Agricultural Economics Research Paper

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Agricultural economics is an applied field of economics that focuses primarily on food and fiber production and consumption. Defining the boundaries of agricultural economics can be difficult, however, because issues outside these traditional areas have become increasingly important to the profession in recent years. Agricultural economists engage in work ranging from farm-level cost accounting to assessing the consumer impact of food safety and nutrition labeling to analyzing worldwide agricultural trade patterns and a host of other real-world issues. Accordingly, the Agricultural and Applied Economics Association (AAEA), the largest professional organization for agricultural economists in the United States, currently recognizes a variety of topic areas under the broad disciplinary umbrella, including community and rural development, food safety and nutrition, international trade, natural resources and environmental economics, consumer and household economics, markets and competition, agribusiness management, and production economics (AAEA, n.d.).

Because many other topics in applied economics, including natural resources and environmental economics, are handled separately in this volume, this research paper concentrates on the field of agricultural economics as it relates to the food and fiber sector. It is worthwhile to note, however, that within the profession, an increasingly large share of university and government agricultural economists focus their teaching, research, and outreach efforts on work outside this sector.

The broadening of the field of agricultural economics reflects changes in the national economy. Dramatic changes in agricultural technology over the course of the twentieth century have meant that fewer and fewer people have been needed to feed more and more people. According to the National Agricultural Statistics Service of the U.S. Department of Agriculture, production agriculture (e.g., farming) directly employs fewer than 3 million workers, including farm owners and operators, or about 1% to 1.5% of the total U.S. workforce, depending on how the workforce is measured. Even as far back as 1946, the Nobel Prize-winning agricultural economist Ted Schultz (1946) commented on the decreasing need for labor in production agriculture and the declining role of production agriculture in U.S. employment. However, the food and fiber system, which includes processing, agricultural input production, and retail sales of food and fiber products remains one of the largest sectors in the U.S. economy, accounting for about 12% of the total U.S. gross domestic product, and employing about 16% of U.S. workers (Edmondson, 2004.) Thus, agricultural economics addresses issues of importance to a variety of clientele groups in the United States, including but not limited to those directly involved in farming. As one popular bumper sticker phrased it, “If you eat, you are involved in agriculture.”

Further, although production agriculture may not hold a large, direct share of the U.S. economy, in many developing nations, agriculture remains the largest employer, and trade in agricultural products is an important engine for economic growth. Organizations focusing on international development, such as the World Bank, the Food and Agricultural Organization of the United Nations, and the International Food Policy Research Institute are all strong employers of agricultural economists. The International Association of Agricultural Economists (IAAE, 2008) provides a worldwide network for the discipline, and professional societies for agricultural economists can be found in countries around the world. The wide scope of the field and its overall importance to both the U.S. economy and worldwide economic systems thus warrants the inclusion of this research paper in 21st Century Economics: A Reference Handbook.

In this research paper, an overview of the field of agricultural economics is provided, focusing on the applications and contributions affecting the food and fiber sector. The research paper begins with a brief history of the field. Next, the underlying theoretical underpinnings are discussed. This theoretical section is followed by an outline of quantitative tools used in agricultural economics, then by short descriptions of a few major subfields of the discipline. Some notable agricultural economists and their contributions to the profession are then discussed, followed by a section on the future of the profession. Finally, this research paper concludes with a list of references and some suggested further readings for those wishing to gain a deeper knowledge of this topic.

Short History of Agricultural Economics

The field of agricultural economics traces its origins largely to the growing demand at the turn of the twentieth century for college-educated professionals who could address the special concerns of the agricultural sector. A seminal textbook, Farm Management by Cornell agricultural economist George F. Warren, was published in 1913. Shortly after, in 1919, the Journal of Farm Economics was launched by the American Farm Economics Association with the stated purpose of serving those interested in “economic forces and influences as they operate to affect the business of farming,” (“Forward,” 1919, p. 1). At the time the journal was launched, a sizable proportion (over 20%) of the population lived on farms. From the end of the Civil War to the mid-1930s, with the westward movement of population, farm numbers rose sharply from about 2 million to a peak of nearly 7 million. Farming and the related concerns of rural residents were of widespread interest in the early decades of the twentieth century, and a journal dedicated to farm economics would have had a strong appeal at this time.

