According to a study at the University of Illinois, Kentucky tobacco farmers adopted that same logic when the tobacco companies announced the buyout – also known as the Tobacco Transition Act of 2004 that ended a 66-year-old federal farm program.
However, the immediate drop in productivity was followed by startling changes. Over the 10-year period of the study, the number of farms declined from just over 40,000 farms to just over 8,500 farms – but productivity increased by 44 percent.
"The quota system limited the amount of tobacco that could be grown," U of I agricultural economist Barrett Kirwan said. "By reducing the supply, farmers were guaranteed their price but it also guaranteed that less productive farms would keep producing because they'd see a price that was higher than what they should have been getting. As soon as that was removed, the less productive farms couldn't survive. There was a massive reallocation and massive shift of production to more productive farms. Those farms weren't realizing their full production potential."
After the buyout, the total acreage farming tobacco in Kentucky declined, but the remaining acres became more productive. They began producing more tobacco per acre on fewer acres. The acreage also relocated to the western part of the state where the soil is more suitable.
"The farmers who stayed began growing specialty tobacco used for cigars or chewing tobacco," Kirwan said. "The niche markets for tobacco haven't been hit as hard as the main cigarette market so without the quota system, restrictions were lifted. Farmers no longer had to grow only burley tobacco; they could diversify in chewing tobacco or cigar tobacco, which are specialty, higher-value tobaccos."
The study found that the most productive farmers were also the most diversified with crops other than just tobacco.
"They didn't have a decline in productivity leading up to the buyout," Kirwan said. "Their tobacco production did not decline, and after the buyout their tobacco productivity rose dramatically and so did their acreage. Their acreage more than doubled."
According to Kirwan, the diversified farms already had equipment, such as drying barns to cure the tobacco. After the quotas were lifted, they could capture the economies of scale.
"A drying barn is the same size whether you're drying a little tobacco or a lot of tobacco, so lifting the quantities allowed them to actually fill the drying barn and become much more efficient," Kirwan said. "Because they already had the invested capital, it became much more profitable for them to stay in tobacco and get bigger than it would have been to switch to a different crop."
Farmers were also able to save due to input reallocations, such as being able to shift fertilizer and electricity and workers.
"You get this double kick from removing the quota," Kirwan said. "When the quota was removed, it allowed resources to move, giving an 8.3 percent increase, but the removal of the quota itself gave 22 percent. That's a total of a 30 percent increase just by removing this regulation."
Kirwan said the findings from the study can be analogous to other commodity programs.
"In agriculture, there have been these types of farm programs for about 80 years and there is some variance, but this was one of the few times that we could see an absolute end to a program with no hope of coming back.
"Other programs may not be as binding as the tobacco program with quota limits, but when we're distorting the market price with subsidies or we're distorting a farmer's production choices by saying, 'If you grow vegetables, then you no longer get subsidies for your corn,' then we're distorting their productivity," Kirwan said.
He noted that the study focused on productivity, not equity. So although the farms were much more productive, it did put many small farmers out of business. He said the findings could help guide policy makers who are deciding whether or not to change quota or subsidy programs.
"They have to weigh this potentially huge efficiency gain with the consequences on the equality side – possibly creating fewer small farms. Which is more important? Having a lot of small farms or fewer, more productive farms?
"There are anecdotes that subsidies prop up inefficient farmers who shouldn't be farming anyway, but they are just that, anecdotes," Kirwan said. "By doing this study, we could see just how much more productive the new tobacco farmers were. We looked at the demographic differences in these two groups and confirmed that these new, more productive farmers are young."
"Aggregate and Farm-level Productivity Growth in Tobacco; Before and After the Quota Buyout" was published in the American Journal of Agriculture Economics. The article was co-authored by Shinsuke Uchida and T. Kirk White. Some funding was provided by the USDA.
Debra Levey Larson | EurekAlert!
Drone vs. truck deliveries: Which create less carbon pollution?
31.05.2017 | University of Washington
New study: How does Europe become a leading player for software and IT services?
03.04.2017 | Fraunhofer-Institut für System- und Innovationsforschung (ISI)
An international team of scientists has proposed a new multi-disciplinary approach in which an array of new technologies will allow us to map biodiversity and the risks that wildlife is facing at the scale of whole landscapes. The findings are published in Nature Ecology and Evolution. This international research is led by the Kunming Institute of Zoology from China, University of East Anglia, University of Leicester and the Leibniz Institute for Zoo and Wildlife Research.
Using a combination of satellite and ground data, the team proposes that it is now possible to map biodiversity with an accuracy that has not been previously...
Heatwaves in the Arctic, longer periods of vegetation in Europe, severe floods in West Africa – starting in 2021, scientists want to explore the emissions of the greenhouse gas methane with the German-French satellite MERLIN. This is made possible by a new robust laser system of the Fraunhofer Institute for Laser Technology ILT in Aachen, which achieves unprecedented measurement accuracy.
Methane is primarily the result of the decomposition of organic matter. The gas has a 25 times greater warming potential than carbon dioxide, but is not as...
Hydrogen is regarded as the energy source of the future: It is produced with solar power and can be used to generate heat and electricity in fuel cells. Empa researchers have now succeeded in decoding the movement of hydrogen ions in crystals – a key step towards more efficient energy conversion in the hydrogen industry of tomorrow.
As charge carriers, electrons and ions play the leading role in electrochemical energy storage devices and converters such as batteries and fuel cells. Proton...
Scientists from the Excellence Cluster Universe at the Ludwig-Maximilians-Universität Munich have establised "Cosmowebportal", a unique data centre for cosmological simulations located at the Leibniz Supercomputing Centre (LRZ) of the Bavarian Academy of Sciences. The complete results of a series of large hydrodynamical cosmological simulations are available, with data volumes typically exceeding several hundred terabytes. Scientists worldwide can interactively explore these complex simulations via a web interface and directly access the results.
With current telescopes, scientists can observe our Universe’s galaxies and galaxy clusters and their distribution along an invisible cosmic web. From the...
Temperature measurements possible even on the smallest scale / Molecular ruby for use in material sciences, biology, and medicine
Chemists at Johannes Gutenberg University Mainz (JGU) in cooperation with researchers of the German Federal Institute for Materials Research and Testing (BAM)...
19.06.2017 | Event News
13.06.2017 | Event News
13.06.2017 | Event News
23.06.2017 | Physics and Astronomy
23.06.2017 | Physics and Astronomy
23.06.2017 | Information Technology