AGRICULTURAL POLICY with a Foreword by Don Paarlberg

FOOD AND AGRICULTURAL POLICY With a foreword by Don Paarlberg American Enterprise Institute for Public Policy Research Washington, D.C. Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800. For all other inquiries please contact the AEI Press, USO Seventeenth Street, N.W., Washington, D.C. 20036 or call1-800-862-S801. Library of Congress Cataloging in Publication Data Conference on Food and Agricultural Policy, Washington, D.C., 1977. Food and agricultural policy. (AEI symposia; 77C) Papers presented at the Conference on Food and Agricultural Policy held in Washington, D.C., March 10-11, 1977. 1. Agriculture and state-United States-Congresses, 2. Food supply-Congresses. I. Title. II. Series: American Enterprise Institute for Public Policy Research. AEI symposia; 77C. HD1761.C64 1977 338.1'873 77-27937 ISBN 0-8447-2109-3 ISBN 0-8447-2108-5 pbk. © 1977 by American Enterprise Institute for Public Policy Research, Washington, D.C. Permission to quote from or to reproduce materials in this publication is granted when due acknowledgment is made. Printed in the United States of America MAJOR CONTRIBUTORS Martin E. Abel Professor of Agricultural Economics University of Minnesota 1. Dawson Ahalt Staff Economist U.S. Department of Agriculture Julia C. Bloch Professional Staff Member Senate Select Committee on Nutrition and Human Needs George E. Brandow Professor Emeritus Pennsylvania State University Willard W. Cochrane Professor of Agricultural Economics University of Minnesota Kenneth 1. Fedor Vice President, Economics and Planning Quaker Oats Company Richard L. Feltner President, Federal Intermediate Credit Bank (Louisville) Paul Findley United States Congressman, Illinois Thomas S. Foley United States Congressman, Washington Bruce L. Gardner Professor of Economics Texas A & M University W. E. Hamilton Chief Economist American Farm Bureau Federation R. J. Hildreth Managing Director, Farm Foundation Jimmye S. Hillman Professor of Agricultural Economics University of Arizona Howard W. Hjort Director of Agricultural Economics U.S. Department of Agriculture Hendrik S. Houthakker Professor of Economics, Harvard University and Adjunct Scholar, American Enterprise Institute D. Gale Johnson Professor of Economics, University of Chicago and Adjunct Scholar, American Enterprise Institute Thomas F. Johnson Director, Economic Policy Studies American Enterprise Institute Hyde H. Murray Counsel, Committee on Agriculture U.S. House of Representatives Don Paarlberg Professor of Agricultural Economics Purdue University Joel Popkin Senior Research Associate National Bureau of Economic Research John A. Schnittker Schnittker Associates Washington, D.C. G. Edward Schuh Professor of Agricultural Economics Purdue University Philip H. Trezise Senior Fellow, The Brookings Institution Luther G. Tweeten Professor of Agricultural Economics Oklahoma State University Clayton K. Yeutter Nelson, Harding and Yeutter; former Deputy Special Representative for Trade Negotiations Executive Office of the President CONTENTS FOREWORD......................................... 1 Don Paar/berg PART ONE Background and Status FOOD PRODUCTION AND MARKETING: A REVIEW OF ECONOMIC DEVELOPMENTS IN AGRICULTURE...... 9 D. Gale Johnson AGRICULTURE POLICY: A REVIEW OF LEGISLATION, PROGRAMS, AND POLICY. 29 Luther G. Tweeten COMMENTARIES Howard W. Hjort 59 Bruce L. Gardner 61 Hendrik S. Houthakker 65 PART TWO Food Production, Processing, Distribution, and Consumption AGRICULTURAL PRODUCTION, PRICES AND COSTS: HOW HAVE THE FARMERS FARED? . 71 George E. Brandow FOOD PROCESSING AND DISTRIBUTION: THE ROLE OF THE MIDDLEMEN. 93 Joel Popkin TRENDS IN FOOD CONSUMPTION, PRICES, AND EXPENDITURES... .. ....... .. ... ......... .. 113 J. Dawson Ahalt COMMENT ARIES Kenneth J. Fedor 141 W. E. Hamilton 144 Julia C. Bloch 148 PART THREE World Food Markets, Foreign Policy, and Domestic Agricultural Policy WORLD FOOD PRODUCTION AND INTERNATIONAL TRADE: THE IMPLICATIONS OF MARKET PROSPECTS FOR THE AGRICULTURAL SECTOR AND THE TRADE BALANCE. .. 153 G. Edward Schuh FOOD AND FOREIGN AFFAIRS: THE ROLE OF AGRICULTURAL TRADE POLICY IN INTERNATIONAL COMMERCE AND DOMESTIC RELATIONS. .. 169 Clayton K. Yeutter COMMENTARIES Jimmye S. Hillman 183 R. J. Hildreth 187 Philip H. Trezise 189 PART FOUR Policy Alternatives and Implications A MARKET-ORIENTED AGRICULTURAL POLICY AND ITS IMPLICATIONS FOR THE FARM BILL. .. 197 Don Paarlberg POLICY AND PROGRAMS FOR AGRICULTURE. .. 205 John A. Schnittker COMMENTARIES Hyde H. Murray 211 Willard W. Cochrane 217 PART FIVE U.S. Farm Policy: What Direction? ROUND TABLE. .. 