4
Current Issues and Problems

The mid-1990s have been a period of continued economic growth following the brief recession in 1991–1993 in which growth slowed and unemployment grew. The real value of the dollar, which had been declining since 1985, stabilized and from 1992 to 1996 fluctuated around the same level (Council of Economic Advisers, 1998:247–248, 330, 408). Since then, major economic problems and consequent devaluations of currencies in Asia, Russia, and elsewhere have led to a stronger dollar, with the expected depressing effect on U.S. exports, especially in agriculture.

World trade has been expanding faster than world economic output since 1973 (Council of Economic Advisers, 1997:243–244). This a direct consequence of the growth of open national economies and the globalization of financial and commodity markets. The prosperity and growth of most nations now depends on the expansion of trade to an unprecedented degree. The U.S. agricultural sector is even more dependent on trade. In the mid-1990s, exports accounted for about 30 percent of U.S. agricultural output. Typically the United States exports the production from about half of its wheat acreage, one-third of its rice, soybean, and cotton acreage, and one-fifth of its acreage of feeds grains. Agricultural exports reached $60 billion in 1996, but the financial difficulties of Asian, African, and Eastern European countries reduced demand for U.S. exports in late 1997 and 1998 (Council of Economic Advisers, 1998:397; Economic Research Service, 1998a). The current financial problems in developing countries are likely to slow the growth of U.S. agricultural exports at least through the end of the decade. The long-term prospects for increased food exports depend on world economic growth and on the continued expansion of trade, especially as it involves in the low-income developing nations of the world.



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4 Current Issues and Problems The mid-1990s have been a period of continued economic growth following the brief recession in 1991–1993 in which growth slowed and unemployment grew. The real value of the dollar, which had been declining since 1985, stabilized and from 1992 to 1996 fluctuated around the same level (Council of Economic Advisers, 1998:247–248, 330, 408). Since then, major economic problems and consequent devaluations of currencies in Asia, Russia, and elsewhere have led to a stronger dollar, with the expected depressing effect on U.S. exports, especially in agriculture. World trade has been expanding faster than world economic output since 1973 (Council of Economic Advisers, 1997:243–244). This a direct consequence of the growth of open national economies and the globalization of financial and commodity markets. The prosperity and growth of most nations now depends on the expansion of trade to an unprecedented degree. The U.S. agricultural sector is even more dependent on trade. In the mid-1990s, exports accounted for about 30 percent of U.S. agricultural output. Typically the United States exports the production from about half of its wheat acreage, one-third of its rice, soybean, and cotton acreage, and one-fifth of its acreage of feeds grains. Agricultural exports reached $60 billion in 1996, but the financial difficulties of Asian, African, and Eastern European countries reduced demand for U.S. exports in late 1997 and 1998 (Council of Economic Advisers, 1998:397; Economic Research Service, 1998a). The current financial problems in developing countries are likely to slow the growth of U.S. agricultural exports at least through the end of the decade. The long-term prospects for increased food exports depend on world economic growth and on the continued expansion of trade, especially as it involves in the low-income developing nations of the world.

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In the late 1990s, the United States appears to be entering another major farm crisis. Economic disorder in Asia, Eastern Europe, and Russia has rolled through international capital and commodity markets. The exchange value of a number of currencies fell and was often followed by devaluation and government control of foreign exchange. This and the resulting internal inflation has cut effective demand for U.S. exports and driven the value of the dollar in trade with these countries to far higher levels, further cutting U.S. export demand. In the United States, a large carryover, especially of food and feed grains, combined with near-record grain and soybean production in 1998, had already depressed farm prices. The subsequent rapid decline in U.S. farm exports pushed farm prices to near depression levels. The U.S. response in a congressional election year has been large increases in emergency farm income support. Since the carryover of stocks into 1999 will be even greater than into 1998 and recovery in export demand cannot be expected soon, the price and income problems and their consequences are likely to continue into the near future. The major difference between the current crisis and that of the 1980s is that farmers are carrying lower levels of debt today and fewer are as highly leveraged as they were in the 1980s. Despite the massive changes in the food and agriculture sector, one sees again a continuing characteristic of the classic farm problems—a persistent disequilibrium in the form of an excess production in the face of ruinous prices. Farmers tend to maintain excess productive capacity in the same products primarily because of large investments in specialized assets that have no value in the production of other crops or livestock (Kilman, 1998). The previous chapter, on the origins and history of the Economic Research Service (ERS) and its predecessor agency, sets the stage for our discussion here of the ERS in the 1990s and beyond. We begin by characterizing the enormous changes in the world that have affected and are continuing to effect the agricultural sector and the agricultural policy agenda in the United States. We then bring the history of ERS up to the present by describing the difficult years of the past half decade, providing as well our vision of the likely concerns in the foreseeable future. The remainder of the chapter lays out the most important issues and problems facing the U.S. Department of Agriculture (USDA) and ERS today. Continued Growth in the Complexity of Policy The pattern of agricultural legislation over the entire period since World War II has been one of increasing complexity. The simply titled Agricultural Act of 1948 was only 13 pages long. In 1973, 25 years later, the act was still only 29 pages. By 1990, the Food, Agriculture, Conservation and Trade Act required 713 pages (Bonnen et al., 1996:147). It was a document of such complexity that many commercial farmers needed years of experience with program regulations plus the help of an accountant and a lawyer to make well-informed program participation decisions. The 1996 Federal Agricultural Improvement and Reform

