NUTR SCI 350 Lecture Notes - Lecture 21: Sunk Costs, Aquifer, Microcredit
17 May 2018
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04/23/18 lecture 21: Farm Supply Enhancement Policies
• Input subsidies
o Input Subsidies could include subsidies to fertilizers, pesticides, seeds, water. It
could also include subsidies to grain markets that are inputs in some meat
production systems.
o Exercise:
o Draw a subsidized market for fertilizer or pesticides
o Draw a government-controlled market for reservoir water and then drop the
price (hint: get all the water you want at same price).
o Draw market for water out of a aquifer (hint: get all you want from single well at
same price
o Subsidizing inputs to small farmers makes sense in the presence of
▪ poor adoption of the input
▪ credit constraints
▪ adds value to the land (i.e. reduces erosion)
▪ resolves risk (i.e. drought tolerant seeds)
▪ sunk costs (i.e. windmill investment)
o Input subsidies may, however, :
▪ be hard to reverse after goal is met.
▪ may reach the wrong target
▪ may exasperate scale and scope advantages of large farms
▪ leave problems to fester
▪ shield the farmer from access to better solutions
▪ over-application of pesticides, herbicides, water, etc. leading to
environmental damage.
o Downstream impacts from input subsidies:
▪ changes the retail market for specific foods. (corn subsidies and meat
pricing, long-run demand)
▪ overuse of chemicals and the impact on water systems, health of farm
workers, and population health.
▪ unintended impacts: corn subsidies (and sugar import quotas) in the
U.S. has spawned the HFCS industry and all the alleged associated health
controversies.
• Building sustainability
o Since sustainable practices require investments, can be risky, and can be labor
intensive, building long-run farming systems are challenging:
o Idea: Major constraints
▪ integrated pest management: education, labor costs
▪ water conservation: laws, enforcement, social management
▪ organic farming: Certification time and costs, education, labor costs,
identity preservation, market development,
▪ small farms: economies of scale
▪ local farms: marketing, comparative disadvantage
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