Jayson Lusk Answers Your Ag Econ Questions | The FAFDL Interview

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Jayson Lusk is Regents Professor and Willard Sparks Endowed Chair in the Department of Agricultural Economics at Oklahoma State University. He blogs at jaysonlusk.com. | @JaysonLusk

He has researched and written extensively on the impact of the Farm Bill and agricultural subsidies. Jayson joined the FAFDL community last fall for a Q&A on ag economics.


FAFDL: Do Ag Economics fall into different schools like Keynesian, Chicago, or Austrian, and is it subject to the same kinds of contentious policy recommendations, depending on which school?

JAYSON LUSK: At the onset, I should mention that I’m the current president of the AAEA (http://www.aaea.org/ – the main professional association for agricultural economists), and with a membership of around 2,500 you can certainly expect some differing opinions.

However, I wouldn’t say there are as clear dividing lines as there are, for example, in macro-economics. One thing that is a little frustrating for me is that the ag economists that are often featured in food documentaries, popular books, etc. are often not what I’d consider to be in the mainstream or in the top active group of top researchers on topics in question.

There is some disagreement about the impacts of consolidation and concentration in agriculture, though my general sense is that many (perhaps most) ag economists are less concerned about this than the typical outside observer. There is some contention about the desirability of farm subsidies – most ag economists on principle are against the deadweight loss caused by such subsidies – others some are worried about international trade when other countries have such subsidies, and there are many ag economists that work closely with farmers and farm groups trying to maximize the benefits to farmers.

FAFDL: What impact, if any, do current crop insurance subsidies play in keeping our commodities competitively priced for international trade?

JL: Most of the research I’ve seen suggests crops insurance subsidies have small impacts on commodity prices. If they had larger effects, then we’d likely have problems with other countries taking us to court at the WTO for affecting world prices.

FAFDL member WILLIAM ENRIGHT: As an Irish agricultural scientist now living in a dairy area in Ontario, I love the Supply Management approach here and feel very sorry for my dairy farmer friends in the US who are constantly stressed, always feel the need to increase cow numbers and live in an economically unstable environment. Thoughts?

JL: I’m generally not a fan of government-run supply management schemes – yes they can stabilize prices, but they can also be costly to the economy as a whole as the can over- or under-encourage production relative to the underlying supply/demand conditions. In general, we WANT farmers to respond to market conditions by cutting back when prices are too low and by producing more when prices are high. It is not as though farmers are at the complete mercy of the market. Farmers can stabilize some of the variation in price risk through: contracting, hedging in futures markets, insurance, savings, and diversification into other commodities.

WILLIAM ENRIGHT: Thanks, and yet my comments about US dairy farmers still ring true based on the ones I know. The only downside I see in Canada is that the consumer pays more for dairy products but I don’t see that as a bad thing – I feel they pay a fair price for good wholesome products. I also believe that food prices in the US are spiralling downwards relative to inflation and that is not necessarily a good thing – people take it for granted, over-consume, etc. Anyway, I appreciate your answer as a US agri-economist but you have have swayed my opinion.

FAFDL: Has there been work done to look at the impact of extension services and compare the impact of extension to similar services like private consultants and the advice of input companies and dealers?

What does the research show on that?

JL: Good question. I’m not aware of this sort of private vs. public comparison. There ARE lots of crop consultants and crop consulting companies that provide private advice to farmers; some of these work for ag input supplies and others are independent. One related paper of interest is the one I discussed on my blog that calculated the rate of return on public spending on agricultural extension.

Measuring Public Agricultural Research and Extension and Estimating their Impacts on
Agricultural Productivity: New Insights from U.S. Evidence (2015) [pdf]

“For public agricultural research with a productivity focus the estimated real [internal rate of return] is 67%, and for narrowly defined agricultural and natural resource extension is over 100%. Stated another way, these public investment project could pay a very high interest rate (66% for agricultural research and 100% for extension) and still have a positive net present value. Hence, these [internal rate of return] estimates are quite large relative to alternative public investments in programs of education and health. In addition, there is no evidence of a low returns to public agricultural extension in the U.S., or that public funds should be shifted from public agricultural extension to agricultural research. In fact, if any shifting were to be recommended, it would be to shift some funds from public agricultural research to extension. ”

The paper includes a couple really interesting graphs on research spending and extension employment over time. First, they show that for four major agricultural states, real spending on agricultural research peaked in the mid 1990s.


And, while extension staff has declined in some states, it hasn’t in others.

FAFDL: Related, what do we know about what are the most effective conduits for the adoption of best practices and things like IPM, cover crops, conservation tillage, etc?

JL: Ag extension is certainly relevant here. Some of the commodity organizations also do their own research and outreach. I once visited the Iowa Soybean Association, for example, and they had water testing labs, and scientists reporting on effects of conservation issues. The USDA also plays a role through NRCS and other agencies. There are private foundations who also put information and on research and provide advice (The Noble Foundation in Oklahoma is one prominent example in my locale).

