Farm policy lags U.S. ag and food structural changes
As discussions surrounding the 2012 Farm Bill heat up, there will be no shortage of material for debate. Adding to that mix is a new report released from the American Enterprise Institute (AEI) that looks at the “Market Structure and Competition in the U.S. Food Industries; Implications for the 2012 Farm Bill.”
Richard Sexton, professor of agricultural and resource economics at the University of California-Davis, and Tina Saitone, a postdoctoral scholar in that department, authored the paper. They analyze the structural changes that have influenced the U.S. agriculture and food sector.
Specifically, the researchers examined the trends in vertical coordination, the application of contract arrangements, and the growing emphasis of product differentiation through quality. They point out that today’s business models do not align well with traditional agricultural markets on which farm policy is typically based.
Sextone and Saitone consider what role, if any, competition policy should play in the 2012 Farm Bill. They also evaluate some of the competition policies that may be considered during the farm bill debate.
AEI contends that several initiatives under consideration to expand regulations in the food and agriculture sector “with the overall goal of increasing competition and commodity prices farmers receive,” will likely produce unintended consequence of raising consumer prices and lowering farmers’ prices, as well as reduce the quality and variety of food products available.
Here’s a snapshot of some of the paper’s conclusions:
1) Congressional initiatives to “manage supply” would be detrimental to U.S. interests. Sextone and Saitone cite a dairy supply-management program proposal introduced in both the House and Senate, which is likely to be considered for the 2012 Farm Bill. They say it would increase consumer prices, increase milk production costs and diminish U.S. competitiveness in dairy products in the world market.
2) Policies that restrict contract provisions are likely to be counterproductive. They point to policies that restrict contract provisions, such as the proposed Grain Inspection, Packers, and Stockyards Administration (GISPA) regulations, are likely to backfire because they inhibit the markets’ ability to provide the product quality and variety consumers seek.
3) Most food processing and retail firms have an incentive to maintain steady, long-run supplies of farm products to operate facilities at full capacity. This incentive motivates firms to pay competitive prices and resist exploiting short-term market power. Government intervention to promote capacity utilization and reduce market power is not only unnecessary, but could create inefficiencies and increase, rather than lower, food production costs, the researchers note.