[Congressional Record (Bound Edition), Volume 147 (2001), Part 9]
[Extensions of Remarks]
[Pages 12186-12187]
[From the U.S. Government Publishing Office, www.gpo.gov]



           ARE PRODUCTION CONTROLS DESIRABLE FOR AGRICULTURE?

                                 ______
                                 

                           HON. DOUG BEREUTER

                              of nebraska

                    in the house of representatives

                        Wednesday, June 27, 2001

  Mr. BEREUTER. Mr. Speaker, as the House prepares to consider the next 
Farm Bill, this Member commends to his colleagues the following 
analysis by Roy Frederick, a highly respected public policy specialist 
in the Department of Agricultural Economics at the University of 
Nebraska-Lincoln. Dr. Frederick's analysis examines the pros and cons 
of production controls for agriculture and provides helpful insights on 
this difficult issue.

                    [From the Nebraska State Paper]

           Are Production Controls Desirable for Agriculture?

                           (By Roy Frederick)

       LINCOLN--You can count on it. One of the more contentious 
     items in the upcoming farm bill debate will be whether we 
     should return to production controls in a new law.
       Set-asides and other land-idling schemes were a part of 
     most every farm bill from 1933 through 1990. But passage of 
     the Federal Agriculture Improvement and Reform Act in 1996 
     broke the mold. Under current law, farmers are not required 
     to take land out of production as a precondition to receiving 
     supports from the federal government.
       Critics say that the lack of a supply-adjustment mechanism 
     in the 1996 act is a serious flaw. Prices for all the major 
     crops grown in Nebraska have been lackluster since mid-1998. 
     Why not spur prices higher by restricting bushels offered to 
     the marketplace? It seems like a logical question that 
     deserves an answer.
       Supporters of the current system respond that commodities 
     are produced and marketed around the world. Any attempt to 
     reduce U.S. production might be met by increased production 
     elsewhere. Some livestock feeders also wouldn't be happy with 
     the prospect of higher feed costs. Then there's the matter of 
     how agribusinesses feel about it. Many survive on the basis 
     of volume; the more acres in production, the better it is for 
     farm-related businesses.
       Recently, formal studies by agricultural economists at the 
     University of Maryland and Iowa State University examined the 
     land-idling question in greater depth.
       In the first study, the focus was on inefficiencies caused 
     by taking land out of production. That is, not only may land 
     be taken out of its highest and best use, but other inputs, 
     such as machinery and equipment, may be underused as well. 
     The estimated cost to producers and consumers of a modest 
     land retirement scheme is $2 billion to $4 billion a year, 
     the study found.
       The Iowa State study assumed that land planted to all major 
     crops in the United States was reduced by 10 percent. 
     Moreover, that reduction remained in place for eight years. 
     At the end of the period, prices for corn and soybeans would 
     be 13 percent higher and 6 percent higher, respectively, than 
     if the idling had not occurred. So far, so good.

[[Page 12187]]

       However, the authors of the latter study point out two big 
     caveats. First, with 10 percent fewer acres, total revenue 
     declines by whatever the revenue would have been on acres 
     taken out of production. More importantly, if producers do 
     what they've done in the past, they will attempt to increase 
     production on the remaining 90 percent of land left in 
     production. To the extent they are successful, price 
     increases of the magnitude suggested above may not be 
     realized. The authors conclude that the price impact of a 10 
     percent reduction in planted acreage is probably overstated.

     

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