• Peter Berck
• Agricultural and Resource Economics and
Policy
Copyright 1998 by Peter Berck

• Give Away Land, Trees, Minerals, and
Grazing
• Direct Support of Prices through Marketing
Orders, Target Prices and Loan Rate
• Build Infrastructure: Railroads, Dams,
Electric Lines
• Create Financial Institutions: PCA, Land
Bank, Crop Insurance

• checkerboard pattern, square miles alternating
• gives railroad near monopoly on land nearby
• 131 million acres
• Railroads sold much of it very quickly and not for much
• Railroads had to carry mail and military at reduced rates

– Live and work on 160 acres of 5 years; pay
$10-$25; get title
– farm making costs quite large, even with free land; speculators pre-empted (bought at $1.25 acre?) and resold
–
70 million acres from 1868-1879
– 100 million acres from 1898 to 1917

• Morrill Act 1862 land to establish Colleges
• Hatch Act 1890 money for research
• made ag more productive
• got people the hell out of agriculture
(Gisser)
– 1890 42% of workers in Ag.
– 1930 it was 22%; Now, less than 2%

• Build Water Projects
– users to pay operating costs
– government to pay interest on capital costs
• Benefits owners of large tracts in CA
– 160 acre limitation, evaded
– power subsidy not accounted for (border prices)
– prices didn’t cover O&M in CA

• Federal Farm Loan Act(1916)
– Cooperatives of farmers borrowed from 12
Land Banks, which borrowed by selling bonds in national markets.
• Farm Credit Act (1933)
– Provided Production Credit Associations money to lend for short-term purposes.
– Compare this to Gramlin? Banks and more generally to experience in LDCs.

• 80 million acres to begin with.
• Fees for grazing thought to be too low in north
• Grazing causes pollution
• See LaFrance

• Farm depression preceded crash of 29.
• No welfare program-no checks in mail
– works projects admin-
– civilian conservation corps
– rise of Robert Moses and west side highway
• Rural Electrification
• COOPS
– sexton, parliament for writings
– if there is one store in town and one elevator in town, do you want to own it?

– marketing orders
• generic advertising
• prorate: not entirely conspiracy to raise prices
• also response to chaotic markets
– "the plum deal" incredibly short seasons
– day to day price variance
– support programs
• non-recourse loans by
Commodity Credit
Corportation
• acreage reduction (set aside)
• had antecedent in govt. attempt to stabilize through futures

P
L
Demand
Q
D
Gov’t Purchases
Supply
Lost
Cons.
Additional
Producer
Costs
Q
L

P
L
D(p)
• X = S (P
L
) - D(P
L
)
– gov’t purchase
• G = P
L
X
– gov’t cost
S(p)
Q
D
Q
L

DWL
 
Q
Q
E
D
D

1
( q ) dq
  Q
Q
E
L
S

1
( q ) dq

P
W
X
• Q
D
= D(P
L
)
• Q
L
= S(P
L
)
• X = S (P
L
) - D(P
L
)
• d(DWL)/dP
L
= ???

• Suppose S(p) is decreased by setting aside a percent of the land: a
S(p).
– Not quite true: worst land set aside
– Set aside goes unused: also not quite true
Added Cost from Set Aside a
S(p)
P
L
D(p)
S(p)

• made AAA of 33 illegal- 9 Old Men
• government got around by tying to conservation, also voluntary ’36
• Ag. Marketing Agreement Act of ’37: Milk
Marketing Orders
• AAA of ’38 Crop Insurance

• high plains blew
• N.Y. and Washington dark at noon
• Oakies and Arkies
– tractored out?
– blown out
• no rain-- surpluses avoided
• mould board plow
– see AJAE cover
– plowed deep, loosened soil
– now use every other year cropping to concentrate moisture
– no till farming

• Wars
– demand high, restricted labor
– II, Marshall Plan,
Korea
• Then surpluses.
– 1.4 billion bu. Of wheat and 2.0 bu. Of corn in Oct. of 61
– Compulsory wheat supply management rejected in ’63 referendum of farmers.
– Farm Bureau beat
Kennedy. Farms Rep.
Cause?

• H. A. Wallace foresaw the whole thing.
Original sec. knew economics.
• Brannan Tried to shift to an income guarantee
• Rausser (Spec. Asst. to R. Reagan) advocated decoupling
– ‘87 Economic Report of President

P c
P
T
Demand
Supply
Treasury Outlay D.W.L.
Deficiency
Payment
Q
T

• Target Price/Deficiency Payment
• Excess demand--market price high enough
• Russian Wheat Deal
• target price foreshadowed in previous act

– deficiency payment limitation to $50,000 per farm
– set asides required to get deficiency payments
– generic commodity certificates: sell surplus on market
– 50 percent plant = 90% deficiency payment
– decoupling

• Export Enhancement a.k.a. Dumping
– Not GATT legal; almost gone
• Conservation Reserve
– erodable land is bid into reserve
– conservation cover for 10 years
– size of Maine
– increased bird population by hundreds of millions

– bimodal farm size-big and very little
• 1.6 million < $40,000 gross sales; 10% gross inc.
• .5 million; $40 and $250; 41% of income
• .1 million; > $250,000; 48% income
• this is from Economic Report of President
• doesn’t add up
• .1 million farmers get 32% of government aid

– trees are great for part timers
– wheat particularly subject to returns to scale
– tax laws matter a lot for part-timers and cattle
– dairy and chickens are an industry. machines, computers.
– flowers depend on marketing/ Israeli coop

• Federal Agriculture
Improvement and
Reform Act of 1996
• Deficiency Payment
Replaced by Fixed
Payout
• No need to grow program crop
• Export Enhancement
Expenditures Below
GATT Max
• Save Milk: At the Max