Chapter 1,2
Agr Policy, Rent Seeking and History
What Is Policy?
deliberate course of action
set of programmatic actions
multiple objectives
change the normal course of events
more than simply a statement of a particular goal
e.g. raise farm income, full employment (goals)
Agri-Food Policy Actions/programs ---> affect the Agri-Food system
Every level
input supply, farm,
transformation and distribution, food processing
retail sector
consumer behaviour
Who/What is involved with Policy?
Who ?
Everyone is involved - directly or indirectly > (democratic)
Primary stakeholders -- > politicians + bureaucrats
What Shapes Policy ?
Preferences, Background, Attitudes, and Knowledge (P-BAK) (Brinkman)
Knowledge
Background
Preferences
Attitudes
POLICY
Values
Facts Beliefs Goals
Beliefs That Underpin Recent Federal Agr & Food Policy
General:
Support by Canadians for farmers and farm programs
Farming - depends on trade for growth
Globalization/trade agreements - fact of life
Important for Canada to fully participate in trade negotiations
Growing pre-occupation with environment and food safety issues
Farmers:
more competitive (bigger, technology, value added, risk management)
more responsive to market signals – what the market wants
more “self-reliant” – “free to manage their own operations”
more diversity
Government programs, relations, services:
Inter-provincial trade barriers
Support the role of market signals – vs direct supports
Stable, predictable business environment
Large regional differences; relative strengths/efficiencies
Programs seen as equitable
Smart regulation; C/B, environmental impact assessment, voluntary standards
Food safety: important to Canadians, also for trade (traceability)
Science based (evidence) regulation; defensible
How We See/Interpret the World <= Background/Knowledge Matters
Facts Matter, but so does experience
Determinant of policy prescriptions
This is a new experience - background
Major Groups Involved in the Agr & Food Policy Process
Consumers
Input Supply
Farm Sector
Transport + Handlers
Government
NGO’s / INGO’s
Processors, Retailers
Trade Partners
Other sectors
The Challenge for Policy Makers
Different people - different values and beliefs
Conflicts - good and bad policy
Choices - cannot please everyone
Resolve beliefs about the issue
Choose goals according to competing values
Maximize welfare (economic welfare)
choice involves everyone
Government intervention has to be justified
Times of Change in Agri-Food Policy
Policy is made in a dynamic environment
many choices to be made (provincial, federal, international)
2003 - BSE – how to respond
2012/13 Agricultural Policy Framework (Growing Forward)
WTO – Doha round of agr. trade negotiations
2012 US Farm Bill
Periodic trade disputes
Is this different than in the past?
Long history - constantly in a state of change
always new challenges; demands/expectations
farm sector, or consumers
Political ground is always shifting
liberals vs conservatives; different policy agendas
What Motivates Policy Formulation?
Two schools of thought:
1) market failure (market structure, environment)
2) rent seeking behaviour (Schmitz, Furtan & Baylis)
Rent Seekers:
farmers and agri-business, (PDR sector)
"agri-food policy is about the extent to which governments
affect the sytem and is affected by stakeholders in the system"
Some Challenges to Policy Formulation
1) Who is a farmer and who is not?
Historical targeting of farmers - welfare
Who receives support from who does not
Influences how policy will be designed
Family Farms: used to dominate
Now: - (hobby farmers; corporate farms)
Ownership separating from labour
Defining a Farmer: difficult
land base
sales
off farm income
operator or owner?
Size of farms
Should farm size determine who policy is designed for? (small – large)
Post WWII
- fewer, larger farms
- farm consolidation - capital substitutes for labour
- bigger machinery – capital intensity
- Economies of scale
- risk
US – 85% of hog farms (1970) are gone
Bigger farms have not solved "the farm problem"
Post WWII productivity (2%) – real price decreases for farm commodities
NFI – from market sources is unstable and declining
Figure 1.3 Real Net Income 1950-1998
Real Net Income 1950 - 1998
(includes program payments)
Risks in Farming (price - output)
Price Risk
- unstable prices for primary commodities
- international market
- demand/supply elasticities (price flexibilities)
- storable commodities - perishable commodities
- bargaining power
Supply coordination (domestic and international)
Motivation for marketing boards
Canadian Wheat Board
International Wheat Agreement
2008 food crisis – international stocks
Output Risk
- problem for individual farmers – output determined by weather
- open markets: large international disturbance => world wide price impacts
- hard to insure (public vs private system)
- motivation for government crop insurance
Farmer can influence outcome
moral hazard + adverse selection
Boom and Bust Cycles:
Good times - Bad times - design of policy difficult
Boom - mid-1970's (Great Grain Robbery)
prices good - acquire more land, bid up land prices
land important collateral asset
land prices increase + capacity to borrow
renew equipment - larger machines - more land
Bust - 1980 - 1986
prices decreased (grain wars EU/US)
interest rates high
service long-term debt
credit crunch - bankruptcy - farm crisis
Market Structure:
farmers – lack of countervailing power
large numbers of farmers
homogeneous product
perishable commodities
declining delivery points (grain and livestock)
Cargill/ADM - 70% of Canadian beef slaughter
contract farming
quality and supply reliability
farmer owns fixed assets
limited alternative marketing outlets
The Farm Problem
Boom & Bust Cycles – low returns to labour & capital
Why is there a persistent farm problem?
Why has it not been fixed ?
How should policy makers address the problem?
Willard Cochrane: treadmill theory - technology
Glenn Johnson: asset fixity, adjustment
Don Paarlberg - government programs are the problem
Susan Offutt - what is the problem anyway ?
Define/Identify the Problem
Simple solutions to complex problems can back fire
Growing Conflicts Between Farmers
& other Stakeholders
204 acres sold fall 2009 – Beckett farms near Markham Ontario
Toronto Greenbelt – “robbed” farmers
New Land Use Conflicts
Forests being clear-cut
Lost Ecological Services
How to encourage better environmental
stewardship