NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
September 30, 1999
Too much supply and too little demand worldwide are depressing the prices of agricultural commodities and the incomes of U.S. farmers. Despite federal payments to American farmers increasing from $7.5 billion in 1997 to $24 billion this year, subsidies have not solved the financial crisis many smaller-sized family farms face. One solution, among several being offered by a policy specialist at North Dakota State University, calls for a multi-tier target price scheme based on crop land.
"Small family farms need government subsidies the most. However, our government programs have not been targeted for small-sized family farms," says Won Koo, a professor of agricultural economics and director of the Northern Plains Policy and Trade Research Center at NDSU. "Under this proposal, a schedule of target prices is applied to a limited number of crop acres."
Specifically, Koo proposes that policy makers create three levels of target prices and then limit those payments to 1,000 acres of land. He recommends setting the highest target price on the first 250 acres, the second highest price on the next 250 acres and the lowest target price on the next 500 acres.
To demonstrate his plan, Koo has used a target price of $5 per bushel (payable on average yield) for the first 250 acres; a $4 target price for the next 250 acres; a $3.50 target price for the next 500 acres; zero government payments for the remaining crop acres in the farm. Assuming a market price of $3 per bushel for wheat and an average yield of 35 bushels per acre, a 1,000-acre farm would receive an average subsidy of $35 an acre, a 2,500-acre farm would receive an average subsidy of $19 an acre, a 5,000-acre farm would receive $7 an acre, and a 10,000-acre farm would receive $3.50 an acre.
Besides a three-tier target price, Koo says aggressive action on the part of U.S. trade negotiators is needed to open foreign markets and reduce subsidy levels in grain exporting and grain importing countries. A particular target of this action, he says, should be European Union, whose farm policy includes a combination of internal price supports and export subsidies that allow European grain to be sold on the world market at artificially low prices.
"Tariffs on farm products average more than 50 percent globally, even though duties on other goods have been coming down rapidly," Koo says. "Manufactured goods typically face an average tariff of 4 to 10 percent. In addition, there are many different types of technical non-tariff barriers, which should be reduced substantially for U.S. farm goods."
Koo says U.S. negotiators should also push for changes in how the Canadian and Australian wheat boards and other state trading enterprises conduct business. These organizations currently wield significant market power in international markets and practice price discrimination.
The final point of Koo's proposal involves harmonizing existing regulations on agricultural biotechnology among countries. Because the United States is the leader in the creation and production of genetically modified organisms (GMOs), it is affected the most by differing regulations, which serve to prohibit to U.S. exports in the same manner as other non-tariff barriers.
"Changes that result from international trade liberalization and regional trade agreements such as the North American Free Trade Agreement (NAFTA) will affect the U.S. agriculture sector more than other sectors," Koo concludes. "These changes will require more efficient farm operations and improved farming techniques. Government policies and subsidy programs should facilitate the tools that make our agriculture more competitive and provide a fair playing field for agricultural exports."
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Source: Won Koo (701) 231-7448
Editor: Dean Hulse (701) 231-6136