Bài giảng MicroEconomics - Chapter 019 Agriculture: Economics and Policy

Agriculture: Economics and PolicyChapter 19McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter ObjectivesUnstable agricultural prices and farm income Employment exodus from agriculture Farm subsidies and price supports Criticisms of the price-support systemExisting Federal farm policy19-2Agriculture IndustryExtreme diversityFarm products and food productsShort-run price and income instabilityInelastic demand Fluctuations in outputShifts in the demand curve Dependence on world markets19-3Economics of AgricultureEffects of Changes in Farm Output on Agricultural Prices and Income DQpPpQ0PPnPbQnQbNormal FarmIncomenpbIncreases in output reduce farm income19-4Economics of AgricultureThe Effects of Changes in Demand on Agricultural Prices and Income D1P1Q0PP2QnbaD2Shift in demand causes large change in price and farm income19-5Agriculture: a Declining IndustrySupply increased rapidlyTechnological progressDemand increased slowlyInelastic with respect to incomePopulation growth19-6Agriculture: a Declining IndustryInflation adjusted prices have declined through 2005Rising prices 2006-2007Demand from ChinaEthanol 19-7Economics of AgricultureThe Long-Run Decline of Agricultural Prices and Farm Income D1P1Q0PP2Q1baD2S1S2Q2c19-8Agriculture: a Declining IndustryMajor consequencesIncreased minimum efficient scale (MES)ConsolidationAgribusinessMassive exit of workersFarm labor 2% of labor force19-9Futures marketsContracting with processorsCrop revenue insuranceLeasing landNonfarm incomeAgriculture: a Risky Business19-10Percentage of Labor Force in Agriculture, Selected Nations 2002-2004MadagascarBangladeshThailandChinaBrazilRussiaJapanFranceGermanyUnited States0 25 50 75 100Source: World Bank World Development Report, 2008Labor in Agriculture19-11Economics of Farm PolicySubsidized since 1930sSupport for agricultural prices, income, and outputSoil and water conservationAgricultural researchFarm creditCrop insuranceSubsidized sale of farm products in world markets19-12Government Subsidies as a Percentage of Farm Income, Selected Nations, 2006NorwaySwitzerlandSouth KoreaJapanEuropean UnionTurkeyCanadaMexicoUnited StatesAustralia0 20 40 60 80Source: Organization for Economic Cooperation and DevelopmentAgricultural Subsidies19-13Economics of Farm PolicyRationale for farm subsidiesNecessities of life“Family farm” institutionExtraordinary hazardsCompetitive markets for output while inputs have significant market power19-14Economics of Farm PolicyAgricultural Adjustment Act of 1931 established parity conceptParticular real output results in same real incomePreserve purchasing powerRationale for price supportsParity Ratio =Prices Received by FarmersPrices Paid by Farmers19-15Economics of Price SupportsEffective price floorGenerates surplus outputGain to farmersLoss to consumersEfficiency lossesOther social lossesEnvironmental costsInternational costs19-16Q0PbcaSDSSurplusDPeQePsTax BurdenOf SurplusQcQsEconomics of Price Supports19-17Reduction of SurplusesRestricting supplyAcreage allotmentsBolstering demandGasoholBiodieselCorn based ethanolThe ethanol programHigher food pricesSecondary effects19-18Criticisms and PoliticsCriticisms of parity conceptCriticisms of price supportsSymptoms not causesMisguided subsidiesPolicy contradictions19-19The Politics of Farm PolicyPublic choice theory revisitedChanging politicsDeclining political supportWorld trade considerationsRecent farm policyFreedom to Farm Act of 1996Farm Act of 200819-20The Sugar ProgramPrice supports Domestic costsImport quotasDeveloping countriesU.S. efficiency lossGlobal resource misallocation19-21Key Termsfarm commoditiesfood productsagribusinessparity conceptparity ratioprice supportsacreage allotmentsFreedom to Farm ActFood, Conservation, and Energy Act of 2008direct paymentscountercyclical payments (CCPs)marketing loan program19-22Next Chapter PreviewIncome Inequality and Poverty19-23