Youde, James G.

English

Research Papers in Economics

Discussion  of
Outlook  and  Projections
James G. Youde
The  three  papers  presented  in this session focus
on  various  aspects  of  outlook  and  projections,
an  important  component  of the  discipline  we  call
agricultural  economics.  For  example,  Christ  des-
cribes  the  objective  of  econometrics  as  "the  pro-
duction  of  quantitative  economic  statements  that
either  explain  the  behavior  of  variables  that  we
have  already seen, orforecast  (i.e., predict) behavior
that we have not seen, or both"  [Christ,  p. 4].  Most
agricultural  economists  are  more  careful  to  distin-
guish  between predictions  and  projections.  Indeed,
someone  has  said  that  "fools  predict  the  future,
while economists make projections."
Authors  Cothern  and  Luby  discuss  short-run,
intermediate-run,  and  long-run  aspects  of outlook
projections.  Quance  et.  al.,  with  their  focus  on
1985  and  2000,  appear  to  adopt  the  time-frame
interests  of  most  economists  in  making  projec-
tions:
1) Short enough  to generate  and hold reader inter-
est,  i.e.,  within  the  current  life  expectancies  of
most readers;
2)  Long  enough  that most  professional  colleagues
will  forget  the  details  of the  projections;  and
3)  Long  enough  that  any  observed  inaccuracies
can  be  dismissed  as short-term  aberrations  on a
long-term  trend.
The  paper  by  Quance,  Plato,  and  Smith  con-
siders  a range  of scenarios  for  United  States and
Western  agriculture  in  1985  and 2000. Apparently
scenario  construction  has  become  as  popular  in
James  G.  Youde  is Chief Deputy  Director,  California  De-
partment  of  Food  and  Agriculture,  Sacramento.  These
comments reflect the author's  views and do not necessarily
represent  the  position  of  the  Department  or  the  Ad-
ministration.
142
Washington,  D.C.  as  have  lowering  expectations
and  keeping your  options open in  Sacramento.  In-
deed,  we might classify  the  authors of this paper in
an  emerging  subset  of  our  dynamic  profession:
scenario  economists,  or  if  you  prefer,  economic
scenarists.
The  approach  advocated  by  the  authors of ex-
amining  a "range  of possible  outcomes rather than
a series  of  single points  through  time"  appeals  to
this  reviewer,  who  values  such  studies  based  on
their  contribution  to  policy  decision-making.  In
point  of fact,  however,  the  paper  does not follow
this  approach;  two  series  of  point  estimates  are
made  within  the  Supply-Demand  Management  or
Unfolding  Scenario.  After  placing  considerable
emphasis  on the other three  quadrants as depicting
the  relevant  range  of policy  perceptions,  they  are
not further  considered  in  the  quantitative  portion
of the paper.
This  analysis  contains  a fundamental limitation
facing  most  analysts  in  making  long-term  projec-
tions:  the  necessity  to  extrapolate  values outside
the  data  range  used  to estimate  the  structural  co-
efficients.  The  resulting  projections  are  in  some
instances  difficult  to  accept,  e.g.,  1985  producer
beef  prices  of  $103  per  cwt  (in  "real"  1974
dollars).
Several  apparent  inconsistencies  exist  in  the
authors'  empirical  results.  For example,  aggregate
output  is  higher  in  the  year  2000  under  the
"scarcity"  bound  than under the "overproduction"
bound.  And projected  U.S.  outputs of corn, wheat,
and  soybeans  in  1985  and  2000 are  greater under
"scarcity"  than  under  "overproduction".  At  the
same  time,  farm  prices  and  incomes  are  much
higher  under  the  scarcity  bound  than  under  the
overproduction  bound.  These  findings  imply  that
prices  and  incomes will  not  be inversely related to
commodity  supplies  in  the  target  years,  a  con-
clusion  that  most economists  will  find difficult  toDiscussion of "Outlook and Projections"
accept.  And  the  percent  of  U.S.  real  per  capita
disposable  income  spent  on  food  is  projected  to
be  higher  under  "overproduction"  than  under
"scarcity".  This  anomaly  is  recognized  but  not
explained  or  rationalized  in  the  paper.  Perhaps
we  should  all hope  for  food scarcity  as defined by
the authors.
Notwithstanding  these  anomalies  in  the  em-
pirical  results,  the  conditions described  under  the
high  demand-low  supply  scenario  seem more  plau-
sible  at this time than the low demand-high  supply
depiction.  As  a  public  policy-maker,  however  -
considering  (among  other  things)  the  degree  of
urgency  we  should  assign  to  preserving  prime
agricultural  land  - I  would  feel more comfortable
using the  study's results  if the authors had  spelled
out  each scenario's  assumptions more  explicitly.
Cothern's  paper  focuses  on  marketing  outlook
information  from four  perspectives:  requirements
for  a  successful  outlook  program,  criticisms  of
current  outlook  programs;,  potential  regionali-
zation  of public  outlook  efforts;  and  the  welfare
impacts of outlook programs.
In  the  interests  of  brevity,  I  will  focus  my
comments  on  the  fourth  issue,  i.e.,  the  incidence
of  costs  and  benefits of agricultural  market  infor-
