Agricultural Policy, Agribusiness, and Rent-Seeking Behaviour

Transcription

1 Agricultural Policy, Agribusiness, and Rent-Seeking Behaviour Second Edition ANDREW SCHMITZ CHARLES B. MOSS TROY G. SCHMITZ HARTLEY W. FURTAN H. CAROLE SCHMITZ UNIVERSITY OF TORONTO PRESS Toronto Buffalo London

2 Contents List of Figures xiii List of Tables xvii Acknowledgments xxi List of Abbreviations xxiii Introduction 3 1 Agricultural Policy: Agriculture and Agribusiness Environments 1.1 Agricultural Policy and Budgetary Outlay Agriculture and Its.Changing Nature Instability and Uncertainty in Agriculture Boom-Bust Cycles: The Importance of Wealth Agribusiness and Contract Farming Lack of Countervailing Power Farm Policy, Government Support Levels, and Effective Lobbying Targeting Farm Subsidies Rural Communities 28 ; 1.10 Commissioned Reports Summary and Conclusions 30 2 Agricultural Policy: Institutions and Rent-Seeking Behaviour Agricultural Policy Political Institutions 37

3 vi Contents 2.3 Consequences of the Political Process Rationale for Government Intervention in a Market Government Failure and Policy Uncertainty The Theory of Public Choice and Agricultural Policy Rent-Seeking Behaviour Coalitions and Logrolling Farm Organizations Summary and Conclusions 54 3 Theoretical Considerations 56 ' 3.1 Economic Efficiency and Income Distribution Income Transfers The Harberger Tax and Monopoly Power Efficiency of Income Transfers The Economics of Information The Theory of Regulation The Search for Stability Summary and Conclusions 78 Appendix 3A: Graphical Description of the Conditions for a Pareto Optimum 79 Appendix 3B: Consumer Surplus 83 Appendix 3C: Producer Surplus and Economic Rent 87 Appendix 3D: Starting from Second Best 88 4 Agricultural Trade and Macroeconomic Policies Agricultural Trade International Trade Theory Trade Policy Instruments Trade Distortions Caused by Market Power Macroeconomics, Trade, and Exchange Rates Summary and Conclusions 109 Appendix 4A: Negative Gains from Trade 110 Appendix 4B: Macroeconomics and Agricultural Policy U.S. Agricultural Policy U.S. Stabilization: Policies and Direct Farm Subsidies U.S. Aggregate Farm Bill Expenditures Early U.S. Farm Bills The 1970 U.S. Farm Bill: Target Prices, Loan Rates, and Deficiency Payments 126

4 Contents vii 5.5 The 1996 U.S. Farm Bill: Agricultural Marketing Transition Act Payments (AMTAPs) The 2002 and 2008 U.S. Farm Bills: Target Prices, Countercyclical Payments, and Direct Payments Summary of 2002 U.S. Farm Bill Provisions In Perspective: Three-Quarters of a Century of Price Floors Conservation Reserve Program Dairy, Sugar, Tobacco, and Peanut Programs In Perspective 153 y 5.12 Summary and Conclusions Appendix 5A: Stock Buildup and Managing Surpluses 158 Appendix 5B: Milk Program - A Two-Price Plan Canadian Agricultural Programs Agricultural Programs Traditional Stabilization Programs Provincial Policy and Program Differences Transportation Aggregate Treasury Support for Canadian Producers Supply Management in Canada Supply Management: An Economic Framework International Trade Summary and Conclusions EU Agricultural Policy and Reforms Growth of the European Common Market Common Agricultural Policy EU Cereals Policy EU Oilseeds Policy EU Sugar Policy EU Dairy Policy Fruits and Vegetables The 2003 Single Farm Payment Scheme High Commodity Prices and Double-Dipping Summary and Conclusions 218 Appendix 7A: Welfare Analysis of EU Enlargement for a Net'Cereals Exporter Insurance Mechanisms in Agriculture Crop Insurance in the United States and Canada 222

