A12 Agriculture Policy
Read the article entitled “A Pitch to Obama on Food and Farming”. In class on Tuesday,
we will discuss 6 types of policy tools: prescription, payments, penalties, persuasion,
property rights and power. Propose two different policies to address specific agricultural
issues laid out in the article. Explain why the market fails to solve the problem you
address, and how the policy you propose allows micro-flexibility to achieve macro level
goals (if you’re not sure what this means after lecture, look at chapter 20 in the Daly and
Farley textbook for a detailed explanation). If your policy does not allow microflexibility, then explain why micro-flexibility is inappropriate.
There are innumerable possible answers to this question. I will give a variety of them, but
you will have to use your own judgment when you grade. You get 5 points for each
policy and 5 points for explaining the microflexibility (or lack there of) for each.
1. Prescription: These are policies that people have to do. For example, California
recently had a ballot measure in which voters voted on mandating humane
treatment for farm animals (humane farms, animal welfare; I’m not sure of the
result). We have also banned certain pesticides such as DDT, and mandated no
net loss of wetlands (relevant to biodiversity), contour plowing in some places
(relevant to soil health), minimum wage, and no child labor (relevant to worker’s
rights), and blending ethanol in gasoline (relevant to sustainable energy, but
probably really stupid since corn ethanol has very low energy returns on
investment. Australia has banned junk food advertising to kids (health of our
children). Personally, I think we mandate no avoidable erosion, ban a variety of
questionable and unnecessary agrotoxins, mandate riparian zone restoration, ban
tractors that compact soil, and so on.
We use prescriptions when microflexibility is inappropriate, i.e. when society has
decided that the results of doing or not doing something are unacceptably high at
the margin.
2. Payments: This is when the government pays for economic actors to engage in a
certain activity, for example through subsidies. We currently subsidize the richest
farmers to grow unhealthy foods and biofuels in ways that seriously degrade the
environment. We need to eliminate these subsidies and create new ones for
activities that provide positive externalities, protect public goods and so on—
things that the market won’t do on its own. We could subsidize organic farmers
for example not only because they have fewer negative impacts on the
environment, but also because they will innovate and develop new knowledge that
would then be freely available to all (as a stipulation of the subsidy). We should
provide more public funding to Land Grant Universities (you may consider me
biased on this one) to provide public knowledge on organic farming, healthy
foods and health impacts of the crap everyone eats, etc. We could subsidize
restoration of riparian zones and wetlands, production of healthy foods, farms that
sell foods locally and so on. We could create food stamp programs for farmers
markets.
Payments for ecosystem services are a particular type of subsidy directed at
farmers who manage their land to provide specific services, such as habitat or
carbon sequestration. Carbon offset payments are now widely used in Vermont,
for example for farmers who produce methane from manure as an energy source.
Payments allow microflexibility because farmers can decide whether to change
their activities to receive the subsidy or not. In this way farmers with a
comparative advantage in the desired activities will change, while those with a
comparative advantage in more conventional methods may not. They induce
innovation as producers seek new technologies that reduce the costs of engaging
in the subsidized activities.
3. Penalties are the inverse of subsidies. Rather than awarding the activities you
want, you tax those you don’t (a fine is typically used when the activity is
forbidden, and a tax when the activity is allowed). We could tax fertilizer use,
agrotoxins, soil compaction, fossil fuel use, erosion, conversion of wildlife
habitat, junk foods, and so on.
Taxes allow microflexibility because farmers can decide whether to change their
activities to receive the subsidy or not. When the tax is greater than the cost of
avoiding the taxed activities, producers stop doing them. In this way farmers with
a comparative advantage in the taxed activities will not change, while those with a
comparative advantage in the desired activities will. Taxes induce innovation as
producers seek new technologies that reduce the level of taxed activity.
4. Persuasion: This is basically providing information to consumers and producers.
It can help them make more informed decisions and convince them to do an
activity for non-market reasons. Examples include labeling (e.g. fair trade,
organic, carbon footprint, pesticides and their impacts, calories and other health
information, etc.) Other examples include University extension about integrated
pest management and organic farming (healthier food, better conditions for
workers, fewer environmental impacts), erosion control, waste management and
so on. Schools can educate people about healthy foods and so on.
There is considerable microflexibility here, sometimes too much. People
frequently fail to adopt new ideas voluntarily even if they are more profitable.
Bush has relied heavily on voluntary regulation, even on Wall Street, and look
where that got us.
5. Property rights: The most common type of property right policy is cap, distribute
and trade, in which society declares property rights over something (typically
waste absorption capacity), determines a cap, then either gives away or sells the
right to use some of that cap. I think we should have cap and auction for
fertilizers determined by the waste absorption capacity of specific ecosystems or
watersheds. We might have one federal target for the Mississippi watershed with
separate targets for sub-watersheds. We could do this for the Champlain
watershed as a whole with separate quotas for St. Albans Bay, Mallets Bay, etc.
We could also do cap and trade for development rights (converting natural habitat
to farmland or farmland to development), known as tradable development rights.
Some counties in Maryland currently do this. Cap and trade for CO2 emissions
will also have an impact on agriculture.
The argument for microflexibility is quite similar to that for penalties, except that
caps are much better at achieving macro-level goals. Ultimately, prices must
adjust to biophysical limits, while in the case of taxes, the environment must still
adjust to prices.
6. Power: This is about who gets to make decisions, for example, the federal
government or state government. Most important in my mind is whether we
continue to have a political system based on one dollar one vote, or we try to
fulfill our potential as a democracy and return to one person one vote. This would
probably require limitations on campaign spending, lobbying, and bribing
politicians. There are really too many options here to consider.
If you have something intelligent to say about microflexibility, give yourself
credit.
Like you, the TAs will be busy studying for exams, and will not have time to grade these.
I will therefore ask you to grade your own assignment. You will get 5 points for
submitting this assignment. You must then download the answer key (which will be
posted immediately after assignments are due), grade yourselves, explain your errors (use
‘track changes’ or else type in a different font, e.g. italics), and resubmit the graded
assignment. We will very quickly review your work and penalize those who did a poor
job grading the assignment and explaining errors.