KEY for Homework #1 ECON 460 Section A Fall 96 Kilkenny

1. read HS&AS chapters 1-2

2. draw (copy/OK) Figure 1-1... notice what types of policies are related to "Developmental" policies, and which are related to "Price and Income" policies.

3. Developmental policies distributed land, extended education, provided infrastructure and irrigation; and led to improved productivity and increased agricultural production; at lower costs. These policies aimed at INPUT markets and INPUT use, and resulted in lower prices for farm produce.

Price and Income policies included target prices with land-set asides, which generally raise the returns to farm land owners; and demand expansion programs such as food aid and export subsidies, which also raise the returns. These policies aim to supplement revenue from OUTPUT markets, and thus encourage input use and low output MARKET prices.

The obvious difference between the two is that developmental policies lowered prices to farmers while expanding output, and the other set of policies raised prices to farmers while attempting to restrict output. The similarity is that both types of policies actually led to high input use, large supplies, and low market prices.

4. draw (copy/OK) Figure 2-3...notice the distinction between DIRECT influence (solid lines: vote/participate as member of group/make laws as politician) and INDIRECT influence (dashed lines: lobbying, researching, writing,...)

5. The American Farm Bureau (AFB) Federation was started by a New York Chamber of Commerce to teach farming methods in 1911. The National Farmers Organization was started by cornbelt farmers and livestock producers who all wanted better prices, in the 1950's. Note that AFB took a "developmental" stance, while NFO took a "price/income" stand. AFB also organized farm input cooperatives (developmental, again); while NFO organized boycotts and cartel actions (to raise prices by reducing supply, again.)

The AFB is financially supported by big businesses that supply farmers, handle raw commodities, and process food. Those businesses benefit when there are lots of farmers producing lots of grain and animals. Thus, it makes sense that AFB would favor income support programs financed by taxpayers, while letting market prices stay low. It would be against acreage controls or set-asides, especially if those controls really worked, that is, actually reduced input use or output supply.

The NFO's tactics to obtain bargaining power by withholding supplies would force big businesses (rather than taxpayers/gov't subsidies) to pay the higher prices the farmers seek. (You can illustrate this by graphing a supply shift.) No surprise, then, that NFO does not have the financial support of linked businesses. Furthermore, farmers who don't hold supplies back gain even more from NFO actions, if successful. No surprise, when it's that hard to be a member, that NFO is small. Finally, what can we expect consumers to think of NFO tactics?

Notice that the AFB reflects the interests of agribusiness suppliers and processors (who are few in number), and are against government intervention to raise prices but in favor of income support for farmers. The agribusiness gains from low market prices are relatively large per agribusinessman. Meanwhile, if NFO boycotts succeed, all farmers benefit from higher market prices, but there would be large per agribusinessman losses. Also, "farmers" as a whole are a large, un-organized group; and the per person gains would be lower than those per agribusinessman. NOTE: the "principle of collective action" explains the observed difference in the success of AFB compared to that of NFO. Note also: a good agriculture-related income can be made by businesses BETWEEN producers and consumers much easier than by those just on the producing end. Prescription for farmers: integrate forward.