Gardner, Bruce L.

English

Research Papers in Economics

SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS  JULY, 1978
COMMENTS  ON  EMERGING  AGRICULTURAL
POLICIES  OF  THE  CARTER  ADMINISTRATION
Bruce Gardner
Policy in the form of the Food and Agricul-  The Administration tried hard to have three
ture Act of 1977 "emerged"  as from behind a  general  policy  approaches  embodied  in  the
tree and was greeted by a hail of sticks, stones,  1977 Act:  (1) producer price protection based
and  arrows  from  the  farm  strikers.  It  is  ap-  on  a  cost  of  production  concept,  (2)  market
propriate to begin with a note of sympathy for  orientation,  especially  by  keeping  loan  rates
the  Department  of  Agriculture,  particularly  relatively  low,  consistent  across  crops,  and
the Secretary  who has  so often  in early  1978  flexible  downward,  and  (3)  price  stabilization
borne  the brunt  of  farmer  dissatisfaction.  In  by  means  of  farmer-held  but  federally  con-
certain ancient societies it is  said to have been  trolled  grain  stocks.  These  objectives  were
traditional  to respond  to crisis  by  sacrificing  largely accomplished.
the life of the king to appease the gods. As you  ,
know,  in our  country  the chief  executive  has  I woud descbe  t  naly turne  orntat  however,
delegated  this responsibility  to the Secretary  od  describe it as "maret orientation fore-
of Agriculture.  doomed."  The high target prices in relation to of Agriculture.  the  most  likely  market  prices  for  some  pro-
In addition to the domestic price and income  the  most likely  market  prices  for  some  pro-
areas that are  the traditional center  of atten-  dtrct  ill  tend  to psh  budget costs to unat-
tion,  I want to discuss emerging policy  on in-  tractive  heights.  The result  will be increased
ternational  agricultural  trade,  and the  regula-  pressure  to engage  in  the two  traditional un-
tion  of  agricultural  production  and  the  food  palatable aspects of commodity programs: pro-
marketing industry.  Though the  Department  duction controls  and an  unseemly pushing  of
of  Agriculture  is  sometimes  not -the  lead  exports on the world market - if not by direct
agency in these matters,  it should nonetheless  subsidy,  at  least  by  P.L.  480,  CCC  export
be considered in discussion of the agricultural  credit, and sales promotions  Indeed,  the tar-
agency in these  matters, it shouldnonetheless  credit, and sales promotions.'  Indeed,  the tar-
bepolicies of the Carter Administration.  get price system itself can be a de facto export
o t  subsidy scheme. Why? Compare  the European
Economic  Community.  They  hold the market
PRICE  AND  INCOME  POLICY  price  of grains  for producers  above the world
market price by means  of their variable tariff.
The big item in price and income policy is the  Then  they provide  an  export  subsidy  to  sell
Food and Agriculture Act of 1977.  In consider-  commodities  at  the  offshore  price.  European
ing it as part of the emerging policy  stance of  consumers  and  taxpayers  pay  the  difference.
the Carter Administration,  an initial  problem  In the U.S., we do not hold up the market price,
is how much to attribute to the Administration  but pay deficiency payments to put producers
and how much to Congress. Because the Presi-  in roughly  the same  position  as if we  did.  In
dent embraced the farm bill warmly when he  both the European Community and the United
signed it, it is tempting to call it essentially the  States, producers  are paid above world prices
Administration's  preferred  policy.  But  this  for products exported at world prices.
would not be quite accurate.  Some of the provi-  This  effect  was  minimized  under  the  1973
sions  which  in  my  opinion  are  most  unwise  Act because  of the limitation of payments  to
from the point of view of the nation's  general  historical  allotment  acreage.  One  could argue
interest  were  the  work  of  Congress  and  ap-  that a 1973 type of program would not artific-
parently were opposed by the Administration.  ally induce production to be put on the world
truce (Gardner is Professor of Agricull ural Economics,  Texas  A&M  University.
'A  tont inuing incongruity under hotlh  the Ford and Carter Administrations  is  the simultaneous  claim that the world  is crucially dependent on the U.S.  farmer
for obtaining  increased food supplies. while  at the  same lime it  is  said to he necessary to spend increasing amounts  of taxpayers' money to induce foreign buyers to
purchase U.S.  farm products.