The journal continues to operate to this day; however, in 1967, its name was changed to the American Journal of Agricultural Economics, reflecting the broadening of interests that occurred over that time. The association that sponsored the original journal also continues to this day, although its name has twice changed, once to the American Agricultural Economics Association, and more recently to the Agricultural and Applied Economics Association, again reflecting the increasing scope of activities for its members.

The premiere issue of the Journal of Farm Economics included a presidential address by G. A. Billings of the U.S. government’s Office of Farm Management, an organization established in 1905 that later gave way to the Office of Farm Management and Farm Economics and, finally, in 1961, to the present-day Economic Research Service of the

U.S. Department of Agriculture. In addition, the issue contained an article on farm labor outlook by Secretary of Agriculture G. I. Christie and an article by H. W. Hawthorne, also from the Office of Farm Management, on information obtained from farm surveys. Notable to a modern-day agricultural economist is that, even from its inception long before the era of high-speed computing, the field was data driven. Also, a focus on practical, real-word problems is clearly evident in these historical documents.

At around the same period, in the early years of the twentieth century, agricultural economics (often then called farm economics or farm management) became an area of study in universities across the nation. Land-grant universities, in particular, with their focus on agricultural and mechanical arts, were fertile grounds for the development of this field. At the Agricultural and Mechanical College of North Carolina at Raleigh (which later became North Carolina State University), for example, a course in agricultural economics was required of all students in the College of Agriculture as far back as 1897, although a separate department, at the time called Agricultural Administration, was not established until 1923 (Bishop & Hoover, n.d.). At Michigan State University, a course in farm management was offered for the first time in 1906. At the University of Minnesota, a department for agricultural economics was established in the College ofAgriculture in 1909 (Shaars, 1972). At Auburn University, in Alabama, a department of agricultural economics was established in the College of Agriculture in 1928 (Yeager & Stevenson, 2000). Interested readers are also referred to Bernard Stanton’s (2001) history of agricultural economics at Cornell and Willard Cochrane’s (1983) history of the discipline at the University of Minnesota.

In the first half of the twentieth century, farm-level issues remained the primary concern ofresearch, outreach, and teaching efforts. One important area of endeavor was calculation of the cost of production for agricultural commodities. Other work involved agricultural marketing, credit, and then, in the years following the Agricultural Adjustment Act in 1933, the increasingly important sub-field of agricultural policy. A glance at the table of contents of the Journal of Farm Economics will show, however, that even as far back as the 1930s, there was widespread interest in international trade in agricultural products. The scientific study of factors affecting consumer demand for agricultural products also dates to this period.

The period following World War II saw an expansion of the agricultural economics field with universities increasing the size of their faculties and the government employing larger numbers of agricultural economists. Membership in the American Agricultural Economics Association peaked in the 1980s and has been declining since.

The decades after World War II saw a proliferation of professional associations and sponsored journals in which agricultural economists could publish an expanding array of papers related to research, teaching, and outreach. Regional associations differentiated themselves, to some degree, in terms of their concerns for agricultural problems specific to their geographic areas, based on either different agricultural practices and outputs or different regional institutions. In 1969, the Southern Agricultural Economics Association launched the Southern Journal of Agricultural Economics. This journal was renamed the Journal of Agricultural and Applied Economics in 1993, reflecting a trend away from regional identification and an increased emphasis on applied economic analysis outside the traditional agricultural sector. The Western Agricultural Economics Association began publishing the Western Journal of Agricultural Economics in 1977. From the outset, this journal specifically solicited articles on natural resource economics, along with those related to human resources, and rural development. In 1992, this journal changed its name to the Journal of Agricultural and Resource Economics, to emphasize its continued focus on the economics of natural resources and to remove its regional focus. In the same mode, the Northeastern Journal of Agricultural Economics, whose publication dates from 1984, was renamed in 1993 as the Agricultural and Resource Economics Review. The North Central Journal of Agricultural Economics, published from 1979 to 1990, was renamed as the Review of Agricultural Economics and then again renamed in 2010 as Applied Economic Perspectives and Policy. It is no longer associated with an individual regional association.

The number of international journals devoted to agricultural economics also expanded over a similar period. Currently, international journals include the Canadian Journal of Agricultural Economics, the European Review of Agricultural Economics, the Australian Journal of Agricultural and Resource Economics, the ICFAI University Journal of Agricultural Economics (India), and the Journal of Agricultural Economics (United Kingdom). The International Association of Agricultural Economists publishes Agricultural Economics, which was launched in 1986. The importance of the field internationally is also evidenced by the recent launch of the new journal, China Agricultural Economics Review, by faculty at the China Agricultural University in Beijing, China.

