  their  allocation  to  the
discretion  of the farmer.
In effect,  programs  designed  to restrict a single input may divert a
bundle  of  resources.  For  example,  a  program  to  restrict  land  might
simultaneously  reduce  the  quantities  of other  resources  used  in farm
production.  More  comprehensive  results  in  restricting  inputs  may be
obtained  by  direct  marketing  quotas  than  by restriction  of  a  bundle
of  resources.
DESCRIPTION  OF  THE PROGRAM
It is recognized:  (1 ) that the share of the total supply of farm com-
modities  produced  by  an  individual  farmer  is  too  small  to  influence
market price  and  (2)  that the short-run  demand for farm  products  is
inelastic;  hence,  that  farm  prices  and  incomes  may  be  raised  by re-
straints  on  market  supply  through  restrictions  on  inputs.
*The  other  members  of the  work  group  who  reviewed  the  preliminary  draft  and
assisted in the development  of the final  report were:  J.  B. Kohlmeyer  (Chairman),  John
Bower, Foy Helms, Raymond J.  Penn, Robert Sinclair, and  W. N. Thompson.
51The  type  of  program  outlined  below  supplements  previous  meas-
ures  to restrict  inputs by adding such features  as  cross-compliance  and
transferability  of the restricted input to encourage efficiency  and tighter
control  of market supply. The suggested framework  is applicable  under
the free market or with price supports. The program includes the follow-
ing  steps:
1.  Designate the commodities for which the input will be restricted.
2.  Predict price-demand  relationships for the designated commod-
ities.
3.  Determine  equitable  prices  for the  commodities.
4.  Estimate  the  production  needed,  either:
a.  To  clear  the  open  market  at  the  prices  specified  to  be
equitable.
b.  Or  to prevent  unmanageable  surpluses  if price supports  are
used.
5.  Determine  the  quantity  of  the restricted  input  needed  to  yield
the given production.
6.  Allocate  the  input  allotments  among  producers  and  require
cross-compliance.
7.  Provide  freedom  to  transfer  the  restricted  input  among  pro-
ducers.
EXAMPLES  OF  RELATED  PROGRAMS
The  tobacco  program  illustrates  the  restriction  of  a  single  input
(namely  land)  for  a  single  commodity.  National  tobacco  marketing
quotas,  if  approved  by growers,  are  announced  prior to  each planting
season  and  are  converted  to  acreage  allotments  based  on  expected
yield.  Annually,  each  producer's  allotment  is  increased  or  decreased
from a  historical base in line with the change in the national  allotment.
The  relative  success  of  acreage  controls  on tobacco  has  been due
to:  (1)  non-perishability  of  the product  and  (2)  willingness  of  pro-
ducers  to  accept  regulations.  Prices  of  tobacco  have been  stabilized
through  the  accompanying  price-support  program.  Removal  of  this
source of uncertainty has facilitated production planning on farms. On
the other hand, the size of acreage allotments has shifted downward due
to  increased  yields,  loss  of  markets  to foreign  production,  and  use  of
reconstituted  tobacco  by manufacturers  (see  Table  1).
Acreage  allotments  have  also  been  employed  with  cotton,  corn,
wheat, and rice. Without cross-compliance features,  these acreage allot-
52TABLE  1.  AVERAGE  PER  ACRE  YIELD,  NUMBER  OF  ALLOTMENTS  AND
ACRES  ALLOTTED  OF  FLUE-CURED  TOBACCO,  1933-1956
Acreage
Year  Yield  Allotments*  Allotted*
Pounds  Number  Acres
1933  797
1934  822
1935  928
1936  790
1937  875
1938  866
1939  922
1940  1,025  758,000
1941  905  762,000
1942  1,024  841,000
1943  938  895,000
1944  1,069  190,338  1,095,134
1945  1,088  194,737  1,118,725
1946  1,137  201,401  1,257,106
1947  1,135  204,147  1,246,765
1948  1,233  205,128  907,602
1949  1,191  206,896  959,463
1950  1,312  209,408  968,595
1951  1,309  210,735  1,119,309
1952  1,229  213,236  1,127,371
1953  1,245  213,541  1,044,543
1954  1,261  214,403  1,053,135
1955  1,497  212,970  1,007,023
1956  1,609  211,152  887,575
' Information  not  available  since allotments  were  not computed  on  same  basis.
SOURCE:  Annual Report on Tobacco Statistics, Agricultural  Marketing  Service, U. S.
Department of Agriculture,  various issues.
ment programs have permitted  shifts to other commodities.  Under the
Conservation  Reserve  provision  of  the  Soil  Bank,  total  land  for  cul-
tivated crops  is reduced for participating farmers,  but the farmers may
select  any combination  of  crops  on  the  remaining cultivated  land.
In  addition  to  programs  restricting  land,  certain  programs  de-
signed  for  other  purposes  may,  by  coincidence,  restrict  inputs.  For
example,  wartime  rationing  resulted  in  the  restriction  of  inputs  from
nonfarm  sources,  although farmers  were  offered considerable  priority
among  civilian  users  as  a  stimulus  to production.  The market,  based
on  price  outlook,  incidentally  rations  capital.  At  present  the  FHA
limits  on  poultry  loans  is  a deliberate  restriction  of  capital.
Restrictions  on  technology  have  generally  been  considered  to
violate  individual  freedom and  to impede progress.
As  compared  with  land,  direct  restrictions  on  capital,  labor,  and
nonfarm  inputs  for  farm  production  face  serious  criticism  since  such
53measures  more  obviously  involve  nonfarm  industries  as  well  as
farmers.
EVALUATION  OF  THIS  GENERAL  PROGRAM
EFFECT  ON  PRODUCTION.  The  program  would  facilitate  produc-
tion planning  on  individual farms.  With  maximum  inputs  for certain
commodities  specified,  plans for other enterprises  may be easily formu-
lated.  The reduction of risk of price variability  also helps. The program