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Act (FAIR) initiated a major change in farm policy: it eliminated all production controls, set a fixed annual subsidy that declines each year, and is operative through the year 2002. Whether this policy approach can be sustained through 2002 or beyond is now at issue (Kilman, 1998). Although the general direction over two decades in farm policy has been toward letting farm markets work with less direct government intervention, the growing number of policy participants and multiple policy goals (high farm income, stable prices, agricultural competitiveness, access to world markets, environmental sustainability, reduction of budget deficits, etc.) have led to more and more conflicted and complex legislation. Policy analysis requirements, as a consequence, have also grown more complex and demanding. There has been steady march since the late 1960s toward interdependent, open national economies tied together by global financial and commodity markets. Global markets now dominate trade in most agricultural and natural resource products. Closed economy models of national economic policy problems we almost sure to mislead. This is especially true of sectoral policy, such as in agriculture. Research strategies and agendas must now be cast within a macro-economic framework. From the 1930s into the 1970s, the possibilities for agricultural trade policy were bound by the constraints created by domestic farm policy. Since the 1980s, the reverse has been true. Domestic farm policy has become constrained by increasingly open and competitive world market, and in the 1990s by the Uruguay round of trade agreement commitments under the General Agreement on Tariffs and Trade (GATT). Today the major challenge to the income protection interests of production agriculture arise from federal budget constraints and from U.S. treaty commitments to reduce agricultural subsidies and protection. The political and policy context for USDA and thus for ERS has changed significantly. In addition, during the 1990s, food safety has become an important issue with an apparent increase in food-borne health threats. Environmental and natural resources policy issues now involve growing public and scientific concern, to which increasing political attention is paid. These highly political issues raise regulatory policy questions, in which economic research and policy analysis have an important role to play. It is especially important to explore the efficiency of economic incentives versus direct regulations. The alternative to ex ante research and analysis is large, poorly informed, expensive, and largely uncontrolled policy experiments on the economy and the body politic. The USDA has become programmatically more complex. Its budget now runs over $60 billion a year, about 60 percent of which goes to food stamp recipients. Only about 20 percent of the USDA budget is spent on farmer-related programs and activities. And 40 percent of the more than 100,000 USDA employees work for the Forest Service. The diverse programmatic structure of the department is reflected in the fact that the expenditures of USDA now fall into 10 of the 17 budget categories of the Office of Management and Budget (OMB),

