ARE 3260
Mandatory programs
SNAP, agriculture subsidies authorizing committee decides rules and the federal government must fund it no cap on funds
Farm labor shortage: What's the background/ research? Why is it happening?
Seasonality Low wages Lack of interest in agriculture and food production immigration
Risk factors to food insecurity
Socio-economic status (income, wages, education) Disability Demographics: family (children, single mothers), race, ethnicity
Two programs: PLC
Price loss coverage (PLC): safety net for prices Crop by crop decision Price Loss Coverage: payment made when the annual national- average market price is below the fixed reference price Payment rate= reference price- market price Payment amount= payment rate * payment yield * 85% * base acres
Conservation programs of the farm bill are known as: a. Mandatory programs b.Voluntary programs, with no requirements c.Voluntary programs, with in- build requirements in other agricultural programs d.None of the above
C
How does the federal government assess "hunger" in the US? a. Currently asks families whether they were ever hungry in the last 12 months b. Formerly asked respondents a survey question about hunger, but such data isn't collected c. never asked about hunger in federal surveys, preferring a more scientific term of "food insecurity"
C
The energy title of the farm bill generally encourages and subsidizes biofuels production in the US. What interest groups might oppose these policies?
Environmental advocates because biofuels create a lot of waste Corn prices will increase because less of the supply is going to food
Working Lands Programs (voluntary)
Environmental quality incentives program: Financial cost- share, technical assistance for adopting new conservation practices or structures Conservation Stewardship Program: Financial, technical assistance on conservation systems Incentives for adopting additional conservation efforts
highlights of farm bill
Farm Bill is the most important regulation affecting agriculture and food Two major goals: safety net to farmers and safety net for the poor Commodity subsidies now mainly crop insurance and price/revenue supports Food assistance (SNAP) is the largest Farm Bill category (about 76%)
Current Challenges in US Agriculture
Farmer labor shortage Resource depletion: the costs of industrial agriculture Land management: degrading and undervaluing farmland Food waste: compromising food security Demographic changes: a disconnected public Political issues: the business of food
Question 2: Direct payments generally don't affect consumer prices or production. Discuss why this policy became very unpopular in the 2000s
Farmers were getting paid whether they were producing or not (welfare checks) Policy was not justified
Crop Insurance
Goal is to protect farmers from weather- related hazards and economic fluctuations Insurance payments based on shortfalls in: Crop yields Expected revenue Insurance contracts are actuarially fair (+ a profit margin) Insurance may involve "moral hazard" Increased fraction of all subsidies in recent years
Supply controls
Goal is to reduce supply to increase market price above equilibrium price Mechanism: production or import quotas Effects: Reduced production Higher prices for farmers and consumers
Deficiency Payments
Payments made only in years when market prices fall below target (reference) prices Payments based on planted acres, not historical production Effects: Higher prices for farmers Lower prices for consumers Increased production
Countercyclical Payments
Payments made only in years when market prices fall below target prices Payments based on base acres or historical production (unlike deficiency payments) Price loss coverage (PLC) Effects: Higher income for farmers No effect on prices for consumers and production
Safety net for revenue: Individual Farm Coverage
Payments made when Actual Crop Revenue is below Individual Revenue Guarantee Actual crop revenue= (farm yield) * (US average mkt price) * (crop acres) summed for all crops Individual revenue guarantee= 86% * benchmark revenue (weighted average 5 yr revenue of crops, excluding max-min)
Price Supports
Policy goal is to help farmers Purchase and removal at support price, which is above market price (surplus) Effects: Increased price for farmers and consumers Increased production
Title 1: Commodities
Price and income support to farmers due to unique risks outside their control (weather) Dairy, sugar, and covered commodities Crops: corn, soybeans, wheat, sorghum, barley, rice, peanuts, pulses Major field- crop programs include the Price Loss Coverage (PLC) and Agricultural Loss Coverage (ALC) Sugar programs limit imports, price support
7 broad categories of farm policy interventions
Price supports Supply control Deficiency payments Direct payments Counterfactual payments Crop insurance Demand expansion
Dairy
Production in all 50 states Usually family- owned farms Members of producer cooperatives Cooperatives assemble milk and move it to process Operate processing plants
Title 3: International Food Aid
Programs reach over 65 million people globally Purpose is double- fold: provide hunger relief and reduce food surplus in the US ("dumping") By law, US food and shipping only Undermines local farmers Benefits big US farms and shipping Inefficient Local food could remain unsold Can't develop self- sufficiency Small initiative to send money instead of food
Agriculture & farm shares
average farmer gets $0.15 per dollar very small share farm share is higher for less processed foods (they get more money for milk rather than ice cream because there's less processing, packaging, marketing, etc.) Marketing: farm share is 14.6 cents, marketing share is 85.4 cents
Title XI: Crop Insurance
2nd largest program in the Farm Bill Federally subsidized crop insurance for eligible commodity crops Protects against losses resulting from price and yield risks Crop yield insurance Revenue insurance Private insurers sell policies USDA Risk Management Agency develops and approves premium, reinsures companies, decides on eligible crops
When the government introduces a tax on sugary drinks, what primary market failure does it attempt to address? A. negative externalities B. monopolistic market C. information asymmetry D. Time- consistent preferences
A. negative externalities excessive consumption leads to health issues which is covered by tax money (through medicare, etc.)