Another important change that has taken place over time involves the use of quantitative techniques. Although statistical and quantitative analyses were important in agricultural economics since the field’s inception, the advent of computer technology has greatly expanded the methods that can be employed for the analysis of agricultural economic problems. Today, agricultural economists employ highly sophisticated statistical techniques, and most are adept at the use of a variety of computer software packages, from electronic spreadsheet programs to dedicated statistical software. Further discussion of quantitative techniques in agricultural economics follows later in this research paper.

Undergraduate Education

Education in agricultural economics has evolved considerably from its early twentieth-century roots in farm management. A search of the College Board (n.d.) Web site yielded a list of over 100 universities in the United States and Canada offering 4-year degrees in agricultural economics or the closely related major of agricultural business.

In addition to university-wide general educational requirements, students majoring in agricultural economics or agricultural business typically take foundations courses in business, usually in economics and accounting, as well as a sampling of courses in agricultural sciences, such as agronomy, horticulture, and animal sciences. Courses in the home department cover topics such as agricultural marketing, agricultural finance, agribusiness or farm management, natural resource and environmental economics, and policy and trade. Additionally, most universities require quantitative courses, such as calculus and statistics, for all undergraduate majors in this field.

Theoretical Underpinnings

As an applied field, agricultural economics combines basic theory, quantitative techniques, and institutional knowledge to explain or predict real-world phenomena. Thus, most agricultural economists use economic theory for generating hypotheses to be tested or as the basis for formulating a statistical model to be estimated. Microeconomic theory is the branch of theory most often used, although a few agricultural economists have applied theory from macroeconomics (see, e.g., Penson & Hughes, 1979). In addition to drawing heavily from the field of economics for its general theory and disciplinary home, agricultural economics also may draw on other business disciplines including finance, marketing, and management, depending on the problem at hand, although even in these cases, economic theory forms the foundation. Agricultural economics may also draw heavily on biologically based disciplines, engineering, or ecology. In Part II of this handbook, economic theory is discussed in considerable detail; hence, the material will not be repeated at length here. Rather, this section will instead focus on how agricultural economists use microeconomic theory in their applied work.

A theoretical economic model is an abstraction from reality. To be useful, it cannot be so simple as to ignore key interrelationships, but neither can it be so complex that it obscures these relationships. To formulate a good theoretical model, agricultural economists must be well versed in general economic theory and must understand the processes and institutions involved in the problem of inter-est. The best theoretical model in the world, for example, would be useless to a production economist who did not know the growing seasons or climate zones for the agricultural products of interest in the research problem.

When existing theory has not been sufficiently developed to provide necessary insights into an applied problem, agricultural economists have contributed to the theory in important ways. Two classic examples are Clark Edwards’s (1959) work on asset fixity and supply and a work by James Houck (1964) on the relationship between the demand elasticity for joint products and the demand elasticity of the underlying commodity. Similarly, Zvi Griliches (1957) contributed greatly to the understanding of causes and consequences of technical change, beginning with his seminal paper on hybrid corn. A recent example of contribution to economic theory is the paper by Carlos Carpio, Michael Wohlgenant, and Charles Safley (2008), providing a framework in consumer decision making for distinguishing the effect of time as a resource constraint and time that provides enjoyment. Another recent paper extending economic theory is the Jeffrey LaFrance and Rulon Pope (2008) investigation of the homogeneity properties of supply functions in the Gorman class.

Production Theory

Production theory is used in farm management applications, estimations of productivity growth, and formulation of estimates of the response of agricultural output to changes in economic conditions. The basis of production theory in microeconomics is the production function, a systematic way of showing the relationship between inputs and outputs, in physical terms. To produce an agricultural output such as corn, for example, land, fertilizer, labor, and other inputs are required. Although some may view the estimation of production relationships as the work of the biologically based fields, agricultural economists were among the pioneers in this area. Articles dating from the 1940s in the Journal of Farm Economics tackle the estimation of physical production relationships (Heady, 1946; Tintner & Brownlee, 1944).