FAFDL:   I’ve seen some of your work cited, especially Compassion by the Pound. Do you have an opinion on how some of the EA animal charities are pushing for cage free, and do you think cage free systems are preferable to battery caged or enriched cages from the hen perspective?

Also, what do you think some of the main advances in chicken welfare will be? Especially considering that chickens seem to make up a bulk of farmed animal suffering.

JL: There are tradeoffs between all housing systems both in terms of animal welfare and in terms of cost. This resource is probably one of the best, most well-researched sources of information out there: http://www2.sustainableeggcoalition.org/research-results/.

As you’ll see, no system is perfect and it will depend on which attributes/values are most important to you. As for me personally, I’m a fan of the enriched colony cage systems. I spent a whole chapter on them in my most recent book, Unnaturally Delicious.

FAFDL: It seems to me that there are three areas where farmers nearly universally need (want) policy support – access to credit, access to risk management tools, supply management (and infrastructure and public investment in research, I suppose but those are of a different category).

 

The case for that support seem to me much stronger in developing countries as framed as an emerging industry/emerging market, but it fades as agriculture industries and markets mature – and farmers are better able to access credit and risk management as well as managing supply and volatile makers.

I know that you lean pretty heavily against market intervention and subsidies in the US and other developed/mature markets. Do you think that policy support around credit, risk and supply management makes more sense for earlier stages of development in less mature markets?

JL: I’m really not much of an expert on development economics, but of the people who I know who work in the area do indeed tend to focus more on the market failures that prevent development in those countries. One curious stylized fact is that, in agrarian developing countries, subsidies tend to flow from the country to the cities (not in the direction you’re hypothesizing they should flow); Its in the relatively rich, urban countries like the US and Western Europe where subsidies flow from the cities to the countryside. This probably has more to do with politics than with the underlying economic justifications for the various interventions. It is also worth noting that many developing countries have some really lousy ag/food policies and many have state-run enterprises which control production/seed/fertilizer, etc.

FAFDL: There was an article recently on the environmental cost of Australia rejecting GMO canola. It seems like there is an option here to share the cost of not adopting the technology which might make a difference to public opinion. At a March Against Monsanto event, people were ok with Golden Rice (the cost in terms of lives lost) but not with Bt corn.

JL: Generally, I think focusing on the benefits and on the personal stories of the adopters is likely to be most useful. It’s the strategy I tried to follow in Unnaturally Delicious.

FAFDL: With several proposed mergers Bayer-Monsanto, DuPont-Dow, Chinese buyout if Syngenta, what are possible implications for farmers and consumers?

JL: Hard to know the full consequences at present. At issue is whether the cost savings from larger size (economies of scale), streamlining of sales force, etc. are larger/smaller than any market power that might be gained from reduced competition. If (and it’s an “if”), the merger leads to more resources being directed to R&D, that could produce beneficial outcomes. A few good writings on this:

Agricultural Competitiveness – Darren Hudson:

Now for the downside, and why I am concerned:

• Less competition. While there are some benefits here, the fact is that less competition is not good for producers on net typically. We are often prone to say that Bayer will have more monopoly power and therefore will raise seed/chemical prices, that is not necessarily true. But, costs need not be just monetary. With less competition, there is less pressure to innovate…

• Fewer choices. Related to (1), is Bayer as compelled to offer a as broad a range of choices? Here, I am more referring to things like variety lines. Fewer choices would mean fewer options for producers to choose between to fit specific production conditions/needs/preferences. Again, this is less about a monetary cost, and more about the cost to management flexibility. And, further, a more constrained choice set means that producers are (1) exposed to greater business risk with less ability to adapt to changing conditions and (2) less able to negotiation on price based on available competitors.

Bloomberg – Tyler Cowen: People Aren’t Thinking Straight About Bayer and Monsanto

” Critics who dislike Monsanto for its leading role in developing genetically modified organisms and agricultural chemicals shouldn’t also be citing monopoly concerns as a reason to oppose the merger — that combination of views doesn’t make sense. Let’s say for instance that the deal raised the price of GMOs due to monopoly power. Farmers would respond by using those seeds less, and presumably that should be welcome news to GMO opponents. “

FAFDL: Following your analysis of the food movement’s policy proposals, do you feel there is a need for Ag econ outreach to inform public just as science communication is crucial for combating anti-biotech fear?

JL: Generally, I’ve seen a lot of efforts directed toward science communication. I am in favor of such education, and I’ve done a lot of public outreach myself, but realistically, it’s hard to know how much impact it’s actually had. I think productive dialog (i.e., a back and forth communication) is likely to be more effective than “education” (I.e., listen to me – the expert). Moreover, the actual technology itself may be the biggest key. When we have biotech products that produce more obvious and tangible benefits from the consumer, I suspect many more will come on board.


The original FAFDL Facebook discussion can be found here.

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