5 viii Contents 8.2 History of Crop Insurance Evolution of Crop Insurance in Canada Evolution of Crop Insurance in the United States Theory of Crop Insurance Information Costs Associated with Crop Insurance Programs Dealing with Adverse Selection and Moral Hazard Crop Insurance Coverage Falls as Prices Fall Summary and Conclusions 248 Appendix 8A: Value of Insurance under Risk Aversion 250 Appendix 8B: The Mechanics of GRIP Appendix 8C: An Adjustment Option (Jackson Offset) Policy Decoupling, GATT, and the WTO Policy and Decoupled Production Policy Categories and Decoupling Economics of Input and Output Subsidies U.S. Cotton Subsidies: Drawing a Fine Line on the Degree of Decoupling Summary and Conclusions Farmland Markets: Politics, Policy, and Urbanization Farm Payments and Land Values U.S. Land Values The Theory of Land Markets Empirical Background Canadian and U.S. Land Values Boom-Bust Cycles and Farmer Wealth Urban Growth and U.S. Farmland Values Land Values and the Solvency of the Farm Sector Land Values, Urban Development, and Trade Productivity and Farmland Values Multinationals: Capital Movements and Product Trade Summary and Conclusions 297 Appendix 10A: U.S. Land Values and Decoupled Farm Programs 298 Appendix 10B: Land Rents - Price Supports and Technological Change Agricultural Productivity and R&D Policy Investing in Agricultural Research Measuring Productivity and Productivity Growth 303

6 11.3 Research Expenditures in Agriculture Evaluation of Research Expenditures Estimated Returns to Agricultural Research Effects of Government Subsidies and Trade on R&D Agricultural Research: Who Benefits? Regulation and Agricultural Research Research Institutions and Intellectual Property Rights Summary and Conclusions 322 Appendix 11 A: Gains from Research under Distorted Trade The Economics of Biofuels Gas Prices and Biofuels The Economics of Biodiesel The Economics of Ethanol Food Concerns: No Free Lunch Livestock Impact Analysis: Limitations Summary and Conclusions Multifunctionality in Agriculture: Externalities and Non-traded Goods Arguments for Protectionism Externalities Non-traded Goods Identifying Positive and Negative Externalities Regulations Targeting Externalities Summary and Conclusions Input Use and Changing Farm Structure Effect of Agricultural Policies on Input Use Outputs Used as Inputs Derived Demand for Inputs Uncertainty and Input Demand Simultaneous Changes in Input and Output Prices Inputs: Fertilizer, Water, and Credit Summary and Conclusions 392 Appendix 14A: Water Rights 394 Appendix 14B: Imperfect Competition 395 Contents ix

7 x Contents Appendix 14C: Farm Equipment Markets 397 Appendix 14D: Interaction between the Input and Credit Markets Genetically Modified Organisms Different Plant Species Regulatory Framework Consumer Confidence and Producer Profitability Economic Framework Case Studies StarLink Corn 421 ' '" 15.7 Summary and Conclusions 424 Appendix 15A: Non-adopters of GMOs 424 Appendix 15B: Modelling Market Segregation for Corn 425 Appendix 15C: Product Quality Food Quality and Safety Food Quality and Safety Government Involvement in Domestic Food Safety Inspection and Grading Greater Role for the Private Sector Regulation of Genetically Modified Foods International Institutions for Food Regulation Country of Origin Labelling: Producers and Consumers Regulations and Information Reputation Effect Costs and Benefits of Regulation A Positive View of Biotechnology Nutrition, Obesity, and Agricultural Policy Animal Rights and Humane Slaughter Summary and Conclusions 462 Appendix 16A: The Household Production Model and Food Demand Conclusions and Future Directions Public Choice and Rent-Seeking Behaviour Vertical Markets and Agribusiness Goals and Objectives of Policy Lament for Dying Communities Targeting Support Costs and Benefits of Agricultural Programs 471

8 Contents xi 17.7 The Pareto and Compensation Principles GMOs, Biofuels, and the Environment International Trade Concerns Food Safety Future Policy Options 475 References All Index 509