An important principle related to the production function is the law of diminishing marginal returns (often called just the law of diminishing returns). The engineering law states that as additional units of a variable input are used in combination with one or more fixed inputs, the amount of additional output per additional unit of variable input will begin to decline. The law of diminishing returns can be traced back to the concerns of early economists such as von Thunen, Turgot, Malthus, and Ricardo and was one of the first principles addressed by agricultural economists (see, e.g., Spillman, 1923). It remains an important concept to this day, especially in the area of farm management.

Agricultural economists have long been interested in estimating the supply curve for agricultural products. Neoclassical production theory maintains that firm behavior is characterized by the maximization of profits subject to a set of technical and institutional constraints. In the basic perfectly competitive model, where perfect knowledge is assumed and producers are said to be price takers (i.e., no individual producer can influence market price for either output or inputs), the profit function can be used to solve mathematically for quantities supplied. Without requiring the assumption of perfectly competitive output markets, an alternative specification involves minimizing the cost of producing a given amount of output.

Because prices are fairly transparent in the market, in recent years, applied economists have typically started with indirect profit or cost functions (e.g., functions specified in terms of prices and costs) and used these to generate the functional form of their subsequent estimations of output supply or input demand. Readers interested in the properties of the functional forms specified for the production function and how they relate to indirect profit or cost functions and the derived supply function or input demand equations are referred to Robert Chambers (1988) or to Bruce Beattie and C. Robert Taylor (1985). For a classic example of the use of an indirect profit function to specify input demand and output supply equations, readers may see C. Richard Shumway’s (1983) article on supply response of Texas field crops. Readers are also referred to Christopher O’Donnell, Richard Shumway, and V Eldon Ball (1999) for a discussion of using flexible functional forms to specify input demand equations.

Although the perfectly competitive model has been the basis of much useful work, modifications to this model have been made to address real-world issues. For example, many factors important to agricultural producers, such as the output price to be received in the future, are uncertain. Thus, the role of producers’ price expectations and their effect on supply response was explored in a seminal work by Marc Nerlove (1956). Additionally, output is not perfectly predictable because factors outside the producers’ control, such as weather or pests, may affect it. The basic profit-maximization decision model may thus be altered to reflect producers’ aversion to highly risky enterprises. For an overview of how risk is incorporated into agricultural decision making, readers may see Richard Just and Rulon Pope (2002) or J. Brian Hardaker, Ruud Huirne, Jock Anderson, and Gudbrand Lien (2004).

In field crop supply estimation, another important modification is the inclusion of variables to account for farm program provisions, such as support prices or acreage reduction programs, which may influence producer decisions. A method of accounting for government program effects on supply was developed by James Houck and Mary Ryan (1972). A theoretical framework to consider both farm program provisions and the impact of risk on agricultural supply for field crops was developed by Jean-Paul Chavas and Matthew Holt (1990) as the foundation for the empirical estimation of the aggregate response of soybean and corn acreage to changes in price, policy provisions, and risk.

The pages of agricultural economics journals will provide many other examples of the use of production economic theory to formulate models for empirical work. In addition to the types of work already considered, production economists have also provided insight on innovation and structural change (see, e.g., Huang & Sexton, 1996) and the impact of research expenditures on productivity. Readers interested in a more advanced and extensive treatment of the work of agricultural economists in production economics are referred to the Handbook of Agricultural Economics: Volume 1A: Agricultural Production (Gardner & Rausser, 2001a).

Consumer Theory

Consumer theory is also used extensively in agricultural economics, notably in the formulation of market demand curves for agricultural products or in applied price analysis. The basic behavioral hypothesis is that the consumer, in deciding among the myriad of products to buy, selects that combination and quantity that maximizes his or her utility (happiness) subject to a budget constraint. The budget constraint includes the consumer’s income and market prices, both of which are assumed to be beyond the immediate control of the consumer. Income may also be assumed fixed for analytical convenience and to focus on the main objects of choice—namely, the quantities of the various goods the consumer purchases.

In some instances of demand equation estimation, a specific functional form for the utility function is specified, as in the almost ideal demand system model (Deaton & Muellbauer, 1980). More often, in estimation of demand for agricultural products, utility theory is used to place restrictions on estimated elasticities and to reduce the number of price variables included in the model through the maintained hypotheses of weak separability and two-stage budgeting.

