December 1978
Western Journal of Agricultural Economics
attenuate this problem somewhat since, indi-
vidually, the producers will be able to make
their own decisions. But the test of our new
reserve policy is still before us.
4. Will we in fact be willing to participate
in international commodity agreements? Par-
ticipation in international agreements is one
means of obtaining more rational interna-
tional economic policy and of obtaining freer
international markets. The challenge in
negotiating such agreements is to keep the
goals rather modest, and at the same time to
obtain equitable sharing arrangements. In
fact, the justification for participating in such
agreements is to attain these goals. We may
have to give up some discretion over our own
policies to obtain these benefits. Con-
sequently, the benefits must outweigh the
costs. The challenge will be to devise such
policies so that the benefits to participating
countries provide the incentive for them to
follow the rules of the game.
Income Policy
In the past, commodity programs were the
primary means of dealing with the income
problem in agriculture. Interestingly
enough, they also provided the means
whereby we started to deal with the income
problem in the nonfarm sector in a rather
unique and important way. Surplus com-
modities that accumulated in the hands of the
government were disposed of in part through
the food stamp program. And the food stamp
program eventually became an important
component of our welfare program.
The policy instruments for dealing with the
income problem both in agriculture and in
society at large are experiencing almost as
much evolutionary change as are our com-
modity programs. Moreover, most
economists would judge these changes to be
in the right direction.
The rationalization of these two sets of
policies is not completely independent, of
course. A gradual shift is occurring away from
dealing with perceived income problems
through interventions in the product mar-
kets, and a growing emphasis is being placed
236
on dealing with them in a more appropriate
way either by policies directed at the factor
markets or by direct income transfers.
Fortunately, the United States so far has
avoided the explicit use of product price pol-
icy as the primary means to keep the price of
food low for domestic consumers, a policy
approach that is common in advanced coun-
tries such as Great Britain and Norway, as
well as in many low-income countries. It is
true that the over-valued dollar of the 1950’s
and 1960’s kept the domestic price of agricul-
tural products lower than its international
opportunity cost [Schuh, 1974]. But the
over-valued dollar did not reflect an explicit
desire to channel agricultural output to the
domestic economy, as has been the case in
countries such as Brazil [Bergsman, 1970].
Moreover, a sustained public commitment to
agricultural research, extension, and educa-
tion assured a continued flow of new produc-
tion and marketing innovations which
provided sources of income streams to pro-
ducers. These new income streams offset, at
least in part, the income lost through low
market prices. The price support programs of
this period also acted to counter-balance the
deleterious effects of the exchange rate pol-
icy.
Over the last 15 years, of course, the food
stamp program has evolved as the primary
means of assuring an adequate supply of food
to low-income groups.4 Originally devised as
a means of disposing of surplus production,
this program has now reached the point
where it has many of the characteristics of a
negative income tax. An important strength
of this program, of course, is that it reduces
the tendency to lower agricultural product
prices as a means of dealing with the income
problems of consumers, and thereby
provides more opportunity for prices to fulfill
their allocatory function. This is an important
gain.
We have not been so wise or fortuitous on
the side of dealing with producer income
4Other feeding programs include the school lunch pro-
grams and the programs for lactating and pregnant wo-
men.