Multiplicity of farm programs

A new report from the U.S. Government Accountability Office discusses the extent of farm subsidies in the US.

A few interesting bits:

“From fiscal years 2008 through 2012, the U.S. Department of Agriculture (USDA) reported spending about $114 billion on 60 programs providing financial assistance to farmers, including about $28 billion in crop insurance subsidies. ”

Although, interestingly enough . . .

“except crop insurance subsidies, most of the estimated 2.2 million farms reported receiving no program payments from 2008 through 2011”

However,

“about 37 percent (800,000) received a payment from at least one farm program. Farms receiving payments reported receiving $11,293 on average (median payment of $3,719) annually from various programs. Payments were higher if a farm received assistance from multiple farm programs—less than 1 percent of farms received payments of $57,899 on average (median payment of $27,412) annually from multiple programs. Larger farms or farms producing cash grains such as corn were more likely to receive payments from multiple programs than small farms or farms producing other crops. Larger farms also received more crop insurance premium subsidies than other farms.”

One of the things that can happen when there are so many over-lapping programs is that activities which appear to reduce risk may, in fact, do the opposite.  For example, here is a paper by Keith Coble and colleagues from a few years back showing that hedging in the futures market - an activity long thought to reduce price risk - may actually increase risk when a farmer is enrolled in other insurance government programs.  

How US Companies Should Help Farmers Increase Sustainability

That's the title of an article by a marketing guru, Doug Austin, in the Farm Journal.

While some of the discussion is sensible, I found it a bit interesting to see the "solution" proposed to increased sustainability:

“When large companies partner with farmers, they have more influence on how farmers take their products to market, and they’re involved much earlier in the process. For instance, a corporation could instruct a farmer to plant 10,000 acres of corn without any pesticides, GMO seeds, etc., and the farmer would be under contract to deliver. This is a big shift away from the traditional farming mindset that uses yield as the primary success metric.”

First, I don't know that corporations "instruct" farmers. They can offer incentives.  They can offer premiums.  Or, as Austin suggest, they can offer contracts.  

The idea is hardly new.  And indeed, the rate of contracting is already increasing at a rapid clip, precisely for many of the reasons suggested by Austin - food companies trying to achieve more uniformity ad price stability, and to be responsive to consumer concerns.  

Here for, for example, is a graph out of a USDA report by William McBride and Nigel Key on the percent of hogs marketed in the US under contract from 1992 to 2009.  In some parts of the U.S. virtually 100% of hogs are produced under contract.

There are many advantages to contracting (mainly protection against price or production risk), but the practice also opens up food production industries to all kinds of criticism (e.g., see how Tyson was vilified in The Meat Racket for its use of contracts).  If a corporation wants to exert the kind of control it needs to achieve various end-use characteristics, that means farmers conceding some freedom (in exchange for certainty of income).  However, this relationship can get construed as "big bad market power exerted by Big Food."

The contracting situation isn't unique to hogs.  Many (perhaps most) vegetable growers produce under contract with processors.   And, here is another graph from the USDA-ERS by James McDonald on the extent of contracting for the major commodity crops

The other problem with the quote above is the implicit assumption that the use of GMOs or pesticides are not sustainable.  Or, that yield isn't one metric of sustainability.  Corporations may (one day in the future), in fact, want to contract with farmers to plant certain GMOs precisely because they are more sustainable.

How to give a good (academic) presentation

Last week marked the end of this year's annual Agricultural and Applied Economics Association (AAEA) annual meeting in Minneapolis.  I finished up my stint on the board and gave several presentations.  

One of the presentations was in a session organized by the graduate student section on effective communication.  Marc Bellemare from University of Minnesota gave an excellent talk on how to effectively publish in academic journals (as if to prove he knows what he's talking about, he was also awarded the Quality of Research Discovery award at the meeting).   Dawn Thilmany gave an informative talk on how to communicate with stakeholders and extension audiences.  My talk, which you can download here, was on how to give effective research presentations for academic audiences.   

Freedom to farm

As described in this New York Times article, Missourians are set to vote on a statewide constitutional amendment to "guarantee the right to 'engage in farming and ranching practices'.”

