Chapter 14 - Farm policy. After completing this unit, you should be able to: Describe the history and evolution of government agricultural policy, demonstrate how inelastic demand influences agricultural goods’ prices, describe the main components of U.S. farm policy,...
Introduction to Economics: Social Issues and Economic Thinking Wendy A Stock Chapter 14 Farm Policy Copyright © 2013 John Wiley & Sons, Inc / Photo Credit: ©AVTG/iStockphoto PowerPoint Prepared by Z Pan After studying this chapter, you should be able to: Ø Ø Ø Ø Describe the history and evolution of government agricultural policy Demonstrate how inelastic demand influences agricultural goods’ prices Describe the main components of U.S farm policy Ø Ø Ø Illustrate the impacts of supply restriction policies Illustrate the impacts of demand enhancement policies Asses the costs and benefits of recent U.S farm policy Demonstrate the impacts of price supports in agriculture Copyright © 2013 John Wiley & Sons, Inc introduction Ø Ø In 2008, despite a presidential veto and criticism from the United Nations, the World Trade Organization, and several other international and national organizations, a new U.S farm bill was passed Formally known as the Food, Conservation, and Energy Act of 2008, it is a $288 billion program that finances direct payments, loan and insurance programs, and a wide variety of other supports for agricultural producers Copyright © 2013 John Wiley Declining Employment and Increased Concentration in agriculture Copyright © 2013 John Wiley Agricultural Population as percent of Total Population in Various Countries Copyright © 2013 John Wiley Forces behind changes in agriculture industry Ø Supply-side Explanations: Technological change and increased productivity Ø Demand-side Explanations: Increased incomes and increased population Copyright © 2013 John Wiley Changes in Demand and Supply of agricultural goods Copyright © 2013 John Wiley Inelastic demand for agricultural products Ø Ø The elasticity of demand for agricultural commodities ranges from −0.04 for fluid milk to −0.7 for pork The inelastic demand implies that changes in supply in agricultural markets not cause large changes in equilibrium quantity but cause large fluctuations in price Copyright © 2013 John Wiley Changes in Supply When Demand Is Elastic and Inelastic Copyright © 2013 John Wiley Price Changes in Agricultural Commodities Copyright © 2013 John Wiley 10 Agricultural policies Ø Ø A Subsidy is a program of financial or other assistance given to a business or industrial sector Four Categories of Agricultural Policies Ø Price supports Ø Supply restrictions Ø Demand enhancement Ø Income supports Copyright © 2013 John Wiley 11 price support Ø Ø A Price Support is a policy aimed at preventing the price of a given good or service from falling below a target level A Price Floor is minimum amount that can be legally charged for a good or service Copyright © 2013 John Wiley 12 Impact of a Price Floor Copyright © 2013 John Wiley 13 Supply Restrictions Ø Ø Ø Supply restriction programs pay farmers for limiting production by not planting on some of their acreage Supply restriction programs have existed since the 1930s, appearing under titles including acreage controls, soil conservation, soil bank, and set-aside Conservation Reserve Program (CRP) provides payments to eligible farmers when they convert land from farming to conservation use Copyright © 2013 John Wiley 14 Impact of Supply Restriction Policies Copyright © 2013 John Wiley 15 Demand Enhancement Ø Ø Ø Demand Enhancement policies raise the prices of agricultural goods by increasing their demand Demand enhancement policies tend to be targeted toward low-income groups and foreign countries as well as agricultural producers Food assistance programs, nutrition programs, international food aid programs, and governmentsupported school lunch programs are various forms of demand enhancement policies Copyright © 2013 John Wiley 16 Impact of Demand Enhancement policies Copyright © 2013 John Wiley 17 Income Support Ø Ø Income support programs include direct payments to producers of many agricultural commodities, subsidized crop insurance programs, disaster relief funds, and subsidized loan programs Income support programs tend to increase the supply of agricultural products output and reduce food prices Copyright © 2013 John Wiley 18 THE COSTS AND BENEFITS OF AGRICULTURAL POLICY Ø Increased Incomes for Agricultural Producers Ø Higher Prices for Consumers Ø Higher Taxes Ø Reduced Competitiveness Ø Higher Costs for Farmland Ø Inefficient Use of Resources Copyright © 2013 John Wiley 19 Questions/Discussions When Hugo Chavez became the president of Venezuela in 1999, he promised his people lower food prices He felt this would ensure that everyone would have enough to eat, and farmers and other food producers would not be lining their pockets with profits made off the poor Chavez set a price ceiling on certain commodities and quotas on the amount that each producer had to produce What does the demand and supply model predict would happen as a result of Chavez’ policies? Copyright © 2013 John Wiley 20 Key Concepts • • • Subsidy Price support Price floor Copyright © 2013 John Wiley 21 ... Demand Enhancement Ø Ø Ø Demand Enhancement policies raise the prices of agricultural goods by increasing their demand Demand enhancement policies tend to be targeted toward low-income groups and. .. Supply-side Explanations: Technological change and increased productivity Ø Demand-side Explanations: Increased incomes and increased population Copyright © 2013 John Wiley Changes in Demand and. .. soil bank, and set-aside Conservation Reserve Program (CRP) provides payments to eligible farmers when they convert land from farming to conservation use Copyright © 2013 John Wiley 14 Impact