A difference between agricultural economics and general economics, in terms of applications of demand theory, is that basic agricultural products are more likely to be homogenous or largely indistinguishable from each other than are other products in the market. Thus, a generalized demand curve for eggs, milk, or catfish filets makes more intuitive sense than a generalized demand curve for automobiles, which are distinguished by brand name and other features. Outside the agricultural sector, there are far fewer examples of truly homogenous products, other than raw minerals or metal ore. Because many agricultural products are homogeneous and the farm firms producing them have no individual control over the output price, generic advertising and promotion programs have been employed by the industries. Agricultural economists have provided valuable information to these industries on the effect of these promotion efforts both in U.S. markets and in export markets (see, e.g., Forker & Ward, 1993; Nichols, Kinnucan, & Ackerman, 1990).

Even within the agricultural sector, the assumption of homogenous products may not apply. Sales of agricultural land, for example, would not fit the assumption of a homogenous product. Many factors, including location, would distinguish one parcel from another. In addition, the market for land is usually thin, so that individual buyers and sellers may influence price. Alternative theoretical models have been applied in situations when the assumptions of perfect competition do not fit. Hedonic pricing models, which relate the price of a product to its attributes, have been applied to products that are not homogenous, one of the earliest applications in agricultural economics being by Frederick Waugh (1928) for vegetables. In markets for land, methods to account for spatial factors have also been applied. Agricultural economists have also incorporated theory related to asymmetric information into their conceptual models and contributed to the development of this vein of work. Even for products typically considered homogeneous, such as wheat or cotton, distinctions may be made in international trade models with respect to country of origin.

Demand theory applied in agricultural economics has incorporated the links between the farm and retail sectors. Exploration of the factors affecting marketing margins, or the farm-to-retail price spread, has been a fruitful area of applied research. A notable example of a paper that contributed to economic theory in this area as well as provided useful empirical information is by Michael Wohlgenant (1989).

Finally, because prices are determined by the intersection of supply and demand, agricultural price analysis is a sub-field that draws from both consumer and producer theory. Agricultural economists working under this general umbrella have made strong contributions to the analysis of futures markets, the economics of storage, the economics of food labeling and food safety, and spatial price analysis. A reader interested in a more extensive treatment of the applications of consumer theory and price analysis by agricultural economists is referred to the Handbook of Agricultural Economics: Volume 1B: Marketing, Distribution and Consumers (Gardner & Rausser, 2001b).

Equilibrium Displacement Models

One final concept is worth noting in this section. Elasticity of supply or demand relates the percentage change in a commodity’s own price to the percentage change in the quantity supplied or demanded. Elasticities of demand and supply as well as price-transmission elasticities taken from previously published work can be used in applied analyses. These studies, often called equilibrium displacement models, trace the effects of a shock or shifter of either the demand or supply curve (or both) on market prices, quantities, and producer and consumer welfare. Complicated real-world linkages between retail and wholesale markets can be specified, with various degrees of market power assumed at different levels in the marketing chain. However, to provide good estimates of the likely effects of the shock, the elasticity estimates used in the equilibrium displacement model must be accurate. Hence, the professional standards for publication of supply and demand estimates, from which elasticities can be drawn, require that the researchers present both sound theoretical justification for the functional form of the model and employ appropriate quantitative methods to avoid introducing bias in the parameters upon estimation. (For further discussion of the use of equilibrium displacement models in applied research, see Piggott, 1992.)

Quantitative Techniques in Agricultural Economics

Agricultural economics makes heavy use of quantitative methods. Statistical techniques used by agricultural economics generally fall under the heading of econometrics, discussed in other research paper on this site. As such, they will not be presented in great detail here. In observational data, as opposed to experimental data, many things change at once. Statistical methods of overcoming the limitations of the available data have been employed by agricultural economists for decades. Most published articles by agricultural economists involve the use of sophisticated econometric techniques. An excellent, although fairly technical, discussion of the use of and problems with these techniques was provided by Just (2008) in his presidential address to the AAEA.

Operations Research Methods

Although not as widely used as econometrics, operations research techniques have been employed in agricultural economics almost since the development of these tools in the period during and following World War II. Techniques typically used by agricultural economists are of two general types: mathematical programming models and simulation models. Mathematical programming models have an objective function to be maximized or minimized, and simulation models generally do not.

Linear programming, one of the best-known operations research techniques, is widely used in farm management work and is often taught in undergraduate classes (see, e.g., Kay, Edwards, & Duffy, 2008, chap. 12). Linear programming models have a linear objective function to be maximized or minimized subject to linear inequality constraints. They can be useful models for firm-level analysis in agriculture, either in terms of profit maximization for the farm or in terms of calculating a least-cost diet for feeding livestock.

