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A Consideration of the Devolution of Federal Agricultural
Policy
Craig Gundersen, Betsey Kuhn, Susan Offutt, and Mitchell
Morehart
Agricultural Economic Report No. (AER-836), November
2004
U.S. farm programs have their origins in the 1930s, a period
when the well-being of U.S. farm households and rural communities
across the country was tightly linked. Since then, farms have
become more specialized, farm households have become less dependent
on farm income for their well-being, and the importance of agriculture
in rural economies has diminished. As these changes and others
in the national and international economy have occurred, the
Depressionera farm policies and programs have been modified
in response. For example, commodity-based support programs have
moved away from a focus on direct intervention in agricultural
markets and toward direct payments. Natural resource programs
have grown in size and expanded from their initial emphasis
on soil conservation to include attention to broader water and
air quality issues. Rural development now goes beyond electrification
and 1930s-era housing concerns to include stimulation of economic
growth in diversified rural economies. As the farm sector evolves,
agricultural and rural development policies attempt to adjust
to new realities.
What Is the Issue?
U.S. farms vary greatly in size, specialty, and household characteristics,
and U.S. regions differ markedly in natural resource endowments.
States differ widely in how they think funds from agricultural
programs should be spent. Devolution, or the transfer to States
of Federal funds and/or control of those funds, is one way of
adapting national policies to suit local preferences more closely
and of recognizing geographical variation in program delivery
costs. Devolution is worth considering whenever it has the potential
to make program delivery more cost-effective and more responsive
to citizens. Would further devolution of Federal agricultural
and natural resource programs be beneficial?
How Was the Study Conducted?
We first identified as much as a third of current USDA spending
that could be transferred from Federal to State control via
block grants. Representing about $22 billion of the $75 billion
that USDA spends annually, these funds are now primarily associated
with commodity and some natural resource programs. The balance
of USDA spending was excluded either because it represents programming
already substantially devolved, it is not directly or exclusively
aimed at farm and rural households (e.g., food stamps, forest
management), or it supports activities that are logically the
province of the Federal Government (e.g., trade negotiations,
meat inspection).
Next we looked at how Federal funds might be distributed across
States. We considered three block grant options (these options
are suggestive--actual methods may differ):
1. Commodity production. Funds could be transferred
to States based on the existing commodity- based criteria.
2. Hatch Act. Funds could be transferred in
a way that provides for more equal distribution among States
based on a formula derived from the Hatch Act, which divides
Federal funding for agricultural research among the agricultural
experiment stations in the States and U.S. territories. The
formula is intended to recognize variation across States in
the importance of farming and rural communities.
3. Safety Net. Funds could be transferred to
States via means testing or an allocation based on the needs
of farmers as defined by their income levels, similar to other
income assistance programs.
What Did the Study Find?
Devolution is worth considering whenever it has the potential
to make program delivery more cost-effective and to better satisfy
citizens. When program preferences and implementation costs
vary across the country, devolution may enable States to better
respond to local circumstances. These improvements may be possible
because a central agency administering a program at the national
level may lack the information needed to accommodate State-level
differences. Political pressures may dictate that a central
government provide a more uniform level of services, even when
local communities would prefer lower or higher levels of services.
Another source of gain from devolution can arise from large
differences in costs across local areas. For example, costs
of cleaning up a groundwater aquifer may differ among jurisdictions,
depending on geology and the source of the contamination. So,
even if preferences for clean water were identical, economic
considerations may lead different jurisdictions to choose different
methods to clean up the site.
Funding by State varies with each of the three distribution
options. Texas and Iowa are among the five largest recipients
under all three distribution options. Under the current, commodity-based
distribution option, the 10 largest recipients, mainly Great
Plains and Heartland States, receive about two-thirds of the
$22 billion identified as potentially devolvable spending. Under
the Hatch Act option, States with relatively large farm and
rural populations, such as North Carolina, Pennsylvania, Ohio,
and Illinois, would garner the most payments. The farm safety
net option would send half the money to the top 10 States, which
include States such as Kentucky, Missouri, California, and Tennessee
with relatively large numbers of farms and, as it happens, relatively
larger numbers of poorer farm households.
Comparing the distributions under the three options illustrates
some important points about any potential devolution option.
First, devolution by a block grant scheme, will, in general,
make the distribution of Federal support much more transparent
than when it is determined by individual commodity, rural development,
or national resource program requirements. Second, both the
Hatch Act option and the safety net option move the funding
distribution away from large commodity producers and toward
smaller farmers and greater numbers of rural people. Any time
that the benefits of public policy are directed away from one
group and toward others, debate can be expected.
Ultimately, the extent to which devolution of Federal programs
produces more preferred outcomes at lower costs would depend
on actual implementation. Some States may make unwise choices
or suffer from administrative inefficiencies. Nonetheless, States—like
the Federal Government—would be held accountable for achieving
the intended outcomes of their programs. But the tremendous
diversity across States with respect to policy preferences and
farm, rural, and natural resource circumstances suggests that
more tailored farm programs could be more efficient.
As ERS analysis shows, farm characteristics, natural resource
endowments, and rural economies vary widely across States, as
do preferences for farm, food, environmental, and rural development
policies. This diversity indicates that further devolution may
result in gains in efficiency and citizen well-being, but the
potential for improvement must be studied more closely. A changing
policy agenda and the prospect of trade liberalization suggest
such an analysis may some day have a practical application.
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