Thursday, December 20, 2012

Agricultural producer support declining over time

We hear all sorts of generalizations about U.S. farm policy.

Some say U.S. farm programs are too stingy and should provide more help to farmers, especially small farmers. Others say U.S. farm programs are a boondoggle that just makes rich farmers richer. Still others say farm programs make consumers fat by encouraging too much cheap food.

Instead of generalizing, it is important to think quantitatively.

One good data source is the Producer Support Estimates (PSE) from the Organisation of Economic Cooperation and Development (a club for the world's upper-income countries). I use this data source in several chapters of my forthcoming book from Routledge/Earthscan called Food Policy in the United States: An Introduction.

The PSE data measure diverse agricultural programs and policies in a consistent way across countries and over time.  One problem with the PSE is that it can seem a little complex.  To provide an orientation, Rebecca Nemec and I created the following data gadget.  Nemec is a graduate student at the Friedman School at Tufts and the teaching assistant for my class on U.S. Food Policy.  The top panel shows broad categories of support for agricultural producers.  The bottom panel shows more detail about each broad category in turn.   

Just click on each colored broad category in the top panel to see the corresponding detail in the bottom panel.

Working from top to bottom, we learn about trends in several major categories of producer support.
  • Price supports and deficiency payments help farmers in years when prices are low.  OECD worries about these programs because they distort international trade and hurt farmers overseas.  Michael Pollan criticizes deficiency payments for making corn too cheap.  Notice that in recent years -- with greater scarcity and higher prices -- these distorting policies have fallen to almost nothing under current policy.
  • Conservation programs have been growing in recent years, and also do not respond to price fluctuations as wildly as deficiency payments do.
  • The other payments category includes direct payments, which pay farmers regardless of the current price.  These direct payments may end under some current farm bill proposals.  They do not distort agricultural markets very much, but it is unpopular to pay farmers when they are prospering during high-price years.
  • Market Price Support represents the economic impact of the trade barriers that protect some producers, especially for milk and sugar, from imports.  Although they do not have a budget cost, these supports benefit farmers at the expense of consumers.  As with deficiency payments, the impact of these trade barriers has declined to almost nothing in recent high-price years.
An especially clever feature is that PSE data allow sensible comparisons across two seemingly different types of policies:
  • payments to farmers at the taxpayers' expense (the first three broad categories), and
  • trade policies that support farmers at the consumers' expense (the fourth broad category).
To speak coherently about U.S. agricultural policy, one must make important distinctions across several types of programs and be aware of rapid changes in program impacts from one year to the next.

There are a couple limitations that I should mention.  First, the OECD data may have some limitations of their own.  Second, while I did the best I could to classify programs from the OECD data into sensible categories, I did make some judgement calls about these program classifications.

In general, U.S. support for farmers has been declining in recent years, mainly because of high food prices that result from greater scarcity on world markets.  Though some people are more optimistic, I think population and environmental constraints may generally keep prices fairly high in the future.

This means that governmental support for U.S. farmers can be smaller over time, unless legislators replace existing programs with new and poorly designed alternatives.  For example, I worry about new and potentially expensive crop insurance programs that have been proposed in draft farm bills.

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