                          Agricultural Economics


     Agricultural economics is the field of social science
concerned with economic approaches to the problems of agriculture,
to the consumption and preservation of natural resources, and to
the best uses of agricultural products in the food industry.  An
applied academic field, it utilizes principles of economics to
consider allocation decisions for the agricultural use of land,
labor, capital, and management resources.  It seeks to define the
conditions under which farmers, consumers, marketing firms, and
society can attain the greatest resource efficiency and social
benefit, subject to the restraints imposed by nature and by
political considerations.

     The main economics research organization in the U.S.
Department of Agriculture (USDA) is the Economic Research Service. 
Economists in academic institutions also contribute their research,
and convene yearly through the International Association of
Agricultural Economics (established in 1929).

THE WORK OF AGRICULTURAL ECONOMICS

     The field of agricultural economics encompasses study and
analysis in a wide range of specializations.
The major subdivisions include:

1.  The economics of farm management and production:  issues
associated with the organization and operation of farms, the
evaluation of new technology, and the study of farm costs.

2.  Agricultural marketing:  the processing and distribution of
products from the farm to the consumer, including crop and food
transportation, cooperative farm organizations, commodity markets,
and other marketing institutions.

3.  Agribusiness management:  managerial economics and business
administration as they operate within the farm, food, and fiber
industries.

4.  Agricultural prices, incomes, and policies:  the politics of
agricultural economics, especially political concerns regarding
government interventions.

5.  International agricultural trade and development:  the
relationships between domestic policies and international trade in
agricultural products;  development strategies for Third World
agriculture in the forms of technical assistance, food aid, and
financial grants.

6.  Agricultural finance:  the study of capital markets and the
financing of agriculture;  risk analysis;  farm real estate
appraisal;  lending institutions;  insurance;  taxation.

7.  Natural resources and environmental economics:  analyses
involving the efficient use of natural resources;  land as a factor
of production;  soil conservation and water policies; forest
economics;  energy policies.

8.  Community resource economics:  economic development processes
in the rural economy;  local government finance and land-use
planning;  rural industrialization, employment, and housing.

9.  Consumer economics:  analysis of consumer decisions as the
final determinants of demand;  consumer protection;  food safety; 
food stamps and other food-intervention programs.

10.  Research methodology:  the quantitative tools of economic
analysis, such as agricultural statistics;  the creation and
application of mathematical models.

GOVERNMENT AID PROGRAMS

     The goal of agricultural government aid programs is, first to
ensure that farmers receive prices for their products that are high
enough to cover costs and supply a profit, even when excess
agricultural productivity forces market prices down; and second, to
encourage the cultivation of export crops like wheat, while at the
same time keeping prices to foreign buyers competitive with those
of other countries.

     For many decades, commercial U.S.  agriculture has been beset
by chronic problems.  Some of them arise from the fact that the
total demand for food is inelastic--that is, a given number of
consumers can eat only a limited quantity of food.  Lowering food
prices may reduce consumer food expenditures, but it adds little to
the aggregate quantity consumed.

     On the other hand, it is very difficult to forecast the
quantity of agricultural products that will be grown within a given
period of time. The adoption of new production technologies such as
hybrid seed or new methods of livestock reproduction, coupled with
extreme weather variability, leads to unpredictable changes in the
supply of agricultural goods. Once farmers have invested in
buildings, machinery, and new technologies, they find it difficult
to cut back on production, even if farm prices fall rapidly. 
Therefore, except in times of war, or when poor weather conditions
cause worldwide shortfalls of food and feed grains, U.S. 
agricultural supply typically outruns demand.