CT taxable food products
-liquor, wine, beer -soft drinks, soda fountains, carbonated drinks -candy -prepared foods
Hunger
"the uneasy or painful sensation caused by a lack of food" It is an individual- level physiological condition that may result from food insecurity In many cases, it is a brief episode and NOT related to food insecurity Voluntary dieting, shortage of time (not money)
Soybeans
90% of oilseed production Most planted field crop in the US after corn Commonly used in crop rotation One of the 1st bioengineered crops The largest biotech crop
Select the most influential farm region in the US: a. California b. Fruitful rim c. Heartland d. Midwest
(answer C)
Explain the difference between commodity crops and high- value or specialty crops. Provide examples.
-commodity crops wheat, corn, etc. (can grow a lot, subsidized, used in many cheap products) -specialty crops like fruit and veggies (not subsidized, more expensive per lb)
Farmer subsidies
-lead to overproduction -creates surplus which leads to drop in prices -subsidies are based on how much a farmer grew that year and the government pays farmers extra when market prices are low -farmers' share is so low that subsidies don't have much impact on consumer prices
what is a mandatory or entitlement program? can you give an example of an entitlement food program?
-must take all eligible -agriculture committee -no cap on funding -food stamps
There is a new requirement that gasoline contains more ethanol. What is the effect on market for corn? a. Farm price increase and quantity produced increase b. Farm price increase and quantity decrease c. Farm price decrease and quantity increase d. Farm price decrease and quantity decrease e. No change in price
A
what did you learn about the contribution of agricultural subsidies to obesity growth in the US? Discuss
-skew ag markets toward overproduction of commodities that are the basis of processed foods -wheat, soy -farmers penalized for growing "speciality crops" (fruits and vegetables) if they have received federal farm payments to grow other crops -fed farm subsidies promote unsustainable agriculture by overproducing items made for processed foods (leads to cheaper prices of unhealthy foods)
What committees in the house and senate have the greatest influence over the farm bill? a.Agriculture committees b.Agriculture subcommittees of the appropriations committees c.The republican party committee d.None of the above
A
GMO Labeling
9 GMO crops (mostly corn and soy) but 70% processed foods include GMO products State bill in VT requiring GMO labeling ("produced with genetic engineering") "Safe and Accurate Food Labeling Bill" vs. "Deny Americans the Right-to-Know" (DARK act) State law in VT overturned by federal bill in July 2016 Preemption clause
Select all that apply. Please name all agricultural policies that affect the product price for farmers and/or consumers a. Deficiency payments b. Direct payments c. Supply control d. Demand expansion e. Crop insurance
A, C, D
Price changes in farm level inputs and costs have a smaller effect on retail prices of: A. more processed foods B. less processed foods C. no difference
A. more processed foods because of marketing, processing, packaging costs the more highly processed and marketed the food, the larger the price spread between farm value and retail price
A corn farmer has to choose whether to go with PLC or ARC, which is irreversible for 5 years. Assume the mkt price is $4 for the foreseeable future. What is your recommendation to the farmer?
ARC because mkt price is higher than reference price
what is the farm bill?
