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Study Guide Exam #1

by: mgleason6

Study Guide Exam #1 AGR 319


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Comprehensive notes and study guide for exam 1.
ag policies and programs
Michael Barrowclaw
Study Guide
Policy, econ., agriculture
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This 11 page Study Guide was uploaded by mgleason6 on Tuesday October 11, 2016. The Study Guide belongs to AGR 319 at Illinois State University taught by Michael Barrowclaw in Fall 2016. Since its upload, it has received 2 views. For similar materials see ag policies and programs in Agriculture Economics at Illinois State University.

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Date Created: 10/11/16
Fall 2016 - AGR 319 - Exam 1 Study Guide 1. What is policy? What is Ag Policy? Policy is the response to a perceived problem and establishment of laws and regulations to encourage/ require action. Public policies are whatever a governing body declares the rules of the game about some private or public issue. Policies can be overturned by courts because of conflicts with other laws. Public policies are implemented by agencies, who develop and implement programs. Policies are laws or interpretations laws. Ag Policy – broadly concerning policies that affect farm, income, rural area economic development, rural health, agricultural markets, wildlife and natural resource protection on farms, nutrition and food provision for the needy and food safety. 2. Be able to recognize examples of Federal, State and Local Regulations. Federal Ag Policies – ex. Farm program payments, crop insurance, trade policy, tariffs, environment, meat grades and inspection, grain grades and inspection, ag research State Ag Policies – ex. Grain warehouse and licensing, pesticide application, animal health/ food product inspection, market development, transportation, environment (livestock waste) Local Ag Policies – ex. Agricultural zoning, property assessment and taxing, transportation (roads/bridges), extra-territorial zoning planning 3. What are IL farm risk management tools? Crop insurance, futures marketing, contracts, commodities program payments, production/ marketing contracts 4. What is extra-territorial zoning? Perimeter around city zoning controlled by city that expands up to 1.5 miles around perimeter which at any time can be rezoned for urban expansion. 5. What are some forces behind policy change and how do they effect policy? Instability of agriculture – instability of prices and incomes Globalization – world’s economies, cultures, and political systems become increasingly independent Technological development – agricultural treadmill: if you can’t keep up, you fall off. Advances of technology ex. Mechanization, hybridization, commercial fertilizer/pesticides Food safety - Environment - Industrialization - Politics - Unforeseen events - 6. What are some arguments both for and against agriculture? In favor of U.S. agricultural policy Economic problems unique to agriculture Stabilized food supply and quality Environmental protection/ conservation Against U.S. agricultural policy Agricultural policy favors some and leaves out others Gluts on world markets hurt 3 world farmers Landlords benefit from subsidies more than farmers 7. What are some of the roles that government plays in policy? Free Marketer – This perspective is that government intervention in agricultural markets distorts them. If government leaves the market alone, it will adjust and result in the most efficient economy. Humanitarian – A humanitarian viewpoint is that everyone has a right to food and government should ensure that no one starves. Physiocratic – This viewpoint regards all real wealth as being found in land and agriculture. Therefore, government should preserve agriculture in order to preserve society and culture. Stabilizer – A stabilizer’s view is that instability (of income, prices, and yields) is a fundamental problem in agriculture that requires government intervention. Regulator – Regulators say the government must provide ‘rational’ coordination and control of human greed and actions. Regulatory, farm income stabilization/ farm safety net, conservation of resources/ environmental protection, trade promotion, food safety and nutrition, protection of food supply 8. What are some of the reasons why government intervenes in agriculture? What are the 2 primary reasons for government intervention in agriculture? Farm price and income downturns, rural poverty, politics and inexpensive food supply, politics and food safety, environmental effects of ag practices and products (externalities), other public concerns. When and why should government get involved? Think about arguments for and against food and agricultural polices to deal with these conditions. 