provided by Research Papers in Economics
Current Challenges for Agricultural Policy
G. Edward Schuh
It is a special privilege for me to be here
with you today. One of the first professional
papers I ever gave was at these meetings
(Schuh, 1963). Much has changed since the
occasion of that earlier paper. The U.S.
economy has gone through a period of un-
precedented sustained economic growth,
only to tumble into the worst economic re-
cession of the post-World War ∏ period. Our
agricultural sector has undergone a major
transformation at home, while finding itself
increasingly integrated into a world economy
abroad.1 And, after a period of virtual aban-
donment by agricultural and general
economists alike, policy issues have now re-
turned to a high position on our research and
teaching agenda.
That agenda is rich with opportunities, for
we have many challenges before us. In the
time allotted here today we can do little more
than scratch the surface of some of the major
challenges. I make no pretense at being
comprehensive or exhaustive. Rather, I will
attempt to play to whatever comparative
strength I might have. That means I will ne-
glect a great deal, and much of what I neglect
may be judged by others to be more impor-
tant than the issues I have chosen to con-
sider.
As the title suggests, my focus is on policy
challenges. Under that rubric, I will consider
commodity policy, income policy, trade and
exchange rate policy, and a rhetorical ques-
tion dealing with whether we can in fact have
G. Edward Schuh is DeputyAssistantAssistant Secretary
of Agriculture, International Affairs and Commodity Pro-
grams, on leave from Purdue University.
Keynote Address, Annual Meetings of the Western Ag-
ricultural Bozeman, Montana, July 23-26, 1978. I have
benefitted from helpful comments on earlier version by
James Bonnen, Kenneth Farrell, Sam Garst, Dale
Hathaway, John Lee, Leo Mayer, and Larry Witt.
1For more detail on the changes experienced by U.S.
agriculture, see Schuh (1976).
a food and agricultural policy. In addressing
these issues, I will attempt to view agricul-
ture in the context of the larger economy,
and in the context of an economy that is sub-
stantially more open to international eco-
nomic forces than it has been in the past.
Commodity Policy
In some respects, U.S. commodity pro-
grams have shown a surprising degree of con-
sistency over the years. Implicit in them have
been two important goals: (1) an attempt to
obtain more stability in farm prices than un-
fettered free markets would provide; and (2) a
desire to provide income transfers to farmers
through what is perceived by them as the
market place, rather than to provide such
transfers in more direct form.
Despite this consistency, there has been
considerable evolution in some commodity
programs. For one thing, we have turned
away from an almost complete dependence
on the concept of parity prices as a guide to
price policy and shifted to a greater depen-
dence on cost of production as a guide. Al-
though obviously not an unmitigated bless-
ing, I believe most economists would agree
that this was at least a marginal improve-
ment, the political pressures associated with
this concept notwithstanding.
Second, some of the programs have been
modified so as to provide a greater range in
which market forces can work. Rather than
having a relatively fixed, single-valued price
support level, some of our programs now
have differentiated loan levels and target
prices, with the target price serving as the
basis for deficiency payments and the loan
level in effect providing a price floor. This
approach provides a partial disconnection of
income policy from price policy. It enables
consumers to realize some of the benefits
when supply outruns demand. It also reduces
the chance that we will price ourselves out of
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