Act of congress authorizing nutrition and agricultural programs in the US Primary agricultural and food policy tool of the federal government Passed every 5 years Most comprehensive US regulation on food and agriculture Includes policies on commodity programs, trade, conservation, nutrition programs, rural development, agricultural research 12 titles
Two Programs: ARC
Agricultural Risk Coverage (ARC): safety net for revenue County (crop by crop decision) Individual farm (whole farm- all crops) Payments made when Actual Crop Revenue (ARC) is below Individual Revenue Guarantee Actual county revenue= (actual ave count yield) * (US average mkt price) County revenue guarantee= 86%* benchmark revenue (ave 5 yr county yield* US average 5 yr price, excluding max-min)
Direct Payments
Analogous to welfare or social security checks Fixed payments irrespective of market prices or production decisions 85% of base acres* base yield grown during several recent years Dropped in Farm Bill 2014 Significant fraction of subsidies before 2014 Expensive to taxpayers and unpopular during "good" years
Suppose in a good year, a farmer earns $800,000 in crop revenue. In a bad year, they lose $150,000 in production due to weather, and hence earn $650,000 in sales. Suppose there is a 10% chance of a bad harvest year, because bad years occur on average once every 10 yrs. Over many yrs, the farmer has average annual crop losses of $15,000. An insurance company offers the farmer a contract, under which the company will cover her losses in a bad yr. The insurance company will write her a check for $150,000 and will charge a premium of $25,000 every yr. Is this actuarially fair? a. It doesn't matter because a risk- neutral farmer should always buy insurance b. Yes, the $25,000 is actuarially fair c. No, it isn't fair but if USDA were willing to cover 65% of the premium cost at taxpayer expense, then yes, the insurance policy would be a good deal
Answer is C because $150,000 expected payment from insurance company vs $25,000 * 10 yrs= $250,000 premium
A corn farmer has to make a decision for the life of the Farm Bill (it's fixed for 5 yrs) whether to go with price loss coverage or agricultural risk coverage. The reference price for corn is set at $3.75 per bushel. Assume that the market price for corn is $3.00 per bushel in the foreseeable future. What is your recommendation for the farmer? a. Choose ARC as historically this policy has paid more to farmers b. Choose ARC for the first 2 yrs and then change to PLC is price increases c. Choose PLC as market prices are expected to be low d. Choose PLC for the first 2 years and then change to ARC if price increases
Answer is C because mkt price is lower than the reference price so you get paid the difference
Select one or more responses. Which of these generally support passage of the farm bill? Anti hunger organizations Fruit and veggie growers Grain and oilseed growers Meat industry trade association National sustainable agriculture advocated Tea party wing of GOP
Answer: everyone except for tea party because their goal is to lower overall budget; every food industry interested in farm bill because people will buy their products with SNAP (more customers)
What happened to the % spending on nutrition assistance (SNAP) in the farm bill over the last 15 years? a.It didn't change b.It increased c.It declined d.Not enough information
B
what is the cost of marketing farm commodities in a typical $1 food purchase? A. 15- 20 cents B. 50- 70 cents C. 80- 85 cents
C. 80- 85 cents
When the government introduces mandatory labeling of packaged foods (example: nutrition facts label), what primary market failure does it attempt to address? A. negative externalities B. monopolistic market C. information asymmetry D. Time- consistent preferences
C. information asymmetry Government needs to step in to inform consumers
CT legislature is looking at a bill to require an increase of 20% in the current share of local foods in all school meals preparation. Discuss briefly possible effects of such a policy on students, agricultural producers, school districts, and infrastructure. Conclude by stating who, in your view, would benefit the most and who would lose most.
Children: they eat better quality food, more nutrition; better grades due to better nutrition Locally grown food is more expensive; price could go up; some kids would be kicked out of the market; fewer children participating in the school lunch program Farmers (CT v others): more income because they're selling more (in CT) Farmers outside of state could lose money Schools: lunch becomes more expensive, and schools will lose children in their lunch programs unless there is additional support, revenue will go down infrastructure: less transportation from food coming into the state; less impact on roads Farmers and children would benefit most if prices don't go up a lot; schools lose Every food policy change has winners and losers
Problems with imports
Climate change; resources it takes to ship food Quality standards Need structural changes in agricultural policies
What is the total economic cost of a 4- year college education? (assume in- state, public school tuition, no financial aid) What is another investment that is on average on par with this cost? Explain.
Cost of tuition and fees plus lost wages from not being able to work much or full time Opportunity cost: not working, not relaxing/ doing hobbies, etc. Uconn about $125,000 plus $104,000 no wages= $230,000 Average- priced house in CT Starting a business
Imagine that the share of local foods in CT household budgets increased by 10%. What do you think it means for per capita consumption of locally-grown foods? a. It increased b. It decreased c. It didn't change d. It can't be assessed based on the data provided
D
what is the average share of food spending in a typical household budget of low- income American families? A. 10-15% B. 15-20% C. 20-25% D. 30-35%
D. 30-25% typical american family (not low income) is 10-15%
How Economic Analysis Works
Direct impacts: expenditures to run a farm: labor, materials, supplies, etc Indirect impacts: expenditures by suppliers of a farm purchasing goods and services and hiring workers
Demand Expansion
Goal is to support higher prices for farmers by expanding ways to use their products Federal programs and regulations Federal commodity checkoff programs Research and advertising campaigns to promote beef, cheese, dairy, and eggs funded by mandatory assessment collected from farmers Effects: Higher price for farmers Higher price for consumers Increased production
Four Ranges of Food Security
High food security: no food access problem or limitation Marginal food security: 1-2 indications, typically anxiety over food insufficiency; no indication of change in diet or food intake Low food security: reduced quality or variety of food; no reduced intake (known as food insecurity without hunger before 2006) Very low food security: multiple indications of disrupted eating patterns and reduced food intake
fruit
High- value crop: 13% of sales 7% of all crops <2% of cropland Also known as specialty crops ½ of fruit consumption is from imports
Vegetables
Hundreds of independent small farms, yet a highly concentrated market 9% of farms account for 90% vegetable sales High- value crop 14% sales <2% of cropland CA, FL, AZ, GA, NY are the largest producers
What are the policy solutions to addressing the shortage of farm labor? What's next?
