Reducing Disharmonies in the U.S. Crops and Dairy Sectors

Various measures have been proposed to "harmonize" agricultural policies in the United States and the European Community. Short-run and long-run consequences of implementing three such measures are evaluated using econometric models developed by the Food and Agricultural Policy Research Institute (FAPRI). Given conditions prevailing during the 1986/87 crop year, a 10-percent reduction in corn and wheat target prices has relatively small effects on production and market prices. Yields fall, but planted area increases because lower participation rates mean less land is idled by government programs. Establishing a target-price program for soybeans increases soybean production and reduces soybean prices. A 25-percent reduction in milk support prices reduces production, increases consumption, and significantly reduces government purchases. The combined long-run effect of implementing all three measures is a $5.8-billion reduction in government costs, a $6.4-billion decline in producer net returns, and a $3.7-billion gain to milk consumers.