A time-series analysis of the effects of government policies on the U.S. beef cattle industry

Abstract

Government intervention in agricultural markets is extensive in most industrialized countries. In the United States, complex policies have been elaborated in an effort to change or regulate producer and consumer prices, farm incomes, and a host of other aspects of the food and fiber system. Within this complex array of policies, the U.S. beef cattle industry appears to be relatively free of government influence. A single policy, an import quota, has been used to stabilize prices and protect producer incomes (Henry. 1988). The effects of this policy have been analyzed by Freebaim and Rausser (1975). Arzac and Wilkinson (1979). Rausser and Hochman (1979). Chambers et al. ( 1981). and Martin and Heady (1984). In general, these studies show that eliminating the quota (or setting it at a higher level) would lead to decreases in beef prices ranging from 2 to 6 percent. Although the import quota is the only policy specitically targeted at the beef industry, policies designed to influence economic conditions in other sectors may indirectly affect beef. In fact, it is possible that the effects of feed grain and dairy policies are as great or greater than the direct effects of the import quota (Arzac and Wilkinson. 1979, and Ospina and Shumway. 1980). For example, Ospina and Shumway (1980) found that beef supplies are more responsive to changes in corn prices than to changes in their own price. Interest in the indirect effects of dairy policies on the beef industry was stimulated by the 1986 dairy termination program (DTP) (Marsh. 1988). This program had the potential to generate substantial increases in the supply of beef as a result of its provisions for the slaughter of large numbers of dairy cows. Marsh found that the DTP did lead to a fall in beef prices of about 5 percent.