Increase the wage
Small initiative to send money instead of food Title IV: Nutrition Assistance/ SNAP
Largest title of the Farm Bill (76%) Food assistance to low- income families, mostly through SNAP Monthly transfer of funds to purchase grocery food Purchases at SNAP- participating stores and farmers markets SNAP- eligible foods are any foods for home consumption EBT household card
One- third of US farm output is produced under contract
Less prevalent for wheat, soybeans, corn 21% of crops grown under contracts More prevalent for tobacco, peanuts, poultry, hogs 49% of livestock raised under contracts
Challenges with farm labor supply Why few citizens as farmworkers?
Lowest wages, hard working conditions, seasonality Legal ways to bring workers: H-2A temporary visa Structural Change: Increase imported food Less US production Fewer farms and workers
Production under contracts
Marketing and production contracts are widely used in US agriculture Contracts are usually agreements between farmers and processors Contracts are used to manage price and production risks, to procure farm products with specified qualities, and to provide farmers with assured outlets and buyers with assured product flows
Goal of USDA's Food Security Measure
Measure prevalence of food insecurity in US Monitor progress toward national objectives "healthy people 2020" Evaluate the effectiveness of policies and programs
farm type diversity
Most US farms are family owned Small farms are numerous but play little role in production and policy Large family farms dominate US agriculture
Corn
Most widely produced grain Main grain in feed grain production (95%) US provides 40% worldwide exports Used in processed food and industrial products: Starch, sweetener, corn oil Alcohol, ethanol
Effects of food insecurity
Negative implications for physical and mental health Adults: diabetes, CVD, depression, anxiety Children: asthma, anemia, cognitive development, behavioral problems Poor productivity and learning Increased healthcare costs
Conservation reserve program (CRP) (voluntary)
Retire land from production for 10-15 yrs "Rental" payments Biggest program, but declining in size (acre caps) Economic and environmental impacts of CRP Reduce soil erosion Recreation Increased land value
Federal Food Assistance Programs
SNAP Child nutrition programs: National School Lunch Program (NSLP) School Breakfast Program (SBP) Child and Adult Care Food Program (CACFP) WIC Food Distribution Programs: Food Distribution Programs on Indian Reservations (FDPIR)
Few major changes in Farm Bill 2018
Some expanded farm subsidies: The farm bill changes the definition of a family farm to include nephews, nieces, and cousins, making these individuals eligible for farm program payments- even if those relatives do not directly work on the farm Legalizes hemp: the farm bill legalizes the production of hemp, a form of cannabis with lower THC levels than marijuana, and includes provisions intended to facilitate the commercial cultivation, processing, and marketing of hemp Creates a new hemp program under USDA oversight Eligible crop under the federal crop insurance program
Title 2: Conservation
Support to producers and landowners to adopt conservation activities, protect and improve water quality and quantity, soil health, wildlife and air quality Minimum levels of conservation for participation in commodity and crop insurance programs Spending leveled off and is declining in relative terms Issues: drinking water protection, reducing soil erosion, wildlife habitat preservation, preservation and restoration of forests and wetlands, aiding farmers whose farms are damaged by natural disasters
The Farm Bill Currently
The Agriculture Improvement Act of 2018 is the title Price Tag: $867 billion over 10 years Annual cost to each American: $260 per capita, $700 per household Compare to medicaid (about $590 billion per yr, $1800 per person per year)
Cattle and Beef
The largest beef industry in the world Exporter of grain- fed beef Importer of grass- fed beef 2 production sectors: ranching/ cow- calf operations Cattle feeding Largely separate from dairy industry Dependence on feed grains
Farm Typology
The vast majority of farms and ranches in the US are family owned and operated "Family farm": any farm where the majority of the business is owned by an operator and individuals related to an operator USDA classifies family farms as "any farm organized as a sole proprietorship, partnership, or family corporation Family farms exclude farms organized as nonfamily corporations or cooperatives, as well as farms with hired managers Most of the US domestic production of food and fiber comes from relatively few large operations. Large and very large family farms produce over 63% of value
Poultry and Eggs
The world's largest poultry industry Major user of feed grains Increasing consumption
Discretionary programs
WIC, some conservations programs are discretionary (based on funding) appropriations committee decides annual funding level authorizing committee writes rules under which programs operate no guarantee
Farm Labor Shortage: What is the issue? How does it affect consumers and agricultural businesses?