47market  and  depress  other  exporters'  returns,  whether the Carter programs will actually pro-
The  1977  Act,  however,  moves  to  a  current  mote stability. It is too soon to tell. I  see in the
acreage base for payments, and thus this argu-  grain  reserve  programs  one  promising  idea,
ment no longer works so well.  one  dubious  idea,  and  one  problematic  situa-
It  may be argued that supply response to the  tion.  The  good  idea  is  the  subsidy  to  farm
1977  Act's target prices  will be negligible  be-  storage,  both  in  storage  facility  loans  and
cause the target prices are not a real incentive  storage  payments  under  the  extended  loan
to produce when set near U.S. average cost of  resale program (ELRP).  Stabilization  requires
production. Even in the unlikely event that the  basically  stockpiling;  how better to encourage
1977 Act's target prices have captured the ap-  stockpiling  than  to pay people  to  do  it? The
propriate  costs  of  production,  this  argument  dubious idea is the release triggers at 140, 160,
will  not  hold  up.  In  a  world  of  stochastic  and  175  percent  of the loan  rate,  designed  to
weather and demand,  even if the mean price in  force  farmers  to  hold  stored  again until price
the absence  of the program  were known with  reaches the 140 percent trigger, and then to see
certainty,  setting  a  guaranteed  price  at  the  it.  The  basis  for  these  triggers  is  extremely
level would increase expected price, truncating  flimsy, as illustrated by the case of rice,  where
the  prices-received  distribution  which  would  we  are  already  at  the  175  percent  "extreme
otherwise  exist.  Eliminating  the lowest  price  shortage"  trigger  point.  It  would  be  better
outcomes necessarily increases mean price.  never to withdraw the subsidy; the problem in
A related element of the 1977 Act,  which is  rising markets has never been to get grain out
interesting in bringing out an apparent change  of storage but to keep it from being put on the
in the Carter Administration's  outlook during  market too soon (as seen in retrospect).
the six months after the President's signing of  The  problematic  situation  involves  the
the Act on September  29,  1977,  is the budget  potential  effects  of  the  reserve  programs  in
cost of deficiency payments.  In the summer of  boosting current  spot prices.  The  difficulty  is
1977 the idea was prevalent that the President  that the maximum extended loan reserves plus
would veto any farm bill that cost  more than  CCC stocks envisaged is 35 million metric tons
$2  billion  annually.  In  early  1978  Secretary  of  feed  grains  and  wheat.  Yet  U.S.  ending
Bergland  has  been  claiming  with enthusiasm  stocks  for  the last crop year  were  already  60
that  the  1977  Act  will  result  in  benefits  of  million  tons,  and  projections  for  this  year's
several  billions.  The intervening  event  in the  ending stocks  are in the 70  million ton range.
change  of attitude  about  the  payments  is  of  In this  context it would  seem  likely  that the
course the American Agriculture Movement.  bulk  of ELRP  and CCC grain  will not be net
The important analytical point about the bil-  additional  storage  but  will  be  intramarginal
lions  in  payments  is  this:  when  you  take  a  storage;  we  will  pay  for  storing  grain  that
sector of agriculture that under normal  trend-  would have been stored anyway.  The question,
value  circumstances  would  produce  less  than  to which  I do not knowthe answer,  is by how
$10 billion in net income,2 and you talk about a  much  will the  reserve  programs  induce  addi-
prospective subsidy of several billion dollars to  tional total storage at the margin?
commodity  producers  in  the  sector,  there  is
just no way to avoid influencing the economic  An  alternative way  to fix  our ideas  on  this
activity in  that sector.  This is an  instance  of  topic  is  the  following:  the  only  way  to  get
the  policy  maxim,  every  silver lining has a  cash  prices  up  is  to  get  additional  supplies
cloud.  !  .withheld  from  current  consumption.  If  we
think 70 million tons of grain will be held back
I  have  been  discussing  why  I  believe  that  from  consumption  in  the  1977/78  crop  year
market orientation will be very difficult for the  with  the  reserve  programs,  how  much  less
Carter Administration to maintain. In one area  would  be  carried  out  without  them,  ceteris
the  Administration  does  not  desire  market  paribus? However much this is, the difference
prices to rule, following objective 3 above;  the  would be added to 1977/78 disappearance  if the
Administration  does not believe in the utility  ELRP  did  not exist.  But  this would  require
of price  extremes,  and has consistently  called  lower prices. We could get lower prices only if
for "getting the boom and bust out" of prices.  prices began above the market support levels;
This worthy but elusive goal is to be achieved  otherwise  an  end  to  the  ELRP  would  only
by the collection  of  "reserve"  programs.  The  switch stocks from private hands to the CCC.