223 Thomas S. Foley Paul Findley Clayton K. Yeutter John A. Schnittker John Charles Daly, Moderator FOREWORD Don Paarlberg The Conference on Food and Agricultural Policy brought together people of diverse backgrounds, from various parts of the country. Most of them were agricultural economists from the universities. But also present were people from the Congress, the Department of Agriculture, the White House, the farm organizations, agribusiness, consumer groups, and from the press. Though most of the people were professional econo mists, some were politically oriented; both major political parties were represented. A fairly wide band of the ideological spectrum was in evidence. The full range of farm and food policy was brought up for examina tion, but the sharpest focus was price and production policy for the major farm commodities. This was to be expected, since the conference was held while the executive branch of the government was shaping up its position on a new farm bill, and the agricultural committees of the Congress were already deeply involved in legislative deliberations. I For forty years there have been two fundamental farm policy positions. One favored a powerful role for government in the pricing and produc tion of farm commodities. The other favored a strong role for the individual. The major development in this conference was growing evidence that these two positions are converging. The old advocates of a strong government role in agriculture have lost some of their ardor and some of their clout. The old free market forces are now willing to accept a greater degree of government intervention than they were in former times. The old farm policy issue has been "de-escalated." Perhaps the statute of limitations is operating. Some of the most zealous protagonists have disappeared from the scene, and their places have been taken by younger, less indoctrinated people. Speakers at the conference, both during the daytime sessions and the evening Round Table, were chosen so as to provide a clash between opposing points of view. To the astonishment of many, these sessions produced much agreement. FOREWORD Several of those in attendance pointed out that the convergence on farm policy issues was not limited to the participants in this conference, but that the farm organizations were also moving perceptibly toward one another. So are the political parties. In earlier presidential campaigns, farm policy matters had been an important issue, but such was not the case in 1976. The respective roles of the individual and of the government in the production and pricing of farm products remain important public issues. But the degree of confrontation has perceptibly abated. The cause of this de-escalation was considered but not agreed upon. Perhaps the generally good experience with individual decision making during 1973-1976 served to weaken the belief that free markets meant disaster. Perhaps the volatility of prices in recent years and the concern about the permanence of the newfound markets has led free-market advocates to accept some degree of federal intervention, at least as a standby provision. In any case, it appears that an opportunity has been provided to move this old issue away from the center of the stage and off toward the wings, where it can more easily be resolved. Fortunately, the conference lifted up the fact that there is an area within which accommodation can be found. Agricultural prospects ap pear to be such that the protagonists can, in some measure, retreat with honor from their former rigid ideological positions. The mood of the conference was that any such move should be welcomed. II On a number of points there was general agreement, not as expressed by vote but rather as a "sense of the meeting." There was considerable discussion of the structure of agriculture as this relates to commodity legislation. It quickly appeared that the facts are at variance with the political stereotype. There was agreement with Gale Johnson's point that "at the present time half or more of the incomes of farm people come from nonfarm jobs." Bruce Gardner ob served that "the mainstream commercial producers of farm products are no longer poor people." This view was corroborated by George Brandow and went unchallenged. Likewise unchallenged was a set of data supplied by Luther Tweeten which showed "that there is a redistribution of in come from lower-income people, in general-not just farm people, but throughout society-to high-income farmers through commodity pro grams." There was general agreement on the existence of a low income problem in agriculture and on the inability of commodity programs to cope with it. Hendrik Houthakker underscored this point. There was agreement that production control programs have 2 DON PAARLBERG limited effect on total output of farm products, though no single estimate of

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