Wednesday, October 11, 2006

What, if Anything, Makes Agriculture Unique?

Holsteins in pasturePreviously, I posed the following question: How can we justify according agriculture special legal treatment? What, if anything, makes agriculture unique? Today, I offer one answer.

I believe that the following characteristics make the agricultural industry unique:

1. Farmers’ Lack of Market Power

Farmers have very little economic power in comparison to powerful packers, processors, retailers, and input providers. In 2000, the nation’s four largest beef packing companies controlled 81% of the U.S. cattle slaughtering market, while the nation’s four largest hog processing companies controlled 56% of the U.S. hog processing market. Joseph Weber, Will Agriculture Plow Under the Family Farm?, Business Week, October 23, 2000. Packers and processors exercise oligopoly power and can lower prices paid for agricultural products below economically efficient price levels. Input providers exercise oligopsony power and can raise prices charged for agricultural inputs above economically efficient price levels. Farmers, who have very little market power, must accept the prices and terms offered by buyers and input providers. These market failures warrant government intervention.

2. Environmental Harm Caused by Agricultural Production

Agricultural production causes substantial environmental harm. Agricultural production is the primary source of nitrogen and phosphorus to terrestrial and aquatic ecosystems. Stephen R. Carpenter et al., Nonpoint Pollution of Surface Waters with Phosphorus and Nitrogen, 8 ECOLOGICAL APPLICATIONS 559 (1998). Excess nitrogen and phosphorus harms natural ecosystems by causing algal blooms, depleting oxygen levels, causing fish kills, and reducing plant diversity. Id. Agricultural production is the primary source of fertilizers and pesticides to groundwater and surface water. David Tilman et al., Agricultural Sustainability and Intensive Production Practices, 418 NATURE 671 (2002). High-density animal production operations increase livestock disease incidence, increase the emergence of new, often antibiotic resistant diseases, and increase air and water pollution create by animal wastes. Farmers generally do not consider the costs imposed on society by emitting pollutants and causing other environmental harm. Absent government regulation, agricultural pollutants and other negative externalities will be overproduced. Id.

3. Farmland’s Potential to Provide Public Goods

Farmers manage 52% of land in the United States—roughly 1 billion acres. As our number one land stewards, farmers have the opportunity to produce ecological services for society (i.e. “public goods”). Farmers who adopt land uses that provide flood control (e.g. planting buffer strips and terracing) and create wildlife habitat (e.g. planting cover crops and maintaining wetlands) provide valuable ecological services for non-farmers. Farmers who adopt farming method that increase soil fertility (e.g. using no-till and crop rotations and planting cover crops) and maintain health insect populations (e.g. planting buffer strips and not over applying pesticides) produce valuable resources that future generations will need to produce food. Farmers lack the economic incentives to provide flood control, maintain wildlife habitat, increase soil fertility, prevent soil erosion, and maintain healthy insect populations at economically efficient levels (levels that would maximize social welfare). Absent government regulation, these public goods will be under produced.

4. Unstable Agricultural Prices

Agricultural prices are relatively unstable in comparison to the prices of other goods. This instability is caused by several factors: crop yields fluctuate wildly in response to climate conditions, demand for agricultural products is inelastic, supply of agricultural products is inelastic, and globalization has led to agricultural prices fluctuating in response to global economic recessions, droughts in Brazil, and other tumultuous events. Market instability causes hardship for farmers and arguably reduces investment in new technology below economically efficient levels. Economic downturns cause farmers to go out of business. While economists would generally argue that society as a whole benefits when farmers go out of business in response to lower agricultural prices, this assumes that there are no barriers to entering the market. In fact, it is very expensive for new farmers to enter the market. Farmers are not able to reenter the market during economic upswings.

5. The Gap between Wealthy and Poor Farmers

The farm sector today is characterized by inequitable distribution of wealth. A small fraction of farmers are very wealthy and own substantial amounts of land, while most farmers earn small farm incomes and own little or no land. Mid-size farmers have steadily been going out of business.

6. Agriculture’s Role in Our National Heritage

The agricultural industry is unique because agriculture played a central role in our national heritage. It is arguably worth supporting farming and rural communities because farming and rural communities have value beyond the value of the food and other agricultural products produced. Farming and rural communities are a part of our national heritage and provide a rural life style (a sense of community, a connection to the land, etc.) that some people prefer to the city life style. Promoting farming and rural communities could be viewed as akin to city or regional planning—but at the state or federal level.

7. Public Health Concerns Associated with Producing Food

Lastly, agriculture is distinct from other industries because the main product produced is food. More stringent government regulation of agriculture is warranted to protect public health.

I do not believe that agriculture’s unique characteristics justify all or substantially all of the special legal treatment that agriculture has received. Many agricultural policies seem misguided. However, agriculture’s unique characteristics seem to justify some special legal treatment for agriculture.

I am curious to hear other thoughts on this subject. Are there compelling reasons to treat the agricultural industry differently from other industries? Or, should the law treat the agricultural industry the same as other industries?

2 Comments:

Anonymous Anonymous said...

Reason number 6 should be reason enough!!

11/01/2006 5:31 PM  
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