specifies  that the restricted input cannot be used to produce other com-
modities. Since  rights to the restricted  input might be transferred,  pro-
duction  needs  may  be  obtained  from  better  organized  farms.  These
farms  may be  able to produce  at lower costs  due to high rates  of pro-
duction  per unit  of input.
Several factors prevent complete control of supply by the restriction
of inputs:
1. The  total  supply of a  farm product  is not likely  to  be perfectly
predictable  due to variations  in weather,  etc., or to  incomplete  knowl-
edge of the  technology  which would be  used by farmers.
2.  Disproportionately  high restraints  must be  placed on  the input
to  obtain  a  specified  reduction  in  output,  since  farmers  tend  to  use
the more productive of the inputs under quota  (such as the best land).
3.  Where only a single  input is restricted,  use of other inputs tends
to  be  concentrated  on the  restricted  input.
Geographical  shifts  in  production  are  probable  if  rights  to  use
of the  restricted  input  are  fully transferable.  Shifts  in the major  areas
of production  are possible.  For example,  participation  in the Soil  Bank
would  vary  by  regions  if  rates  of  compensation  were  not related  to
productivity  of resources.
EFFECT ON DEMAND  AND CONSUMPTION.  Possibilities of increasing
income through control  of market supply is contingent on the inelastic
demand  for  farm  products.  However,  long-run  demand  relationships
are  subject to change.  A program  to restrict  inputs may result in:  (1)
increased  production  of farm products  in other countries,  (2)  develop-
ment of new products and processes which compete with farm products,
and  (3)  substitution  of other products  by consumers.
EFFECT  ON  INCOME.  Two long-run trends will tend to nullify gains
in  net farm  income:  (1)  added  returns  become  imputed  to the value
of the restricted input and hence  to costs of production,  and  (2)  added
returns  may deter the  transfer of persons  from agriculture  with the  re-
sult that  net income  must be divided  among a larger farm population.
The  system  of restricting  inputs  to  individual farmers  (historical  base
54or otherwise)  influences  the  distribution of  income.  Permitting  trans-
fers  of the restricted inputs results in concentration of any short-run in-
come  increases  on  the  more efficient  farms.
OTHER  IMPLICATIONS.  Many  current  economic  forces  and  politi-
cally  accepted  programs  tend  to increase  rather  than  reduce  produc-
tivity.  A  program  to restrict inputs  requires  provisions  to compensate
for such programs  of conservation,  reclamation, and irrigation; research
and education;  and supplementary  credit.
A  program  of  input  restrictions  involves  compromise  with  many
values  of American  society,  such as  encouragement  of progress,  free-
dom of choice in use of resources,  and production of abundant supplies
of food  and  fiber  at  low  cost.  Restriction  of  inputs beyond  the  level
dictated  by price conflicts  with the popular concept  of efficiency.
BIBLIOGRAPHY
Bishop,  Charles  E.,  "Approaches  to the Rural  Development Program,"  Journal  of
Farm Economics, May  1957,  pp.  271-78.
Bottum,  J. Carroll,  "Impact of Acreage  Reserve on Resource  Adjustments  in Agri-
culture,"  Journal of  Farm Economics,  Proceedings  Issue,  December  1957,  pp.
1134-44.
Brandow,  George  E.,  "Alternatives  to  Orthodox  Programs and  Goals  of Agricul-
tural Adjustment,"  Journal  of Farm Economics, Proceedings Issue, December  1957,
pp.  1634-42.
Cochrane,  Willard W.,  "Appraisal  of Recent  Changes  in Agricultural  Programs  in
the United States,"  Journal of Farm Economics, May  1957,  pp. 285-99.
Cochrane,  Willard W.,  "The  Supply  Control  Route,"  Increasing Understanding  of
Public Problems and Policies, Farm  Foundation,  1957,  pp. 85-92.
Krieder,  Lawrence  E.,  "Credit  Needed for American  Agriculture  and  Its  Relation
to Surplus,"  Journal of Farm Economics, Proceedings  Issue,  December  1937,  pp.
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Policy for Commercial  Agriculture: Its Relation to Economic Growth and Stability,
Statements  before  Subcommittee  on Agricultural  Policy,  Joint Economic  Commit-
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1.  Buck, Robert  K.,  "The Place  of Production  and Marketing  Controls in United
States Farm  Policy,"  pp. 732-37.
2.  Cochrane,  Willard  W.,  "The  Case  for  Production  Control  Restated,"  pp.
712-24.
3.  Simerl,  L.  H.,  "Adjusting  Production  Through  Administrative  Controls,"  pp.
725-31, especially  p. 728.
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55

Alternatives to Orthodox Programs and Goals of Agricultural Adjustment,&quot;

Appraisal of Recent Changes in Agricultural Programs in the United States,&quot;

Approaches to the Rural Development Program,&quot;

Credit Needed for American Agriculture and Its Relation to Surplus,&quot;

Impact of Acreage Reserve on Resource Adjustments in Agriculture,&quot;

Policy for Commercial Agriculture, Report of the Subcommittee on Agricultural Policy to the Joint Economic Committee, Congress of the United States,

Policy for Commercial Agriculture: Its Relation to Economic Growth and Stability, Statements before Subcommittee on Agricultural Policy, Joint Economic Committee, Congress of the United States,

The Supply Control Route,&quot; Increasing Understanding of Public Problems and Policies, Farm Foundation,

APPROACH E: CHANGING MARKET SUPPLY BY RESTRICTING INPUTS

APPROACH E: CHANGING MARKET SUPPLY BY RESTRICTING INPUTS

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