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more than any other cabinet department (Madigan, 1992; Office of Management and Budget, 1998a). It is not surprising that ERS publications in the 1990s reflect an ever-increasing diversity of topics. ERS is now called on more frequently to serve the department's needs in its policy interactions and negotiations with other cabinet agencies and units of state government. Publications reflect this in analysis of such topics as water policy in the Pacific Northwest, coastal zone management, reduction of pesticides in foods, changing food stamp rules, and the economic adaptation of agricultural production to global warming. The number of publications concerned with global market issues has grown. By the mid-1990s, the clientele of the USDA included 1.8 million farmers, about 25 million food stamp recipients, 25 million children and 5 million single adults in supplemental food and nutrition programs, agribusiness firms, timber companies, environmentalists, and rural communities. The pressures on ERS to expand its scope of work run in two politically inconsistent directions. In the 1990s, problems of production agriculture and its natural resource base have been fragmenting into many new and complex issues involving traditional and politically influential clientele who are demanding more attention. At the same time, many other, increasingly important new areas of policy concern are proliferating, along with political pressures for action from politically influential interests. This occurs, for example, in the case of global warming, food safety, health and nutrition, low-income family and child nutrition and access to food, new regulatory problems, rural community decline and development, environmental issues in ecosystem sustainability, water and air quality, toxic chemical use, hazardous wastes and endangered species, and on and on. With limited and declining resources and little capacity to resolve these conflicts over priorities, ERS is being blamed for not satisfying all claimants on its services. Difficult Years for ERS A lack of stability has seriously affected ERS in the 1990s. Between 1990 and 1998 USDA has had four secretaries, only one of whom has served much more than two years: this include Clayton Yeutter (1989–1991), Edward Madigan (1991–1993), Mike Espy (1993–1994), and now Daniel Glickman (since 1995). Since 1993, when ERS administrator John Lee retired, ERS has had four administrators, the first three of whom were "acting" and thus temporary (Box 4.1). For much of this period, not only was the secretary relatively new in his tenure, but also congressional pressure for a major reorganization of the USDA was occupying major time and political energy of the secretary's office. This politically difficult reorganization involved combining action agencies with grassroots political influence into one national headquarters and closing or bringing their local offices into common locations (Office of the Secretary). Attention to ERS's need

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BOX 4.1 Leadership in the Bureau of Agricultural Economics, the Economic Research Service, and the U.S. Department of Agriculture Chiefs of the BAE 1922–1953 Henry C. Taylor 1922–1925 Thomas P. Cooper 1925–1926 Lloyd S. Tenny 1926–1928 Nils A. Olsen 1928–1935 Albert G. Black 1935–1938 Howard R. Tolley 1938–1946 Oris V. Wells 1946–1953 U.S. Secretaries of Agriculture 1945–1998 Clinton P. Anderson 1945–1948 Charles F. Brannan 1948–1953 Ezra Taft Benson 1953–1961 Orville L. Freeman 1961–1969 Clifford M. Hardin 1969–1971 Earl L. Butz 1971–1976 John A. Knebel 1976–1977 Bob Bergland 1977–1981 John R. Block 1981–1986 Richard L. Ling 1986–1989 Clayton Yeutter 1989–1991 Edward R. Madigan 1991–1993 Mike Espy 1993–1994 Daniel R. Glickman 1995- for permanent leadership was not paid until 1996, when the current administrator was finally appointed. As a part of continuing spending reduction efforts, the Office of Management and Budget in 1993 proposed to cut ERS funding for fiscal 1994 by a draconian 25 percent. At the time the administrator of ERS expressed the belief that "a cut of that magnitude will be supported by the department add by Congress" Lee, 1993a.) Such a cut would have required a huge personnel "reduction in

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Administrators of ERS 1961 to Date Nathan M. Koffsky 1961–1965 Melvin L. Upchurch 1965–1972 Quentin M. West 1972–1977 Kenneth R. Farrell 1977–1981, ESCS Administrator J.B. Penn 1977–1981, Associate Administrator for Economics John E. Lee 1982–1993 Katherine Reichelderfer (acting) 1993 Kenneth L. Deavers (acting) 1993–1995 John C. Dunmore (acting) 1995–1996 Susan Offutt 1996– Directors of Agriculture Economics and Assistant Secretaries of Agricultural Economics Willard W. Cochrane 1961–1964 John A. Schnittker 1964–1965 Nathan M. Koffsky 1965–1966 Walter W. Wilcox 1967–1968 Don Paarlbeg 1969–1977 Howard N. Hjort 1977–1981 William G, Lesher 1981–1985 Robert L. Thompson 1985–1987 Ewen M. Wilson 1987–1989 Bruce L. Gardner 1989–1992 Daniel A. Sumner 1992–1993   (position eliminated in 1994) force." This appears to reflect a then-prevailing dissatisfaction with ERS, including a perceived lack of responsiveness to clientele, and an alleged uneven quality of analysis including failures to understand the full context of some policy issues being analyzed. More than two-thirds of the reduction in ERS budget from its high point in 1979 has come since 1992 (see Table 3.1). Total ERS personnel numbers have declined by more than half from their historic peak in 1968, 37 percent of that

