Chapter 19 - Agriculture: Economics and policy. This chapter explain why agricultural prices and farm income are unstable, discuss why there has been a huge employment exodus from agriculture to other . industries over the past several decades, relate the rationale for farm subsidies and the economics and politics of price supports (price floors), describe major criticisms of the price-support system in agriculture, list the main elements of existing Federal farm policy. | Agriculture: Economics and Policy Chapter 19 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Unstable agricultural prices and farm income Employment exodus from agriculture Farm subsidies and price supports Criticisms of the price-support system Existing Federal farm policy 19- Agriculture Industry Extreme diversity Farm products and food products Short-run price and income instability Inelastic demand Fluctuations in output Shifts in the demand curve Dependence on world markets 19- Economics of Agriculture Effects of Changes in Farm Output on Agricultural Prices and Income D Qp Pp Q 0 P Pn Pb Qn Qb Normal Farm Income n p b Increases in output reduce farm income 19- Economics of Agriculture The Effects of Changes in Demand on Agricultural Prices and Income D1 P1 Q 0 P P2 Qn b a D2 Shift in demand causes large change in price and farm income 19- Agriculture: a Declining Industry Supply increased rapidly Technological progress Demand increased slowly Inelastic with respect to income Population growth 19- Agriculture: a Declining Industry Inflation adjusted prices have declined through 2005 Rising prices 2006-2007 Demand from China Ethanol 19- Economics of Agriculture The Long-Run Decline of Agricultural Prices and Farm Income D1 P1 Q 0 P P2 Q1 b a D2 S1 S2 Q2 c 19- Agriculture: a Declining Industry Major consequences Increased minimum efficient scale (MES) Consolidation Agribusiness Massive exit of workers Farm labor 2% of labor force 19- Futures markets Contracting with processors Crop revenue insurance Leasing land Nonfarm income Agriculture: a Risky Business 19- Percentage of Labor Force in Agriculture, Selected Nations 2002-2004 Madagascar Bangladesh Thailand China Brazil Russia Japan France Germany United States 0 25 50 75 100 Source: World Bank World Development Report, 2008 Labor in Agriculture 19- Economics of Farm Policy Subsidized since 1930s Support for . | Agriculture: Economics and Policy Chapter 19 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Unstable agricultural prices and farm income Employment exodus from agriculture Farm subsidies and price supports Criticisms of the price-support system Existing Federal farm policy 19- Agriculture Industry Extreme diversity Farm products and food products Short-run price and income instability Inelastic demand Fluctuations in output Shifts in the demand curve Dependence on world markets 19- Economics of Agriculture Effects of Changes in Farm Output on Agricultural Prices and Income D Qp Pp Q 0 P Pn Pb Qn Qb Normal Farm Income n p b Increases in output reduce farm income 19- Economics of Agriculture The Effects of Changes in Demand on Agricultural Prices and Income D1 P1 Q 0 P P2 Qn b a D2 Shift in demand causes large change in price and farm income 19- Agriculture: a Declining Industry Supply increased rapidly .