Even before the simplex method for solving linear programming models was formally developed by Dantzig in 1947, George Stigler (1945) investigated the problem of the minimum cost diet for human subsistence using approximation to solve the constrained minimization problem. The objective of the model in this paper was to minimize the cost of feeding a person, subject to keeping nutrient intake above or below certain levels necessary for health. Calculation of the thrifty food plan for the Food Stamp Program is a similar modern-day endeavor, although information on human nutrition and techniques to solve this sort of problem have improved vastly since Stigler’s time.

Following the introduction of the simplex method of solution, linear programming was adopted rapidly in the agricultural economics profession so that by 1960, it was already well established (Eisgruber & Reisch, 1961). Earl Heady and Wilfred Candler (1958) contributed an influential and widely used textbook on this new technique, specifically geared toward uses in agriculture. Although most of the early applications were to farm management, the technique was also used for marketing and other areas.

With the advent of high-speed computers, feasible operations research methods in agricultural economics became more sophisticated. R. C. Agrawal and Earl Heady (1972), in an updated textbook, listed several extensions to the linear model, such as variable resource programming, integer programming, quadratic programming, nonlinear programming, and dynamic programming. Loren Tauer (1983) introduced Target MOTAD, an extension of linear programming that allowed for a theoretically consistent method of incorporating a producer’s risk preferences into the decision framework.

Simulation, another operations research tool, also has early roots in the agricultural economics profession, tracing back at least as far as an article in the Journal of Farm Economics by Pinhas Zusman and Amotz Amiad (1965). An overview of early uses for simulation in agricultural economics was provided by Anderson (1974). Simulation models can be used at the firm level, to simulate, for example, the probable effects on output and income of alternative farm program proposals, or at the sector level, to simulate the probable impacts of technical change or changes in macroeconomic conditions. Models can incorporate real-world linkages and the probabilistic nature of some outcomes, such as weather events, farm yields, or prices. Some simulation models use econometric estimates as their core, and others are constructed from systematic observation of the important relationships.

Areas of Concentration

In a recent paper presented to the AAEA and subsequently published in Applied Economic Perspectives and Policy, Gregory Perry (2010) pointed out the proliferation in areas of concentration in the association, from 12 in 1966 to more than 80 today, and the decline in the primacy of the traditional fields of farm management and marketing. Of approximately 2400 members of the association listed in the current directory, only 114 chose farm management as one of their areas of specialization, and 141 members chose marketing. One traditional area, agricultural policy, retains a fair share of the membership, with 291 members listing it as one of their subfields.

Space does not permit a discussion of each area of concentration in agricultural economics, and many of these, such as diet, consumption, and health, overlap with other fields of applied economics. Hence, the following paragraphs are devoted to providing a quick summary of a few agriculturally focused subfields. Readers interested in a broader look at the work of agricultural economics are referred to John Penson, Oral Capps, C. Parr Roson, and Richard Woodward (2006).

Farm Management and Production Economics

Although these are separate areas of concentration, there is considerable overlap between the two. Farm management is the area in agricultural economics primarily concerned with the profitability of a farm firm. Farm management professionals develop both cost-of-production estimates (based on already realized outcomes) and planning budgets (projections for future outcomes) for various farm enterprises, such as cotton production or a cow-calf operation. They are concerned with topics such as optimal machinery size for a given farm, risk management, income tax management, and a host of other issues that directly or indirectly affect the profits of the farm. Because farm policies and natural resource protection policies affect farm profitability, there can be considerable overlap between the work of farm management professionals and those specializing in policy or natural resource and environmental economics.

Production economics has its roots in farm management. Factors that make an individual farm profitable or not profitable will also affect the overall supply of a commodity. Production economists are concerned with such topics as the impact of technical change on agricultural output, efficiency gains in the use of inputs, returns to agricultural research, and the aggregate impact in terms of out-put of farm and environmental policies. Farm management specialists and agricultural production economists will often engage in interdisciplinary or multidisciplinary work with production scientists, such as agronomists or animal scientists. It is not unusual for researchers in this field to coauthor work in the journals of these other disciplines. The Agronomy Journal, for example, lists economics as one of its target areas, and there are currently over 100 papers in the area of economics posted on this journal’s Web site.

