CH. 16 - Agriculture NR ECON FINAL

Price Supports

guaranteed minimum prices (to hold ag prices up- incentive to increase technology)

Supply Restriction

Acreage restrictions in the US or restrictions in total output (incentive to grow a lot in limited acres- overdevelopment/overproduction)

Direct Income Payments

Could be tied to the size of the farm or to below a specific income.

Input Subsidies

Cost of select inputs are subsidized such as water irrigation.

Structural Adjustment Payments

Land set aside for conservation, restoration, or new crop.

Subsidized Insurance

Covers partial or complete crop failure.

Programs to aid small farmers

Microloans for beginning farmers.

Government Support Policies in Agriculture

Price supports, supply restrictions, direct income payments, input subsidies, structural adjustment payments, subsidized insurance, and programs to aid small farmers.

Issues with price supports and acreage restrictions

they introduce economic distortions as farmers have incentive to shift their operations to take advantage of the public programs, allowing farmers to want to increase yield per acre, creating intensification.

Intensification

surplus from acreage restrictions leading to increase of supply as excess Q needs uses, leads to price supports and incentive to not worry about other crops. More fertilizers and pesticides used, more use of machines, adoption of high yield crop strains, more use of irrigation.

Acreage Restrictions

US Department of Agriculture identified a certain number of acres that crops grown on the acreage allotment got the support price, those not on the allotment didn’t.

3 Main Principles of Agriculture and Resource Conservation

1. minimum mechanical soil disturbance (no tillage; direct seed or fertilizer placement)

2. maintain soil fertility

3. species diversification (crop rotation and minimize monoculture)

Two Aspects of Ag. and Resource Conservation

Don’t use land with ecological value in farming (no wetlands), and minimizing how much farming land is list to other uses (urban fringe).

Economics of Soil Productivity

Agricultural practices are sustainable if they don’t lead to diminished soil productivity in the long run. This is an investment decision.

Soil Productivity

A renewable resource, we want a steady state of soil productivity over time, sustainable but not necessarily efficient.

Economics of Monoculture

A large portion of food supply and human calories comes from a small number of crops. (corn, wheat, rice, and potatoes). This reduces genetic diversity

Genetic makeup determines

Yield, growth rate, resistance to disease and pests.

Externalities of Monoculture

Most agriculture has a limited amount of crop strains. Everyone using the same strains can lead to disease increasing public health risks.

Economics of Pesticide Resistance

Most agriculture uses large amounts of chemical inputs (fertilizers and pesticides). Pesticide resistance can motivates more pesticide use which then results in more resistance.

How to get farmers to achieve the socially optimal pesticide use

1. voluntary agreement (must be a part of program to use public tech./resources)

2. Direct public regulation (regulating or monitoring)

3. Incentive Programs: tax pesticide enough that low,low is the best strategy

Elastic

Things that have a lot of substitutes (needs, luxury goods)

Inelastic

Can’t substitute away (gas- especially in the short run, becomes elastic in the long run)

Food is Inelastic

If the farm has a bumper crop, then farmers will lose money because the price will go down and so will total revenue due to demand for food.

Agriculture Biotechnology

Scientists don’t need to breed variations, they can now manipulate genotypes directly reducing the time it takes to produce varieties with improved characteristics.

Genetically Modified Organisms

Greater pest resistance, higher yields, improved nutritional contents, greater drought resistance. Have a monopoly since they can be patented.

Food Security and Climate Change

In 2022 in the US, 44 million people or 13.5% of the US pop., including 13 million children lived in food insecure households due to poverty and low wages, unemployment and economics instability, high food costs and inflation.

Food Deserts

Residents have limited access to affordable and nutritious food since there are a lack of grocery stores so residents must rely on convenience stores and fast food outlets.

Food Available for Consumption

Food produced locally - net farm imports - food waster

Food Available

production - waste

IM and EX

As an area gets smaller, this becomes more important as more attention needs to be payed towards food, transportation, storage, and preservation.

Efficient Steady-State for Soil

Si = So - Q + ΔS

Q for steady state of soil

soil productivity extracted from the soil (determined by choice of crops and conservation techniques)

ΔS for steady state of soil

Productivity that is returned to the soil during the growing season (spring flood, terracing, contour plowing, fertilizers can replenish nutrients).

Efficient Soil Productivity Variations

If S < S* = low income

If S > S* = low income because of high cost of replenishing