Impacts and Incidence of Agricultural Commodity Programs

Abstract

Since the passage of the Agricultural Adjustment Act of 1933, commodity programs have had a major impact on resource use and returns to factors in U.S. agriculture. While the need to insulate domestic agricultural markets from the vagaries of international price movements has been emphasized in developing countries,2 farm price supports are often justified as a means of redistributing income from consumers to commodity producers.3 An important issue is whether producers are the ultimate beneficiaries of commodity programs. John E. Floyd, Paul R. Johnson, T. D. Wallace, and Gordon C. Rausser and J. W. Freebairn investigated social costs of commodity programs.4 These studies are based on estimates of producer and consumer surpluses that depend on price elasticities of demand and shortrun supply curves. For example, Floyd employed linearly homogeneous production functions and demonstrated that in the short run farm-price supports benefit landowners more than producers.5 Recently, D. Gale Johnson focused on long-run distributional consequences of commodity programs and argued that in the long run landowners are the recipients of all commodity program benefits. If they do not benefit in the long run, why do producers advocate price support programs for agricultural commodities? The puzzle is resolved (1) if rent adjustment is slow and producers gain in the short run or (2) if producers are also landowners. Although the short-run incidence of the benefits of commodity programs is influenced by the speed of