Discussion: Economic and Political Factors Influencing the Outcome of the 1981 Farm Bill

The papers by Boehm and Spitze provide connot only provide increased supply assurance, but trasts in approach, content, and conclusions. The also raise the price ceilings, the latitude for price Spitze paper reflects the issues as seen through instability would also increase. In addition, rethe eyes of an observant professor located in a search suggests that within the current relationmajor Corn Belt university. Its ideas reflect senship of support, release, and call prices, market sitivity to articulation of policy problems conprices tend to center on or be attracted toward fronting producers in the region. Boehm's paper the loan rate, the release price, or the call price, is particularly strong in that it reflects the daydepending on the grain supply-demand balance to-day sensitivity to the contemporary economic (Gardner and Just). That is, with large stocks in and political forces that currently affect the polthe reserve, the market price rests near the loan icy process. Both papers lack a clear sensitivity rate. As stocks decrease, at some point the marto the policy position and problems of southern ket price is attracted off the loan and moves agriculture, rapidly to near the release level. With a sufficient This discussion is divided into two parts, major drawdown of stocks, price moves off the release points of needed refinement, and a perspective to near the call level. on the issues as they relate to southern agriculIf the differential between the loan rate and the ture. release price were widened, one could anticipate that a large quantity of grain in the reserve would result in market prices that would approximate POINTS OF REFINEMENT the loan level. That is, the wider the difference between the loan rate and the release price, the Four major points of refinement exist with remore resistance one would expect to the market spect to the two papers. price moving off the loan level. There has not yet been enough experience with the farmer-held reUncertainty serve to demonstrate the validity of this hypothesis. Both papers contain considerable discussion Despite extensive discussion of the uncerof the impact that increased uncertainty has had tainty issue, neither paper recognizes the role of upon agriculture. The major policy tool for regovernment in contributing to uncertainty ducing price and supply uncertainty is the (Schultz). Government decisions to impose emfarmer-held reserve program. bargoes and price controls have had a major deBoehm spends considerable time discussing stabilizing effect upon agricultural prices. Many the virtues of this program. While the usefulness other program detail decisions, such as not reof the reserve as a policy tool has been amply leasing grain from the reserve when required by demonstrated, some problems are apparent. published rules or reversing a marketing order Substantial conflicts exist between the three policy, have substantial destabilizing effects. major reserve objectives of price stability, supply Spitze suggests that one alternative to such acavailability, and price support. Although productions might be to place limits in the 1981 farm bill ers have been attracted into the reserve by the on embargoes and the size of the grain reserve. combination of relatively low market prices, Reality suggests that, regardless of the limits interest and storage subsidies, they are becoming placed on policy-makers, decisions to change the increasingly disenchanted with the price ceilings manner in which policy is implemented are freset by the reserve release and call pricesthe quently dictated either by domestic or internareserve could be "sold out," thus jeopardizing tional political conditions. Laws never appear to both its price stability and supply assurance obbe sufficiently tight to prevent government from jectives. This is particularly true of the feedgrain taking action under such conditions. For examreserves for which the release price is 125 perpie, strong incentives exist to accumulate recent of the loan rate, and the call price is 140 serves when surpluses exist. If surpluses are sufpercent of the loan rate. ficiently great, political forces would likely sugWhile raising the release and call prices would gest raising any reserve limit. Likewise, laws that