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decline having come in the brief period since 1992, when the mandated down-sizing began (see Table 3.2). To meet reduced personnel ceilings three early retirement buyouts occurred, further adding to the disorder in ERS during this period. Symbolic of the downsizing of ERS's professional research and analytic capacity during the 1990s was the 1994 demise of Agricultural Economics Research, a peer-reviewed professional journal established by the BAE in 1949 and published by its successors for 46 years. In addition, during the 1994 reorganization of USDA, the position of assistant secretary for economics (to whom ERS had reported) was eliminated . ERS was moved to report to the under secretary for research, education, and economics (Figures 3.2 and 4.1). ERS accounts for only 3 percent of the 1997 budget outlays for which the under secretary is responsible (Office of Management and Budget, 1998b, 1998c). Since biological science research accounts for most of the budget and activity for this under secretary's jurisdiction, over the long ran the position is most likely to be filled by a biological science researcher. In today's specialized world, the odds are against such a person's having broad policy experience or much understanding of economics. Figure 4.1 Reporting line for the Economic Research Service (ERS), 1994–1998. Source: Office of the Secretary, Memorandum 1010-1 of October 20, 1994.

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In the midst of this serious uncertainty and downsizing, acting Administrator Kenneth Deavers (1993–1995) managed a divisional reorganization. Subsequently, current Administrator Susan Offutt, also faced with downsizing, reallocated personnel and budgets in 1997 to reduce the number of divisions from four to three. The large shifts in priorities and the reward system over the 1990s have left ERS personnel confused. Many now wonder whether any of the broad categories of ERS products, objective economic research, policy and other analysis, or even basic information provided by secondary data (including S&O work) are still valued by the USDA—to say nothing about concern for an appropriate balance between such complementary outputs. The net effect on ERS of events in the 1990s have, been confusion, low morale, and a lack of clarity as to what the department or Congress expects of ERS. Future Direction of Policy The demand for ERS research, analysis, and secondary data and information services depends on the policy problems and agenda of the department and the economic and societal sectors it serves. To the extent that one can anticipate the direction that future policy is likely to take, one can envision the various kinds of products ERS should be prepared to provide. The nature of the agriculture sector is evolving rapidly. The organization of both production and farm input and farm product markets continues to proliferate into many separate production and market structures with different economic characteristics. This proliferation creates an increasingly diverse policy setting. Some parts of agriculture are being integrated into the chemical industry as sources of biological feedstock. Transgenic animals are beginning to be used to produce pharmaceutical products. Products and their markets are being differentiated and organized by consumer preferences. Biotechnology makes it possible to redesign a crop to fit specialized consumer preferences and different end uses. Some farmers no longer raise corn or soybeans, but rather a specific genetic type of plant for a specific end use. The growing number of genetically engineered crops, animals, and animal products are raising new issues. Questions about the safety of these new products for consumers and for the environment must be evaluated or otherwise dealt with. The current rapid concentration and contractual coordination of agricultural production and marketing firms, both vertical and horizontal, is now accelerating, especially those specializing in biotechnology-based products. The U.S. Patent Office received 4,000 patent requests for nucleic acid sequences in 1991 and 500,000 in 1992 (Enriquez, 1998). Seed, chemical, pharmaceutical, and biotechnology firms are merging to form highly concentrated new industrial structures (Service, 1998; Enriquez, 1998). Is there a significant public interest in industries in which monoploid concentration occurs? Clearly many of these biotechnology innovations will substantially increase the yields and output of some farm