mation,  including  public  outlook  programs.  This
issue  is  becoming  increasingly  important  as  pene-
trating  questions  arise  about  future  funding  of
market  information  programs.  For  example,  we
are  currently  attempting  to  measure  the  benefits
and  beneficiaries  of  the  California  Federal-State
Market  News  Service.  This  issue  is  not a  new one;
in 1974 Moulton, Levinson, and Thomas concluded
that  the  direct benefit-cost  ratio  for Market  News
could  be  derived; that  its value  exceeded one; and
that  it  was  impossible  to  empirically  measure
benefits  to  consumers  and  non-market  users.
Although  they  also  concluded  that  it  was  not
feasible for California  to initiate a user fee absent a
similar  policy  at  the  Federal  level,  this  question
remains  a  budget  policy  issue  in  Sacramento.
Because  the  relationship  between  benefit  and
costs  of  market  information  programs  (including
Outlook)  will  likely  receive  increased  future
scrutiny  at  both  State  and  Federal  levels,  I  en-
courage  our  profession  to  develop  improved
methodology,  and  conduct  empirical  research,  to
measure  the public and  private  benefits  of market
information.  Relevant  issues  include  identification
of  primary  and  secondary  beneficiaries;  user  fee
alternatives; and impacts of market information  on
various-sized  firms, on overall market competition,
on  market  price  stability,  and  on  efficiency  of
total resource use.
I respectfully  disagree  with Cothern that public
input  is  necessarily  more  important  for  medium-
range  outlook  than  for  short-term  or  long-term
outlook.  In  general,  the  public  sector  should  be
most  concerned about long-run resource allocation
issues,  leaving  many  of the shorter-term  decisions
to  the  private  sector.  Public support  of economic
outlook  or  projections  should  tend to follow  this
general distinction.
Although  it  is  an  integral  part  of his  paper's
title,  Cothern  only  briefly  discusses  market  price
instability,  and  its relation to market  information
and  outlook.  In my judgment, the instability  issue
facing  U.S. agriculture  is extremely important, and
our  profession  should be  devoting  more  resources
to  its  analysis.  Agricultural  commodity  markets
likely will tend to be more unstable duringthe next
30  years than they have been during the past three
decades;  the  incidence  of  resultant  benefits  and
costs deserves further economic research.
The  Luby presentation provides  a private-sector
perspective of outlook information  uses and needs.
It identifies  the complementarities,  as well as some
incompatibilities,  between  public  outlook  work
and  corporate  business  projections.  Several  inter-
esting  questions  arise:  Is market  information  that
is  good  for  Oscar Mayer  also most appropriate for
the  Midwest  hog  producer,  the  Western  cattle
feeder,  and  the  general  public interest?  Could we
justify  public  expenditures  for  outlook  informa-
tion  if we  were  not  concerned  about  the  relative
bargaining  position  of farmers  and  the  buyers and
sellers  with  which  they  deal?  If  relatively  large
firms  directly  benefit  from  public  outlook  pro-
grams,  should  they  pay  a  user  fee?  Because  they
are  substantial  taxpayers,  should  they  be  treated
any  differently  than  smaller  firms?  These  are
knotty  policy  issues  for  which  I  have  no  ready
answers.
A  theme  throughout  Luby's  presentation  is
the  need  for better  data  and more  timely  dissem-
ination  of more  precise  estimates.  Few,  if any,  of
us  would  quarrel  with  those suggestions.  His sug-
gestion  of providing  confidence  limits  with point
estimates  has  considerable  merit,  and  coincides
with  the scenario-building  approach  advocated  by
Quance.
143
YoudeWestern J.  Agr. Econ.
To  conclude,  the  role of information,  including
projections  and  outlook,  will  continue  to be  an
important  issue  in  agricultural  commodity  mar-
keting.  Shubik,  for  example,  defines  information
as  the  key  variable  in  defining  levels  of market
competition.  The agricultural economics profession
has a  central  role  to play  in  1)  making projections
and  providing  outlook information;  2)  identifying
methodology  to improve  projections  and informa-
tion  dissemination;  and  3)  analyzing  the benefits,
beneficiaries  and  costs  of  public  and  private  in-
formation  systems.
References
Christ,  Carl  F.,  Econometric Models and Methods, John
Wiley and Sons,  New York,  1966.
Moulton,  K.,  A.  Levinson,  and P. Thomas,  The Feasibility
of Measuring Benefits of the  California  Federal-State
Market News  Service,  Special  Publication  8003,  Uni-
versity  of California  Division of Agricultural Sciences,
September 1974.
Shubik,  Martin,  Strategy  and  Market Structure,  New
York: John Wiley,  1959.
University  of  California  Food  Task  Force,  A  Hungry
World:  The  Challenge to  Agriculture,  University  of
California Division of Agricultural Sciences,  July  1974.
144
June 1977

DISCUSSION OF OUTLOOK AND PROJECTIONS

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Research Papers in Economics