Lecture 16: Overproduction and International Trade

what is a take away about cattle from King Corn?

cattle did not evolve to eat corn→ pushing them too far causes illness

how do farmers in Idaho, from King Corn, view their work?

they see their work as a necessary evil, they are aware of what’s going on (sense of resignation)

what was a key point about farmers and making money from King Corn?

farmers lose money selling their corn until they receive subsidy payments from the government

what is the ecological irrationality about corn production according to Pollan?

more than half of all synthetic nitrogen produced is now applied to corn (fossil fuels are heavily used in the production of fertilizer)

1 bushel of corn now requires .25-.33 gallon of oil

it takes >1 calorie of fossil energy to produce 1 calorie of food energy

what do we mean by the overproduction in the food system?

chronic gluts or surpluses

supplies in excess of effective demand

results in deflated prices and farm incomes

effective demand

demand backed by money, person is able to buy their demand

what are the major US policy responses to overproduction in the food system?

supply management (ever-normal granary, retiring farmland, idling farmland)

food stamps/WIC/free school meals

exports

food aid

farm subsidies

all of the US policy responses to overproduction are _______ fixes, why?

temporary, because farmers are still encouraged to produce more

what are the results of the overproduction of food?

cheap food→ there is a downward pressure on prices as supply exceeds demand

everyone except the farmer benefits

share of income spent on food has been decreasing

most of the profit is realized away from farms

the Second Food Regime is also known as the

United States Food Regime

what were the dates of the Second Food Regime?

1945-1975

what were the characteristics of the Second Food Regime?

relied heavily on supply management (price supports, production controls and export subsidies)

US exported large wheat surpluses by trade and aid

resulted in the shift of Asian and Latin American diets toward wheat (Asia: from rice to wheat; Latin America: from maize to wheat)

why did the Second Food Regime emerge?

WWI broke the British Food Regime

supply volatility during and after the war led to overproduction (farmers in the US produced more because prices went up in Europe) (when the war ended prices collapsed because Europe began to produce food again)

1920’s agricultural depression

farmers responded by growing more, exacerbating the problem

how did the 1920’s agricultural depression prelude the Dust Bowl?

effect for the search for more and more production led to continuous plowing

land rush when public land was available

tractors enabled the plowing of land that was difficult to plow

due to variability of rainfall, production tended to “overshoot” when drought hit:

soil was overplowed

what was the result of overplowing in the 1930s?

there was a period of very dry years, windstorms picked the soil off the farms and into the oceans

the erosion was severe

what did the Dust Bowl trigger?

Depression and the Dustbowl happened together

created political conditions for radical change

the goal was to try to find how to keep people on the land ; how to balance urban world and economy with rural values and identity

what were the aspect that the welfare state needed to address?

employment, income, production, soil, and rural society as a whole

what was the New Deal’s conundrum?

how to get farmers to grow less as a group, when every individual has incentive to grow more

supply management

a set of policies that attempted to limit production

Agricultural Adjustment Act of 1933

retire marginal lands form production

pay farmers not to farm portions of their land

government programs buy up surplus output for stockpile

ever-normal granary

if there was a bumper crop, the government would buy and stockpile a share of the harvest

if there was a bad year and prices increased, the government would release supply

what was the US’s view on international trade?

GATT,→ effort to open up trade

• reduced/eliminated tariffs except in agriculture

• encouraged supply management policies within countries

US was looking for a place to send their surplus

international wheat agreement, starting in 1949→ set price ranges and production quotas between designated exporting and importing countries

what were the effects of the AAA?

production continued to increase

• farmers intensified production on their remaining acres

• new technologies emerged: hybrid seeds, fertilizer, pesticides, machinery

• economies of scale as farm size grew

war-ravaged countries resumed production

Agricultural Trade Development and Assistance Act (PL 480)

authorized the secretary of state to use food as a tool of foreign policy; created international food aid

what was the result of PL 480?

cheap imports and aid shifted diets and hurt prices for overseas farmers, drawing them into the cycle

Green Revolution brought US model to developing world

what ended the US Food Regime?

1970s economic volatility (oil crises, stagflation, food price spikes)

shifts in US agricultural policy→ abandonment of supply management, Earl Butz’s USDA

1980s Neoliberalism (export subsidies were curtailed by WTO and international markets were opened)

what does Cochrane observe about small farms and their production vs. large farms and their output?

64% of the farms produce only 10% of total output

4% of the farms produce 45% of the total output

what does Cochrane see as the problem?

the farming sector is not in trouble because it can’t produce, it is in trouble because it produces too abundantly

what happened to farm subsidy payments over time?

farm subsidy payments have significantly increased over time, leading to higher government expenditure and altered market dynamics