9. What are some constraints to government intervention in agriculture? Fiscal conservatism and federal budget cost Economic freedom Global market integration Responses to perceived problems is always limited by resources. Increasing resources to respond to problems is always an issue of fiscal conservatism. Personal and business economic freedom may limit the scope and content of government involvement. Even though serious environmental problems may be caused by a particular industry, economic freedom limits what legal policies may accomplish. Economic freedom – fundamentals of capitalism Political conservatism – in favor of less government Budget/government cost – federal deficit problem Capitalization – government programs bid assets of agriculture - land prices, dairy cows, risk of international competitiveness problems Globalization – some want borders sealed, but we are committed to WTO agreements Common sense – have we accomplished all we can as evidenced by low % age of income for food 10. What is capitalization? Capitalization is the process by which the benefits of government programs tend to be bid into the value of the assets. It occurs with any program that enhances the financial returns above normal levels or reduces prices and/or income risk. 11. Effects of Capitalization on agriculture: (from Farm Programs, From Ethanol mandates, On Land Prices & Cash Rent). Capitalization tends to serve as a constrain on government spending because of the growing recognition that farm program payments, over time, make agriculture less competitive internationally. (p. 17 – 18) The effects of the fallacy of composition and the capitalization process mean that both the short-run and the long-run consequences of changes in policy must be analyzed by economist and considered by policy makers. 12. What are the “Base (Golden) Years” associated with Parity definitions? Why were these years chosen? 1910 – 1914, calls for parity prices or incomes to preserve favorable price/income relationships of that time. Parity written into early farm legislation in 1930’s, early as general goal, later as specific price targets. Parity remained part of farm legislation into 1960’s 13. What is parity and how is it calculated? When were the 2 times we have had it or been close? Parity, or ‘fair exchange value’, relates to maintaining a balance between prices received & prices paid during base period. Parity Ratio = (IPRF/IPPF) x 100 IPRF – index of prices received by farmers IPPF – index of prices paid by farmers Parity is a ‘purchasing power’ concept. If a bushel of wheat would buy a pair of jeans in the base period, a bushel of wheat should buy a pair of jeans today. 100% parity has been achieved only twice – during base years 1910- 1914, & WWII 14. What are the current parity prices for corn and soybeans and what percent are we currently receiving (you can use 2015 prices)? Corn – Jan: 13.10 Feb: 13.10, receiving 29% Beans – Jan:32.00 Feb: 31.80, receiving 32% 15. What was the first era of agriculture policy known for? Price Support Era 1930’s – 1960’s New Deal Era 1929 – 1954: devastating effects of depression years, large scale government programs. Basic values: make two blades of grass grow where one grew before, price supports at parity levels, healthy agriculture = healthy economy Flexible Price Supports Era 1954-1970: demand sagged – production increased, improved management practices, mechanical advances (hybrid seeds, commercial fertilizers & chemicals). Rapid production increases: U.S. agriculture change from self-sufficiency model to major world supplier. Income Support Era 1970’s – 1995 Market-Oriented Era 1996 – Present TEST QUESTION: Which era saw the first successful farm policy with payments to farmers? Farm policy began with the government overtly supporting farm prices. When market prices fell to the support level, the government purchased and stored commodities. The monuments to this policy era are the concrete grain storage silos—many of which now stand empty—across the Corn Belt and the Great Plains. In fact, government stocks became so large that prices were generally at the support level, and production controls ranging from quotas to land retirement programs were prevalent. Because support prices were too high to be competitive in export markets, the international Food for Peace program and domestic food distribution programs were developed. 