KEY for Homework #2 Econ 460 Fall '96
re: Chapter 2, HS&AS; Des Moines Register 4/23/96 Page 1, section J "Farm & Country"
and: The Economist March 9, 1996, page 27 "Farm reform:
The wheat and the chaff"
1. In what ways has farming in America, under previous
farm policies, been like "Moscow on the Mississippi?"
A: The U.S. government used to impose upper limits on the acres
farmers could plant to wheat, corn, and a few other crops, and
purchased those crops at predetermined support prices from those
who adhered to the limits. Before perestroika, the Russian government
would purchase a specified amount (the centrally planned output
of the whole farm) at predetermined prices.
2. Why do futures markets make farmers better than the
government at deciding what to plant? Market prices reflect demands
and supplies and futures market prices provide a good estimate
of market prices at later dates. ALSO, futures contracts can be
used to hedge against unexpected changes in spot market returns
relative to costs. Thus, futures markets give farmers information
about future net demand so that they can choose themselves what
may be most profitable to supply, and, futures contracts help
them avoid price risk so they don't need government price stabilization
schemes.
3. How much money do the richest 1% of U.S. sugar growers get?
42% of $1.4 million is $588,000; but sugar growers get 42% of
$1.4 BILLION = $588 Million.
4. (a) How much money have government programs distributed in Iowa between 1985-1995? A: $10,300,000,000 (10.3 billion dollars).
(b) There are 146,000 farmers in Iowa (according to the Bureau
of the Census). How much have government programs distributed
per Iowa farmer? A: $10,300,000/146 .
$70,500/Iowa farmer. NOTE: this does not mean that every Iowa
farmer got this much: some got none, others got lots more.
5. Explain at least three things a small agribusiness person could do to influence U.S. agricultural policy. The three "sources" of political power are (1) money, (2) influence, and (3) numbers.
To accumulate the money needed to be politically influential, a small farmer would probably have to join and contribute to a political action group (e.g. AFB). Organized small farmers might accumulate donations from other businesses with something to gain from the farmer's desired policy (e.g. seed company supports Pheasants Forever), or from sympathetic individuals (e.g. "Farm Aid" concerts).
Small farmers can "directly" influence politics by being active voters. A small farmer, a large farmer, and even a corporate president each have the same single vote. They can indirectly influence policy by writing letters to their congressmen, newspapers, etc. In centuries past, "influence" was obtained if your relative was in the royal court. A modern version of this is for small farmers to become politicians themselves (e.g. Bob Dole) or send their kids to law school/into politics (e.g. Kennedy family). (Another form of "influence" commonly used in the past was violence. NOT recommended!)
If there are enough small farmers with a common idea, they can exert market power by withholding supplies or boycotting inputs (e.g. NFO), or, voting in blocks for the representatives who support them (e.g. Prairie Fire).
NOTE: a variety of ideas are acceptable answers to this question, but full credit (if it were an exam) would be guaranteed if all three sources of influence are represented on your list.