Agricultural Marketing and Prices

Agricultural marketing can involve any of the processes that move an agricultural commodity from the farm gate to the dinner plate. A specialist in agricultural marketing may direct efforts toward helping establish a farmers’ market, for example, or study the relationship between the futures price of a commodity and its cash price. Food processing and distribution are also areas of interest inside this concentration, and in this respect, agricultural marketing can have considerable overlap with the agribusiness area. Although agricultural marketing has much in common with business marketing, agricultural marketing distinguishes itself in terms of a heavier reliance on microeconomic theory, a greater focus on homogenous products, and an emphasis on the marketing institutions related to agriculture, such as forward contracting and the commodity futures and options market. Interested readers are referred to Richard Kohls, Joseph Uhl, and Chris Hurt (2007).

The subfield of agricultural prices examines price determination for agricultural products. As such, it is concerned with the intersection of supply and demand. Determination of marketing margins and the impact of industry structure on price are topics of investigation in this concentration, as is price differentiation based on spatial or quality factors. Readers interested in learning more about agricultural price analysis are referred to William Tomek and Kenneth Robinson (2003) or John Goodwin (1994).

Agricultural Policy

Since the inception of agricultural policy in the 1930s, agricultural economists have been at the forefront of this focus area. The cost of the major provisions of the U.S. farm bill averaged more than $45 billion per year over the 2002 to 2007 period, including $15 billion in farm support payments and more than $29 billion in Food Stamp Program costs (Chite, 2008). Given the sizable outlays, it is not surprising that agricultural economists have been interested in the impact of these programs. Analysis of farm programs may involve their effect on farm profitability, farm structure, or choice of inputs and outputs. Readers interested in learning more about agricultural policy are referred to Ronald Knutson, J. B. Penn, and Barry Flinchbaugh (2007).

Agribusiness Management

The term agribusiness can be applied to any firm involved in the food and fiber industry, from a farm to a retail store or restaurant to an input supplier, such as a firm that manufactures fertilizer or tractors, to an agricultural service provider, such as a veterinary operation or an agricultural lender. As such, this area overlaps or subsumes several other areas. As a research category within agricultural economics, the term generally refers to studies dealing with input suppliers, processors, retailers, or other sectors beyond the farm.

Perry (2010) pointed out that a shift has occurred in undergraduate education, with a decline in the number of undergraduate degrees in agricultural economics since the early 1990s, largely offset by an increase in the number of degrees in agribusiness. Distinguishing the two degree programs, in terms of coverage, is quite difficult, and some programs that offer a degree in agricultural economics have an agribusiness option. Further complicating a clear definition of the term agribusiness is its use in other departments inside colleges of agriculture as an option within, for example, agronomy or animal science. Readers interested in learning more about agribusiness management are referred to Steven Erickson, Jay Taylor Akridge, Fred Barnard, and W. David Downey (2002).

Agricultural Finance

Agricultural finance is the subfield of agricultural economics that deals most explicitly with capital and the use of credit. Topics in this subfield would include such endeavors as investment analysis, the effects of debt load on farm survival and structure, taxation, capitalization, and interest rates. The farm credit system was established in 1916 as a source of funds for agriculture, and some of the work in agricultural finance has focused on this system and its impact on the agricultural sector. The line between agricultural finance and other subfields is not always easy to draw, however, because investment and the use of credit are important in farm management and agricultural marketing. Considerable work on risk and uncertainty in agriculture has originated from research focused on agriculture finance. A journal dedicated to agricultural finance, the Agricultural Finance Review, began publication in 1938 and continues to this day. For more information about agricultural finance, see Peter Barry, Paul Ellinger, John Hopkin, and C. B. Baker (2000).

Other Areas

Agricultural economists have made considerable contributions to development economics, with Ted Schultz, a notable agricultural economist, winning a Nobel Prize for his work in this area. Many agricultural economists specialize in resources or environmental economics. Others focus their work in the area of international trade. In recent years, agricultural economists have made contributions to the area of health economics, particularly concerning the link between diet and health. Given the large outlays from the U.S. Department of Agriculture for nutrition support programs, especially the Food Stamp Program, some agricultural economists have conducted studies to estimate the impact of these programs on the nutritional status or food security level of the recipients. In all of these endeavors, the line between agricultural economics, general applied economics, and consumer economics is almost impossible to draw.