16. What are 2 reasons why the Federal government pushed for land settlement in our area? Homestead Act 17. What acts created Universities to research ag? Research Stations? Extension? Ag Education/FFA? Morrill Act – land grant universities ex. UIUC 18. What is the nickname for the USDA department? Department of Agriculture “The people’s department 19. Know the groups who are impacted by ag policy and how it affects them (different viewpoints). Economist – impact on overall economy and welfare Farmers – direct financial implication Agribusiness- raw material cost and sales volume Consumers – cheap, safe, high quality food Taxpayers – cost of programs (taxes) Politicians – getting re-elected 20. When were farm payments first tried (what era/time period)? What was the outcome of these payment programs? Income Support Era/ Coupled Direct Payments Era A. Equality of opportunity Small producer protection Farm Labor unionization (Cesar Chavez: UFW) Bargaining between producers and processors (emergence of cooperatives) Note: Growth does not automatically solve the problem of poverty—it alters the composition of forces. B. Increasing international awareness – market oriented approach Exports become major driver of ag prices Aid vs. trade issues Food as a weapon (embargoes) Food for crude; balance of payment issues GATT (WTO) Exchange rates C. Increasing costs of industrial inputs Inflation and interest rates Energy prices Fertilizer prices Structural concerns (larger units; increased debt loads; loss of family farms) D. Concerns about levels of compensation Price stabilization and support What is fair price? What is economic justice? Note the shift in the ag policy agenda? By the end of this era we were seeing: gene technology, GPS/GIS, value added, identity preserved, and strategic alliances 21. What era first tried to control production? What type of production controls were used? Why were these controls implemented? New Deal 1929 – 1954 provisions for controlling production were added in the event that surpluses became burdensome. 22. What was the first “processing tax” (hint: it was ruled unconstitutional)? 23. How did Roosevelt try to fix the unconstitutionality of the farm program? 24. What is a non-recourse loan? Non-recourse loan is a government storage/purchase program that was used to support the price of major crops from the 1930’s until the widespread adoption of of the marketing loan program in 1996. 25. Which two Farm bills are still the current “permanent” bills? 1938/1949 26. During the Flexible Price Support Era, what were five advances that kept growing ag production? 27. Why were the “golden years” of agriculture used to compare parity? What is the “goal” of parity? 28. What program is in place (from 1945) to feed non-US populations? 29. What decade saw the U.S. first step into the world production/supply arena? 30. In 1983, instead of being paid by a check from the government, farmers were paid in what? What was the acronym for that program? 31. Why was the program above needed? Who (besides taxpayers) was negatively affected by that above mentioned program? 32. Why were farm programs called “coupled”? 33. By the end of the “Coupled” Era, what 5 new innovations were affecting farming? 34. How did Farm programs significantly change in 1996? Farm legislation for the first time recognized that U.S. played in a global economy & that our policies affect those in other countries. Farm income supports were separated from price and production and direct payments were made to farmers regardless of what they produced or product price. Farmers gained increased flexibility to specialize and produce crops of their interest. 35. How did loans change in 1996? Decoupled direct payments 36. What force was behind many of the 1996 changes? Globalization 37. What historic part of farm programs was eliminated in 1996 bill? Direct Payments ACRE program Countercyclical payments – gone but PLC is similar Sure Dairy Price supports & milk loss contract 38. What is the most expensive part of today's Farm program? Nutrition - $756 B 39. What is DP, CCP, LDP? How do each of these payments work? Direct Payment Countercyclical payment 40. What is significant about the current Farm Bill? When does the current bill expire? Covers 2014 – 2018 Eliminates direct payments, countercyclical program, and ACRE Creates new price support, PLC, and new revenue program, ARC Creates new insurance option – SCO Revises diary program Consolidates conservation programs Establishes a permanent livestock disaster program 41. What are the three common assumptions written into most farm programs? 1. Retain or reallocate base acres 2. Retain or update program payment yields 3.One time, irrevocable option to select one of the following: Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC) 42. How many farms were there in 2012? What types of farms are most vulnerable to instability of agricultural prices? Medium sized farms 43. About 5% of the ag production is controlled by 75% of the Farms. 44. 2014 Farm Bill PowerPoint slides: Focus on Title I-Commodities and Title XI-Crop Insurance 45. Homework #1 and #2 will also be included with some exam questions. 46. Quizzes #1 and #2 will also be included with some exam questions. 47. What do you think are important terms to know by now?


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