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products. On one hand, will the innovations in my of these product markets compound the classic farm problem of income depressed by steady increases in output in the face of inelastic demand for the product? On the other hand, have improved information, new technologies, and new institutions in some markets offset the forces of the classic farm problem in some markets, eliminating the need for government intervention? Certainly there is no suggestion in current agricultural price and income problems that asset fixity or specificity of asset use in farming and its destabilizing consequences have disappeared (Kilman, 1998). Agriculture and agricultural markets, once organized around fairly standard bulk commodities, are breaking up into many different products, production processes, and differentiated markets. Increasing numbers of agricultural markets face global competition. Information technologies and changes in public regulations are facilitating a massive reorganization of agriculture. Previously settled property rights are being modified, especially by the biotechnology and information technology revolutions and by adjustments to globalization. Although it is hard to tell where these changes will end, the road ahead is bound to be a bumpy ride for farmers, farm- and food-sector firms, and those with public-sector responsibilities. It especially has to be appreciated that the rate of change in the food system is accelerating rapidly. Also, this transformation is not limited to the farming sector but includes the entire food system, from farm input industries, farm product processing and manufacturing, to food marketing through the retail level. What be am of the world food system will eventually look like and who will control it, or it, various components, are not clear at this point. What is clear in the United States is that the traditional agriculture of many independent farms dealing with competitive farm product processing and marketing firms, all coordinated by a relatively transparent set of open domestic and international markets, will be a far smaller and shrinking part of the food system. Coordination of the newer evolving structures is likely to be dominated by direct vertical and horizontal integration and control or by contracting arrangements or some mixture of direct integration of functions and contracting. Many of the integrated firms or contractual systems will be global in scope. Indeed, many food system firms are multinational now. What were once open markets will in many cases disappear or become perilously thin. A large part of food and agricultural market information will become proprietary or unreliable and difficult to retrieve for other private or public uses. Despite these difficulties, comprehensive production, price, trade, and finance statistics will still be a necessity for public policy and private business planning. The prospect for the short-term of two to three years is one of great uncertainty. The longer run of five years and beyond is seen as one of far greater uncertainty, as industry analysts and participants anticipate a tidal wave of changes in technology, industry structure, and financial control, as today's already changing food system is pulled apart and reorganized in entirely new ways. In turn, public policy for the food and agricul-

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ture system has not encountered the uncertainty it now faces since the Great Depression, when most of the institutional and policy framework of the last two-thirds of a century was put in place. The trend in U.S. agricultural and trade policy toward reduction in market protection and direct subsidies is likely to continue as long as trade expansion remains a dominant policy objective. This trend does not mean that eventually there will be no public policy applied to many of these differentiating markets—as some policy participants and analysts seem to expect. Instead of price and production controls and direct subsidies, a heterogeneous mix of various regulatory regimes is likely to prevail. Some subsectors of agriculture will become much like other parts of the industrial and commercial economy that experience little or no direct government control. However, markets do not exist without rules, both public and private. Even if the traditional farm programs come to an end in 2002, market participants, depending on their problems, are almost sure, like those in other economic sectors, to lobby for or against other types of regulation—e.g., setting standards, modifying the tax code, and changing property rights and market rules. Just as in other sectors, there will be regulatory efforts to extract subsidies and create protections that are not as visible and vulnerable as direct budget subsidies and price supports. This greater complexity of the food and agriculture sector will create more, not less, demand for policy research, analysis, and secondary data. The emphasis will be on analysis of business practices and complex, less transparent regulations rather than the direct price and production interventions of the traditional farm programs. Agricultural, food safety, natural resource, and environmental problems and regulation are no longer domestic but rather international policy issues. Capital and financial markets and many commodity markets are now global in scope. Because of the ease and speed of transportation and communication today, border controls can no longer enforce domestic policies as effectively as they once could. Political pressure grows for internationally agreed-on common policies or regulations (Cohen, 1998). Some former national powers and policy responsibilities are moving to the international arena, as others are moving to subnational levels of government and to private-sector institutions. Old institutions are being modified and new institutions created (Guéhenno, 1995; Mathews, 1997; Rodrik, 1997). International trade treaties have become an omnibus vehicle for achieving multiple policy goals in agriculture, labor, natural resources and the environment, health and food safety, and other areas. This internationalization is leading to the creation of international regulatory institutions and to a greater role for international organizations in policies and policy making (Schuh, 1991; Bennen et al., 1997). All of these changes contain dimensions requiring research and policy analysis for understanding the problems as well as creating needs for many new categories of secondary data and information. The future for USDA and ERS appears to be even more difficult to deal with than the present. Until new national and international institutions of market and