The amendment is supported by several farm groups in the state, and it comes about in response to initiatives in other states that have (or have tried to) outlaw certain animal production practices such as gestation crates for sows and battery cages for hens or to restrict use of genetically engineered crops.  

I'm not sure what to think about these sorts of amendments (a similar law was passed in North Dakota, and if this one in Missouri passes, I suspect we'll see similar propositions in other states).

On the one had, I see the supporters of the law trying to prevent the "unfunded mandates" that have occurred in other states: voters passing laws that shoppers are not fully willing to pay for via premiums in the marketplace.  On the other hand, the text of the law is vague and it is difficult to foretell what will be the consequences, intended and unintended alike.  

The amendment seems to enshrine a type of protectionism that is unlikely helpful for the economy.  Imagine an amendment to protect university professor's right to "engage in teaching and research practices" or an amendment 100 years ago to protect wagon wheel makers right to make wagon wheels.  It's hard to imagine those propositions gaining much support.  They - like the one aimed at farming - seem to violate of Kant's categorical imperative insofar as the rules attempt to set a different standard for farmers or professors or wagon wheel makers than for other workers or business owners.

This quote from a farmer in the NYT story reflects that sentiment:

““One thing’s for sure — it’s going to put ag culture above everybody else,” he said. “We’re going to be a different class of people. You won’t be able to complain about anything that we do. That should never be the case.””

That said, the attempt to paint this as a battle between "family farms" and "factory farms" is largely misplaced.  As if small family farmers don't like technology.  For example, here's one quote from Joe Maxwell, who works for who works for the Humane Society

““There are now two kinds of agriculture in America — we have seen over the last 30 years the advancement of the industrialized ag model,” Mr. Maxwell said. “The group of farmers who are aligned with industrialized ag believe big is better and they should be able to do whatever they want to the land and to the animals. Then there are a group of farmers who believe we are the caretakers of the land. I stand with many family farmers who are in opposition to this.””

There are many more kinds of agriculture than two.  Many family farmers are large; many use technology precisely because they want to take care of their land and animals.  

What's the good of advertisers?

Much of what I read and hear in debates about obesity, nutrition, and public health seems to assume that all corporate food marketing is "bad".  Food marketers are nudging us away from healthful choices toward the more profitable (for them) unhealthful ones (never mind that some companies sell healthy products).  Many people argue that the government needs to make its own commercials to counter-nudge us back toward health eating.

With that backdrop, I was interested to read the back-and-forth letters between Rory Sutherland and George Loewenstein at the beginning of this paper, The Behavioral Economics Guide 2014. (HT: Andreas Drichoutis)

Here's an interesting point by Sutherland:

“Interestingly the late, mostly great, Gary Becker (in a paper with Kevin Murphy) seems to agree with me on this. Their model of advertising seems to suggest that advertising should be viewed not as persuasion (something which distorts preferences, as you suggest) but as a complementary good, the consumption of which, alongside the main product, increases the value of that main advertised product and which therefore allows sellers to capture more of the consumer surplus. He sees advertising as potentially a value-add, not as manipulation.

Nonetheless, I agree that we are right to be suspicious of manipulation. After all, the most successful advertisers over the past 150 years have been totalitarian regimes. ”

Sutherland also responds to Loewenstein's story about a recent joy-ride to the country ending in a meal of burgers and beer which was ruined when Loewenstein learned he was simply playing out a scene he'd seen in a credit card commercial.  Sutherland writes: 

“But what is strange is that we are already affected by frames, without being remotely aware of them. When you described your cycling experience, it was clear that you saw the cycle ride as virtuous and the food and beer as sinful. Yet people have been enjoying the consumption of beef products and fermented beverages since the time of the pharaohs.

Indeed, perhaps 900m people in China would have read your story and said, “The beer and the burger I understand. What I don’t understand at all is why a presumably wealthy Yankee professor would get to the restaurant by bicycle, when I have been dreaming of owning a car for the last ten years. Travelling by bicycle is the lowest form of drudgery.” You have clearly been manipulated here. But it’s not the credit card company I blame, it’s Nike.”

Loewenstien responds with some interesting observations of his own.  Do read the whole exchange.