Ford Administration probably would not have  In terms  of magnitude,  if the reserves  take a
objected  to the goal, but probably  would not  net of,  say,  5  million tons off the market,  and
have  pushed  it  so  hard.  The  question  is  the price flexibility coefficient for all grains is -
21976 gross sales of wheat, corn, cotton, barley,  sorghum and rice were $22 billion, roughly a fifth of gross farm sales of all  products. If "normal" net farm in-
come were $25 billion,  one fifth of this amount would be $5  billion.  Deficiency payments of even $1 billion are thus substantial  in relation to net income from produc-
tion of the crops covered.
48-2,  and  expected  supply  is  in  the  neighbor-  nations,  and  probably  will  make  importing
hood of 330  million tons,  then price  would  be  nations,  like the United States, worse off. The
increased  about  -2(-5/330)  =  3 percent  (or  sugar  case differs  from coffee  in that we  have
roughly 7¢/bu. for wheat).3 domestic  producers  of  the  commodity,  and
thus U.S. interests are more difficult to specify
in the case of sugar. Even for sugar, however,  a
INTERNATIONAL  ECONOMIC  POLICY  1-cent increase in mean price will cost U.S. con-
sumers about twice as much as U.S. producers
In the area of international economic  policy,  will gain.
the Department  of Agriculture  appears  to  be  In the international area in general,  the pic-
taking its traditional line; we want unhindered  ture  emerging  in  the  Carter  agricultural
exports of our farm products but protection for  policies looks more and more like that of Ford.
our farmers against agricultural imports. And  (Even in procedural  matters  the parallels  are
other  parts of the Executive  branch  continue  strong:  where  the Ford  Administration  had
to support a more general liberal trade orienta-  difficulties with the administration of the 1977
tion,  with about  the same intensity under  the  preelection  sugar  tariff  increase,  the  Carter
Nixon/Ford and Carter Administrations.  Administration  had trouble administering  the
The  main  difference  is  in  the international  sugar  tariff  increase  to  attain  the  13.5-cent
commodity agreements,  where the rhetoric,  at  price mandated in the 1977 farm bill.)
least,  is  more convincingly  interventionist  in
the Carter than in the Ford Administration.  I
believe, however,  that there is not much differ-  REGULATION  OF AGRICULTURE
ence  in substance,  and  that the differences  in  AND  FOODS
rhetoric reflect mainly the fact that in 1973-75
we were  talking about  stabilizing prices  down  The regulatory  policy  agenda  continues  to
in shortage  situations and now we  are talking  cause real problems under the Carter as under
about  stabilizing  prices  up  in  surplus  situa-  the Ford  Administration,  both of which tried
tions. In the discussions aimed at establishing  to put the brakes  on regulatory  excess and at
an  internationally  coordinated  system  of  the same time brought new areas under the ex-
national  grain  reserves,  the  position  of  the  tremely visible hand of federal regulators. The
United  States  in  relation  to  the  European  EPA, OSHA, and FTC areas seem to be contin-
Community  seems  to  be  about  the  same  in  uing as before,  but there  is a  new regulatory
both Administrations.  The  EC  wants  rigidly  push  in Interior  with  the land and  irrigation
fixed price corridors whereas the United States  issues and in HEW on food and health.
wants more  flexibility.  Similarly,  the position  The  Carter Administration's  general  econo-
of the United States in the ongoing multilater-  mists  seem to favor  "regulatory  reform"  and
al  trade  negotations  seems  basically  to  mean pretty  much  the  same  thing by  the
unchanged by the change from Republicans  to  term as the Nixon/Ford  economists did.  And
Democrats in power.  the traditional  regulatory  agencies  in the De-
Where  international  agreements  have  been  partments  of  Transportation,  Labor,  HEW,
reached, in coffee under Ford and sugar under  and elsewhere continue their opposition to any
Carter,  U.S. interests  have been  served about  move  toward  a  rudderless  state  of  market
equally  poorly.  In  both  of  these  cases  the  chaos. There seem to be some differences in the
United  States'  preferred  position,  I  believe,  regulatory  agencies,  however.  The  apparent
was to obtain a purely stabilizing agreement  - change  is great in Agriculture  where  we  now
one which would rely primarily if not solely on  have a consumer advocate as Assistant Secre-
buffer stocks to be acquired  to support prices  tary for USDA's food regulatory functions.  As
in low-price periods and released to hold down  a  practical  matter,  however,  the  types,  fre-
prices  in high-price  periods.  However,  in both  quency,  and  severity  of  the  regulations  one
cases  the  final agreements  reached  relied  on  sees in the Federal  Register, and the nature of
export controls to support floor prices. Export-  regulatory  proposals  made in Congress  or en-
ing countries agreed to hold the commodity off  dorsed in speeches,  do not seem notably differ-
the world market.  This approach has less pro-  ent in the past year.