A Handful of Notable Agricultural Economists

Those interested in a thorough study of the contributions of agricultural economists to the solution of applied problems affecting agriculture and related areas are referred to the list of fellows of the AAEA (n.d.). The Association began naming fellows in 1957, and short biographies of the fellows, including their major contributions to the field, are published in the December issues of the journal. Because of space limitations, only a handful of these notable agricultural economists can be discussed in this research paper.

Theodore Schultz (1964) received a Nobel Memorial Prize in Economics in 1979 in recognition for his work in development economics. As he pointed out in his acceptance speech, the majority of the world’s people are poor, and most of the poor are involved in agriculture. He was also one of the pioneers in exploring human capital and its role in development. A slim volume, Transforming Traditional Agriculture, is an excellent starting point for understanding Ted Schultz’s contributions to the literature on economic development.

Schultz is also known for his unwillingness to bow to political pressure within agriculture during a controversy over the wartime promotion of margarine, in place of butter, in a pamphlet by an Iowa State agriculture economist, Oswald H. Brownlee. Schultz, then department chair at Iowa State, resigned in protest and took a position at the University of Chicago when Brownlee was forced to retract his pamphlet. The incident also illustrates the role of agricultural economists in providing society with objective analyses of the benefits and costs of alternative programs, policies, and investments.

Gale Johnson (1947), a colleague of Ted Schultz at the University of Chicago, made significant contributions in the analysis of commodity price policy, including his seminal work Forward Prices for Agriculture. He also contributed work on the agricultural labor market and to theoretical and practical approaches to understanding agricultural supply, among other topics. In addition to his original research, he is renowned for his contribution to the field in terms of educating students. Collected papers of Johnson can be found in The Economics of Agriculture: Volume 1: Selected Papers ofD. Gale Johnson (Antle & Sumner, 1996a). The Economics of Agriculture: Volume 2: Papers in Honor of D. Gale Johnson (Antle & Sumner, 1996b) contains tributes from his former students.

Heady (1952), a professor at Iowa State University, made enormous contributions to agricultural production economics and agriculture finance. His seminal work, Economics of Agricultural Production and Resource Use, laid the foundation for production economics efforts for the decades following its publication. He pioneered the use of operations research techniques in farm management and made significant contributions to analysis of risk and uncertainty in agriculture.

Cochrane (1958), a professor and dean at the University of Minnesota, made substantial contributions in the field of agricultural policy and prices. His book Farm Prices: Myth and Reality laid out his famous treadmill theory, under which rapid output-enhancing technological advances caused a long period of production disequilibrium with resulting low product prices in agriculture. In addition to his scholarly work, he served as an agricultural advisor during John Kennedy’s 1960 presidential campaign and subsequently as the chief economics advisor to the Secretary of Agriculture. John Kenneth Galbraith (1958, 1995), a two-time winner of the Presidential Medal of Freedom, is known both for his work as a political advisor in several administrations and for his best-selling works, including The Affluent Society. He also published a volume laying out his largely Keynesian monetary views, Money: Whence It Came, Where It Went.

Future of the Field

If the past is a predictor of the future, very likely there will be fewer agricultural economists working on a wider array of problems. Increasingly, departments and degree programs have adopted the name applied economics or resource economics or other designations, showing the shift away from a sole focus on agricultural issues. As Perry (2010) pointed out, most of these departments have not merged into the general economics department, and he predicts that the number of what he called AE cluster departments will not change greatly in the future but that even fewer of these departments will be known as agricultural economics.

Regardless of what their home department is called, agricultural economists will very likely continue to lend their talents to a variety of applied problems. Sandra Batie (2008) in her fellows address for the AAEA discussed “wicked problems”: complex problems that do not lend themselves to the type of rational, linear approach typical of applied science. To remain relevant, she suggests that agricultural economists will need to work on these sorts of issues, stepping outside disciplinary bounds to do so. Agricultural economics, which by its nature is interdisciplinary, may be a field well placed to address “wicked problems.”

In their principles of economics textbook, Paul Samuelson and William Nordhaus (2005), in a section titled “Cool Heads at the Service of Warm Hearts,” stated, “The ultimate goal of economic science is to improve the living conditions of people in their everyday lives” (p. 6). As a field, agricultural economics has long embodied this view, whether the work falls under the traditional area of farm management or in one of the newer concentrations, such as health economics. A solid training in economic theory coupled with sound quantitative techniques will serve the profession well in the decades to come.

See also:


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