Wages aren't high enough Labor supply will go up if wages increase, but at a higher cost for farmers and thus a higher price for consumers Loss of crops, production will go down, profit goes down Less supply in the market, higher prices Increase in imports; no change in prices so consumers are happy
What affects market prices?
Weather, growing conditions, disease Trade policy World income, population Beef market Agricultural programs
Challenges with price supports
What to do with food surplus? International aid Commodities to school meal programs Food waste Encourage overproduction Environmental impacts Trade impacts Higher rent for use of land Cost to taxpayers Including cost of storage and/or removal
Preemption
When a higher level of government removes or limits the authority of a lower level of government to enact policy Could be a threat to state and/ or local authority Food policy and public health (taxation, GMO, labeling, menu labeling) Businesses typically support preemption
USDA's Food Insecurity Measure
With children (18 questions): threshold raw score for food insecurity is 3, and for very low food security 8 Without children (10 questions): threshold raw score for food insecurity is 3, very low food security is 6
Choose all that apply. What is a distinctive feature(s) of a discretionary program? a. The program must be funded, because it is essential for the agricultural economy b. The program's spending level is determined by the appropriations committee c. The program's spending level depends on economic conditions that are beyond the control of congress d. If the program runs out of funds, any further applicants will be put on a waiting list
b and d
Choose the best response that describes this statement: "today's farms are fewer and bigger" a. Large corporate farms now dominate US agricultural production b. Small family- owned farms are on decline, but still account for most of US agricultural production c. Large family- owned farms now dominate US agricultural production d. None of the above
c
imperfect information
food attributes and quality often cannot be observed
reasons for intervention of food policies
food choices of children (theyre not rational consumers) inequality or economic injustice (what it is that you dont choose, but it fundamentally affects your life and often your choices)
Floor price
government price on agriculture products; cigarettes at state min
Food security
having access at all times to enough food for an active, healthy life Assessed based on responses in the household food security survey It is not a biological measure It is a household- level economic and social condition of limited or uncertain access to adequate food If hunger is temporary, it is not food insecurity
negative externalities
health consequences of overconsumption of certain or unsafe foods health care costs and disability payments through insurance programs productivity losses
Gross cash farm income (GCFI)
includes income from commodity cash receipts, farm- related income, and government payments Small family farms (GCFI<$350K) Midsize family farms (GCFI>= $350k) Large family farms: Large (GCFI $1-5 million) Very large (GCFI>= $5 million) Non family/ corporate farms (any GCFI)
arguments for preemption
less regulation for businesses (lower cost; higher profit)
arguments against preemption
loss of local/ state control; less democratic; less beneficial for consumers
Ceiling preemption
max (example: GMO labeling; states can't go over it (like VT example)) (menu labeling- can have calories but not fat content)
Floor preemption
min (example: minimum wage)
monopoly
one or few producers have power to charge non- competitive prices and restrict consumer choice
Marketing contracts
ownership of the commodity remains with the farmer during production. The contract, reached prior to harvest, sets a price (or pricing formula), product quantities/ qualities, and a delivery schedule. Contractor involvement in production is minimal More common in crop production
Ceiling price
rent control; capped profit for landlords
policy
set of rules, laws, regulations adopted or proposed by governments, businesses, institutions or individuals
Production contracts
the contractor usually owns the commodity during production, and the farmer is paid a fee for services. The contract specifies farmer and contractor responsibilities for inputs and practices. The contractor often provides specific inputs and services, production guidelines, and technical advice More common in livestock production
what does the amount and structure of agricultural subsidies depend on each year? Expand on your answer by providing a projection for potential changes in agricultural subsidies over the next 5 years
weather, demand, growing conditions, trade policy Depends on the farm bill (updated every 5 years), so the structure will be the same for the next 5 years
market failure
when markets don't work efficiently
sugary drink taxes: "winners" and "losers"
winners: public health, taxpayers, recipients of tax revenue losers: heavy consumers who dont cut consumption, low income families, beverage industry, retail industry (if no substitution)
