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Farm policy and mandatory supply controls - the case of tobacco

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Farm Policy and Mandatory Supply Controls -- The Case of Tobacco FEDERAL RESERVE BANK OF Si’. LOUIS JANUARY/FEBRUARY lOIS Farm Policy and Mandatory Supply Controls The Case of Tobacco Kenneth C. Curruro ROM 1980 through 1986, the United States spent 543.9 billion in dir-ect payments to fan-men-s and 852.3 billion on otherprice support progi-ams.’ Despite such expenditures the US. farm sector’ has experienced a severe downturn. Falling expon-ts, declining far-mland values, high n’ates of fan’m loan delinquencies and increasing dependence on governnient support pay- ments wen-e visible symptoms of the fan-ni sector’s difficulties. Because of the great expense and the apparent failure of farm programs, some policymaken’s have called fon’ the rise of mandatony supply controls tci limit crop production arid r-aise pr-ices! Advocates asser-t that such controls could guarantee farmers a ‘fair” price and impnove their incomes while dnasti- cally cutting the cost of farm programs arid eliminat- ing farm commodity surpluses. Kenneth C. Carraro ‘san economist at the Federal Reserve Bankof St Louis. Dawn M. Peterson provided research assistance. lU.5. Department of Agriculture, History ofBudgetary Expenditures of the Commodity Credit Corporation, Book 2, and Agricultural Outlook (December1987), p.53, table 32. ‘The Harkin-Gephardt “Save the Family Farm Act” is the most prominent domestic example of mandatory supply control legisla- tion currently being debated in Congress. In 1986, Congress allo- cated $10 million for the study of mandatory controls andthe polling of farmers. Mandatory supply controls have recently been proposed in the European Economic Community to limit milk production. This an-tide examines the effects of mnariclatony sup- ply controls. The analysis begins with a theon-etical discussion of the effects of mandatony supply contr-ols on economies that ar-c closed to inter-national tradie and those that engage in inter-national trade. Next, the experience of the US. tob

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