     In the United States basic agricultural programs and
legislation are revised every four years in an omnibus agricultural
bill.  The Food Security Act passed by the U.S. Congress in 1985
contains many of the programs and regulations that have been used
during the past half century, ever since the New Deal of the 1930s
enacted the first effective U.S. farm legislation.  The 1985 act
establishes a comprehensive framework within which the secretary of
agriculture administers agriculture and food programs from 1986 to
1990.  There are 17 separate titles, of which 10 are devoted to
basic commodity programs including dairy, wool, wheat, feed grains,
cotton, rice, peanuts, soybeans, and sugar, as well as procedures
for calculating crop and farm acreage bases.  A system of support
prices or loan rates for many of the crops establishes a minimum
price that farmers can expect to receive for their crops.  These
loan rates were reduced sharply from the levels in the 1981 bill. 
Since 1987, market prices have generally exceeded the levels
provided in the bill.

     The secretary is given authority to use acreage-reduction,
set-aside, or paid-land-diversion programs to reduce acreages
planted to wheat, feed grains, cotton, or rice.  Participating
farms may then receive deficiency payments, the difference between
target prices and market prices or loan rates, whichever is higher,
for program acreages and yields.  Levels of target prices are
established annually.  In 1988, for example, the target price for
corn was @2.93 per bushel and the loan rate was $1.77;  the market
price approached the target price in the last half of the year.
Payment limits to individual farm operators are established at
$50,000 per year under most circumstances;  disaster payments have
a limit of $100,000 per person per year.

     A Conservation Reserve was established in 1985 to encourage
retirement of up to 18.2 million hectares (45 million acres) of
highly erodible cropland--about 10 percent of total cropland.
Participating farmers sign 10-year rental agreements to place
qualifying cropland in soil-conserving uses.
Other titles continue U.S.  food-assistance programs to developing
countries;  provide initiatives to encourage exports through export
credits and guarantees;  and continue food stamps and domestic
commodity distribution programs, agricultural credit programs, and
funding for agricultural research, teaching, and cooperative
extension programs.

     The effect of lowered loan and other support prices may well
be to force some small farms out of business.  (In the coming few
years, experts anticipate a reduction of about 10 percent in the
number of U.S.  farms.) Low prices should also reduce the size of
government-held surpluses and bring the cost of U.S. commodities
closer to world prices, making U.S. products more competitive on
world markets.

     Export aid is still a major segment of government programs,
however. Grain growers, for example, receive various kinds of
subsidies to help them reduce prices to world-competitive levels. 
Some foreign food buyers also receive U.S.  subsidies to help them
buy U.S.  commodities.  Surplus reduction is a major target of
these programs, as is the recapture of markets lost to the United
States when export prices were high.

AGRICULTURAL ECONOMICS IN THE THIRD WORLD

     Learning how to develop technologies appropriate to the
agriculture practiced in and the economic conditions of a specific
area has proved to be a complex process in the less-developed
countries (LDCs).  Recipient countries do not want to become
dependent on donor nations for food supplies: domestic grain prices
too often fall when food aid arrives, discouraging local farmers
and slowing developmental processes. The LDCs need international
outlets for their surplus production at the same time that many of
the richer countries, like those of the European Community--which
have donated agricultural assistance--establish trade barriers to
protect their own subsidized systems.  In the LDCs, investment in
agriculture and in infrastructure--roads, trucks, local
markets--competes with urban demands for cheap food, military
requirements, and a host of other needs.  Locally trained and
committed extension-service personnel often do not exist. Surpluses
of wheat or butter or sugar, accumulated in the United States or
Western Europe and unloaded on the world market, depress
international prices and lower farm profits in poorer countries. 
Nations specializing in cash crops such as cocoa or coffee often
find themselves at the mercy of markets they cannot control. 
Finally, although some LDCs can grow commodity crops more cheaply
than can Western agricultures, governments cannot compete on
international markets because they have no money to subsidize the
export of surpluses.

     As the gap in incomes widens between the LDCs and rich Western
countries and Japan, the necessity of devising economic methods
that will both protect and assist poor farmers becomes more and
more pressing. Free-market competition may be an answer, but only
if competitors accept the same open-market philosophy. Reducing
barriers to trade through GATT negotiations is a first step in that
direction.
