Shetland Neurodiversity Project [Agricultural policy problems: Price support]

Описание: In this segment and
the next one we'll talk about some
problems that can arise when agricultural
policies are introduced. It doesn't always go smoothly. So amongst the
problems that we'll talk about are that the
policies don't always meet their objectives,
policies sometimes cost more than they're worth,
and they sometimes have costly or damaging
unintended consequences. It's worth worrying about
these problems when you're thinking about
introducing a policy, because once bad
policies are in place they can be very
difficult indeed to repair them or remove them. So we need great
care when policies are been designed
and introduced, because we're going to be
stuck with them for awhile, most likely. So I'm going to
illustrate these problems with a couple of examples. And today we're going to talk
about the example of price support, where the prices
of agricultural products are increased above
market levels. So if the prices of
agricultural products are increased
above market levels it prompts farmers to
increase their production. Of course, we saw that
with the supply curve. The higher the prices are the
more supply there will be, the more production producers
will choose to produce. The problem is that this results
in excess production that cannot be solved
at market prices. And then what are you
going to do with that? And the most common solution is
to store this excess production in the hope that at some future
time it can be used or solved. Storage causes problems,
it causes costs, it can cause wastage of product. And those costs are
borne by the farmers, perhaps depending on the
scheme, or by taxpayers. It can also reduce the
market price for everybody if people in the
market know that there is a huge stockpile
of the product that might put a limit on how
much they are willing to bid for the products because
they know there's a lot there waiting to be sold. The must spectacular example
of this problem in Australia's history was the wool crises. In the late 1980s, early 1990s,
the Australian Wool Corporation operated a floor price. That means that they
refused to allow wool to be sold if the market
price, the price at auction, fell below a specified level. They set a floor price and
then they enforced that by buying any wool
which received a market price or an
auction price that was below that floor price. Now the problem with that was
that they set the floor price optimistically when
demand was really booming and then refused to lower
it when demand fell. What they should have done
was set the price temporarily and then lower it
once the demand fell. And because the process
was set so very high, eventually far above
the market price, farmers maintained very high
levels of wool production, but most of it was
passed in at auction and had to be purchased by
the Wool Corporation which just put it into storage. So this is the
situation in this graph. If the market had been
allowed to operate without this sort
of floor price you can see the point where
the supply and demand curves intersect
and from that you can see the level of production,
the quantity of wool that would have been
produced and purchased, and the price that it would've
been sold for in the market. But what happened was, they
set a much higher price, in this case 870
cents, and you can see that there's a much
higher level of production, a much higher level of
supply, and a much lower level of demand. So the vertical dotted lines
coming down from the supply curve on the right or the
demand curve on the left show the levels of
supply and demand under this very high
price of 870 cents. And so there's this huge gap. Not very much wool being
purchased, an enormous amount being produced, and so the
difference between those two amounts had to be put
into storage in the hope that at some future time
the price would rise and it could be sold
at that floor price. It turned out that that
was much too optimistic, it never happened. And eventually, after a
couple of years of wool being accumulated, stockpiled,
the amount of wool being stored reached almost a
billion kilograms and it was incurring
around $3 million a day in cost of storage and interest. Eventually, this
Australian government stepped in and forced
the scheme to be closed. The scheme was being run
by an organization that was intending to operate
for the benefit of farmers, but clearly they were
actually doing a lot of damage to farmers because of the
stupid design of the policy. The losses that occurred
as a result of the policy were estimated to be
around $12 billion. And the losses where shared
amongst farmers, taxpayers, and wool processors
around the world. There are plenty
of other examples of similar disastrous
price support schemes with varying flavors,
varying systems of operation. So for example in
the 1970s and 1980s, the New Zealand government
had price supports on some of its main
agricultural products.