mise than a buffer  stock for preventing  sharp  The response of the Administration to recent
price rises in years of shortage.  Consequently,  farmer unrest does bring out a noteworthy dif-
the agreements  should tend,  if they  are effec-  ference  between  farm  commodity  policy  and
tive at all,  to increase  mean price.  The  agree-  regulatory  policy,  namely,  the  much  better
ments are basically  set up to benefit exporting  factual  and analytical  base  we  have for  com-
3And  of course, assuming marketing margins  remain constant,  every dollar paid to farmers through higher market prices is an additional dollar paid for food by consumers.  I mention this obvious fact only because the Department of Agriculture appears sometimes to deny it, or fuzz it up.
49modity policy than for the regulatory area. For  price  area.  This  relatively  secure  knowledge
example,  the response to  the grain inspection  base makes  a reasoned discussion  fairly easy,
scandals in 1975-76  was legislation passed by  even in the midst of an emotional  storm that
Congress and supported by the Ford Adminis-  would  otherwise  so  easily  carry  Congress  to
tration which seems  to be poorly  thought out  new heights  of legislation.  We may hope some
and potentially wasteful.4 In an other instance,  day to be able to  do as well in the regulatory
the  never-ending  propensity  to  smite  the  areas.
middleman  led  both  Congress  and  the  Ford
Administration to support what in my opinion  Consider finally the larger purpose of policy.
is  a useless  bill to subsidize  the marketing  of  What  is it that the  Administration  wants  to
food in places  other than  grocery  stores.  The  attain in  farm  and  food programs?  For  both
Carter Administration is supporting an almost  Ford and Carter, I believe that there is no well-
equally useless but more costly "consumer  co-  defined goal, no ideal that policy is striving to-
operative bank" plan. Similarly, there is a ten-  ward.  Of course,  both want what we  all want,
dency  for  both  environmental  and  which roughly  speaking is more of everything
health/safety  legislation to jump  off the deep  for  everybody  at  less  cost.  But  neither  ad-
end. In contrast, in farm commodity policy the  ministration  has had  a considered  large-scale
Carter Administration  has been able so far to  view of what improvements policy should seek
keep a fairly stiff spine and even to keep Con-  to  make  in  U.S.  agriculture,  or  what  steps
gress from straying too far off the tracks in the  should  be  taken  in  seeking  these  changes.
face of a truly impressive effort by farmers to  There  is  a  lack,  to bring  in  the  phrase  that
get the Administration  to "do  something."  A  Carter supporters have used against Ford, of a
comparable  lobbying  effort  in  a  regulatory  National  Food  Policy.  For  both  Ford  and
area  would  have  surely  resulted  in  massive  Carter,  the  revealed  preference  is  an  "ideal"
action  or  programs,  most  likely  of  the  most  somewhere  in the vicinity of what we actually
unwise kind.  Why  the  difference?  Because,  I  have, and maybe  the only overriding strategic
believe,  the Administration's  agricultural  eco-  aim is to fulfill political  demands  while doing
nomists know, or have at least a good idea, of  the minimum economic mischief. It  is possible
the benefits and  costs of various policy  steps  that  a  more  ambitious  approach  could  do
that might  be undertaken  in  the  commodity  better, but one could imagine much worse.
REFERENCE
[11  Gardner,  Bruce L.  "Economic  Consequences  of the  1977 Farm Bill,"  DIR 71-1,  Texas A&M
University, March  1978.
'One  piece of evidence  on this point is that the Food and Agriculture Act  of 1977  contains seven patges  of technical amfndment s  o t hXI  drain I nsp(c:t ion Actl  f
1976. For further discussion, see 11, pp.  19-201.
50

COMMENTS ON EMERGING AGRICULTURAL POLICIES OF THE CARTER ADMINISTRATION

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