Download 9b. agribusiness policy - Department of Agricultural Economics

WHAT ARE THE KEY
AGRIBUSINESS POLICY ISSUES?
Rodney B. Holcomb
Fall 2005
Dept. of Ag Economics
Oklahoma State University
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INTRODUCTION
 Purpose:
– to become aware of agribusiness policy issues &
options
 Learning Objectives:
1. Become aware of the broad nature of agribusiness.
2. Become aware of policy impacts on agribusiness.
3. Understand agribusiness involvement in agribusiness
policy.
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AGRIBUSINESS--DEFINED
 NARROW:
FIRMS WHOSE MAIN BUSINESS IS
RELATED TO PROVIDING FOOD/FIBER
 BROAD:
FIRMS + FARMS & RANCHES
(Business firms & production ag)
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AGRIBUSINESS SECTORS
FARM SUPPLIES
Feed Fertilizer Mach/Equip Fuel Trans Seed Other
*Farm/Ranch*
Handling/Processing
Industrial
Retail
Food
Restaurant
Fiber
Other
Institutions
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AGRIBUSINESS POLICY GOALS
 Abundant,
readily available supply
 Increase domestic & international markets
 Less regulations*
 Responsive markets
 Resist change
POLICY AGENDA:
Market-oriented with low*
government intervention
(*) Note: “some” government intervention is sought/expected (i.e., infrastructure,
rent-seeking, protective regulations).
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POLICY IMPACTS ON
AGRIBUSINESS
1.TRADE POLICY
– Free Trade:
» Increased trade volume –exports and imports
» Increased agribusiness functions – marketing
margins
» Increased agribusiness market power
» Increased price variability
– Marketing Boards:
» Decreased role
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POLICY IMPACTS ON
AGRIBUSINESS--continued
2.PRICE/INCOME SUPPORTS
– Price Support Loan:
» Decreased exports & decreased profit opportunities
for grain traders (but producers like it)
– Target Price Policy:
» Increased competition & increased profit
opportunities (producers and traders like this)
3.STOCKS POLICY
– Complex; generally less favorable to
agribusiness than money reserve policy
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POLICY IMPACTS ON
AGRIBUSINESS--continued
4. PRODUCTION CONTROLS
– General reduction in economic activity
» Example: Conservation Reserve Program
5. STRUCTURE/RESOURCE POLICY
– Cooperative Policy:
» Some antitrust exemptions (be as big as you want)
» Loan program benefits (e.g. B&I loans)
– Research/Patent Policy:
» Increased competitiveness/profit opportunities
» Possible inefficient allocation of resources &
investment dollars

Pork barrel projects, redundant research, etc.
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POLICY IMPACTS ON
AGRIBUSINESS--continued
6.FOOD POLICY
– Welfare Programs:
» Minimal price impacts (demand vs. effective
demand)
» Affect food habits
– Advertising/Promotion:
» Market demand expansion
» Possible inefficient allocation of resources (How
much bang for the buck?)
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AGRIBUSINESS INVOLVEMENT IN
POLICY FORMATION
 OFFENSIVE
– Rent-seeking (e.g. requiring biofuels)
– Market growth/expansion (e.g. hard
white wheat & 2002 Farm Bill)
 DEFENSIVE
– Minimize cost/profit/volume impacts
– Risk reduction (e.g. ethanol and
biodiesel tax incentives)
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AGRIBUSINESS POLICY IN THE
2002 FARM BILL

Major emphasis on value-added agriculture,
specifically producer-owned
– More specifically in rural areas

Sec. 6401 – Value Added Ag Product Market
Development Grants (VADG or VAPG)
– Up to $40 million annually through 2007 ($14.5 million
in 2005)
– Producers/majority-owned producer businesses
– Business planning, marketing strategies, working
capital
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AGRIBUSINESS PROGRAMS IN THE
2002 FARM BILL

Ag Innovation Centers
– State ag departments, 2 largest producer groups, 4
largest commodity groups, land grant university
– Development of value-added programs and centers in
many states
Rural Electronic Commerce Extension
 RBOG and RBEG
 Training Workers for Higher-Valued Crops
 Business & Industry (B&I) Loans

– For the purchase of cooperative stock
– To cooperatives
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AGRIBUSINESS PROGRAMS
IN OKLAHOMA

Oklahoma Agricultural Enhancement &
Diversification Act
– $250,000/year for loans, applied research grants
– Promote agribusiness growth in OK

Oklahoma Agricultural Producers Credit
– Currently 30% for new value-added businesses
– Can be utilized over a 7-year period
– Includes a 15% tax credit for the business, also over 7
years
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