Agricultural Policy Reform in the United States.

This book was published as one of many backdrops for the 1995 Farm Bill debate, compiling papers presented at the AEI's 1995 conference on agricultural policy. Former Agriculture Secretary Clayton Yeutter introduces the book with an optimistic call to end anachronistic farm commodity programs that remain as carry-overs from the days of the Great Depression. The first two chapters elaborate on this view, one generally shared by economists of all persuasions.

First, Brian Wright discusses both ill-conceived and economically justified motivations for agricultural policy. On the "justified" side of the ledger, Wright argues that good farm policy should: 1) provide the public good of agricultural research, 2) provide environmental amenities and regulate environmental externalities, 3) assist disadvantaged consumers, 4) promote the nation's "food security" by holding food stocks, 5) prevent monopoly inefficiencies, 6) collect and disseminate information, and 7) protect consumer health and safety. On the "ill-conceived" side of the ledger, Wright questions motivations for virtually all of our present-day agricultural commodity programs, programs which distort markets in order to raise and/or stabilize farm incomes. While characteristically thoughtful in his discourse, I believe that Wright goes too far when he concludes that imperfections in agricultural credit and risk markets necessarily do not justify any government corrections. Economic theory provides a case for efficiency-enhancing government interventions in these markets (due to problems of moral hazard and asymmetric information). While the jury is still out on the empirical strength of these theoretical arguments, the U.S. farm depression of the early 1980s is testimony to the economic importance of risk and attendant threats of bankruptcy in agriculture.

Bruce Gardner echoes Wright's critique of commodity programs. In doing so, he thoughtfully decimates economic rationales for current dairy policy and provides a useful discussion of recent history in U.S. farm program expenditures. Gardner goes a step further than Wright by expressing skepticism about the ability of government to do anything right, even when market failures exist and government interventions can, in principle, significantly improve economic efficiency. In view of this distrust of government - and "the sixty year vigorous pursuit of interest-group agendas" in farm policy [p. 79] - Gardner advocates only "limited public investments in environmental, food safety, informational, and research activities" [p. 79].

The bulk of the book moves beyond general commodity programs to discuss other important features of U.S. farm policy, including agricultural trade policy, federal crop insurance, the environment, food safety, farm credit, and agricultural research.

Dan Sumner begins by systematically ticking off and dismissing rationales for federal agricultural export subsidies that are provided both directly (with per-unit subsidies on bulk commodity exports) and indirectly (with the so-called Market Promotion Program's funding of advertising). Next, Barry Goodwin and Vince Smith turn on federal crop insurance and disaster relief programs, providing useful institutional detail on the operation of current programs and arguing that none is justified by market failures.

Wally Thurman provides a nice summary of current agricultural commodity programs' adverse effects on the environment, effects that provide further fuel for economists' campaign to "decouple" farm program payments from farm production decisions. In a brief discussion, Thurman also dismisses the notion that current federal investments in commodity programs might usefully be redirected to obtain environmental benefits with a carefully designed "green payment" policy. Thurman argues, rightfully, that "green payments" would be appropriately directed to environmentally sensitive areas and farm activities not currently supported by federal programs. The resulting redistribution of subsidies away from current recipients may not be politically feasible, Thurman says. This argument, however, does not address the broader issue of whether and how one should design an appropriate green payment policy to enhance society's economic welfare, absent purely political considerations.

John Antle presents a very valuable analysis of food safety regulations and their history, the scope for markets to address consumer demand for food safety, and the nature of economically efficient food safety regulation when market failures exist. Current food safety policies regulate residues on foods, pesticide use in the growing of foods, and systems for inspecting and controlling pathogens in meat, poultry and fish products. Antle argues for application of cost-benefit criteria in all areas of food safety regulation, with greater reliance on providing consumers with better information about the health attributes of the foods that they ingest and on providing firms with incentives for food safety improvements, including use of performance standards (rather than design standards) in food inspection systems.

On farm credit, Peter Barry provides a succinct summary of the current situation in agricultural credit markets, the history of credit provision in agriculture, and the nature of federal agricultural credit institutions, including the Farmers Home Administration, the cooperative Farm Credit System, and the relatively new Federal Agricultural Mortgage Corporation. Barry gives a balanced assessment of the successes and failures of these institutions in meeting their public objectives, although he does not deIve into the conceptual debate about whether government intervention in farm credit markets should take place at all and, if so, what form it should take.

Last but not least, Julian Alston and Phil Pardey address a variety of important issues in the funding and allocation of government agricultural research dollars. After summarizing the history of agricultural research, Alston and Pardey survey current evidence on rates of return to agricultural research, concluding that there has been too little research funding. They go on to describe appropriate economic criteria for making government R&D investments most productive, advocating increased use of "check-off" funding (commodity taxes that support commodity-related research), regional research projects and centers, increased competition in the process of awarding research funds, and "greater accountability" in the use of these funds. These ideas are interesting and provocative. However, I wonder about whether increased research "accountability" will translate into increased bureaucratic oversight that stifles creativity and innovation; I wonder also about whether the touted virtues of grants competitions really measure up to the research productivity effects of alternative research funding mechanisms that are complemented by the discipline of the academic marketplace.

Overall, AEI's latest book on agricultural policy represents a compendium of contributions from a distinguished group of scholars on an important and wide set of contemporary farm policy issues. The volume is discursive and readily accessible to all audiences. In sum, I believe that students of agricultural policy will find this book useful reading. However, I also believe that this book stakes out a right-wing perspective that, in places, is not balanced by professionally respected competing arguments. The volume would have been more balanced, and more complete as a summary of scholarship, if it had included discussion comments that were also delivered at the AEI's 1995 conference on agricultural policy. These comments, from another highly distinguished set of scholars, added useful and important perspective on the state of academic knowledge.

Robert Innes University of Arizona