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public governance evolve to order this complexity, greater political and economic uncertainty will prevail. The optimal design of institutions is an important and researchable question. Both on the domestic and the international scene, we appear headed toward regulatory policies that in subject matter and scope of regulation will be more complicated. The institutional structure to implement policy is likely also to be more of a maze, with problems of overlapping areas of authority among national as well as international regulatory bodies. USDA needs to ensure its capacity to deal with this new world. Much as when it faced open-ended uncertainties in the Great Depression, USDA will, if it is wise, turn to its economic and social science research and analysis capacity for support in understanding and contending with its responsibilities. Agricultural commodity production is by nature location-specific, involving millions of different ecosystems and greatly differing conditions of production. Nevertheless, worldwide competitive pressures on many older production regions are growing due to (1) newly developed areas of production, (2) the recovery of agricultural productivity in some former command economies, and (3) the impact of biotechnology and other technological and institutional innovations that lower unit costs or create substitutes. The processing of commodities does not have this location specificity and thus can be located anywhere that transportation facilities, resources for processing, and access to markets are available. Nations, including the United States, cannot assume in their policy making that there are no alternative locations in the world for the further development of their natural resources beyond the primary production level. When markets are increasingly global, so is competition. The need for research and policy analysis on natural resource and environmental problems will continue to grow, as worldwide population and economic growth put additional pressure on the natural resource base and the environment. Responding to his pressure will be in some part a USDA responsibility, since the natural resource base of the United States, as elsewhere, is located mostly in rural areas and is, for public policy purposes in the United States, the responsibility of the departments of Interior and Agriculture and of the Congress. Research on consumer interests in food safety, nutrition, and related food matters are also likely to become more important. This increasing importance is inevitable as consumer preferences dominate and differentiate domestic and international markets as never before. As many of these markets become global and highly coordinated or vertically integrated and concentrated, market performance, anticompetitive practices, and antitrust issues will be raised. Issues and Problems Facing ERS and USDA Today ERS faces a series of problems, some persistent dilemmas, and other

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more recent challenges. ERS can resolve some, but there are other problems that only the secretary of agriculture and the Congress together can address. Balance Among Products ERS, and the Bureau of Agricultural Economics (BAE) before it, have produced three overlapping, highly complementary, and often integrated products: (1) intermediate and long-term research, (2) policy analysis, and (3) with the National Agricultural Statistics Service (NASS), the basic information and intelligence base for policy decisions in food, agriculture, and rural resources, both public and private. ERS's contribution to this third broad category is not basic data collection and its initial processing, which is the role of NASS, but rather secondary data development and related analysis. This ERS product, sometimes called value-added information, involves combining data sets from diverse sources and processing such data through various kinds of analytic models and accounting systems to produce indexes, income and other financial estimates, and different types of projections and forecasts. Perhaps the most visible of these secondary data and analysis products are various ERS indicator series and the many Situation and Outlook (S&O) reports on different dimensions of the U.S. and global food system. Since the early days of the BAE, it has been clear that there is little or no consistent demand or any associated political support for long-term research. Such research is the necessary—but generally unrecognized—foundation for high-quality, shorter-term applied analysis of problems and policy questions, and for the development of new or revised secondary data and its analytic structures. The other foundation for good-quality policy analysis is current market intelligence and related institutional knowledge, including policy and political behaviors. It is clear that some secretaries of agriculture and some administrations have valued ERS policy and problem analysis, but others have act. The only consistent demand for ERS products has been the broad public and private usage of basic information and intelligence on food, agriculture, and natural resources, including its packaging as various economic indicators and S&O reports. This leaves ERS with the difficult problem of finding support for and, with increasingly limited resources, sustaining an appropriate balance among (1) intermediate and long-term research, which has not been supported well in either USDA or the Congress, (2) various type of problem and policy analysis, which is inconsistently supported by the Office of the Secretary and Congress, and (3) the secondary data and analysis function. The recent ERS attempt to reduce resources in S&O activities led to organized political opposition from private-sector clientele, USDA action agencies, and the Congress. It would appear that indicators, S&O intelligence, and related basic information are the only highly visible, broadly valued, and consistently supported ERS products. All three of these products are necessary to the quality of the others and to ERS's capacity to

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perform well. But there appears to be little recognition of this complementarity by clientele or by USDA. Both the BAE and ERS have faced this dilemma without the capacity or support to resolve it in any satisfactory fashion. Over the nearly four decades of its existence, some ERS administrators have understanding better than others the complementarity of the three categories of ERS products and the necessity for support from the Office of the Secretary and the Congress. Different Internal Cultures Both experience and bureaucratic theory indicate that, to achieve clearly defined, singular goals, an organization can be most effectively managed in a centrally controlled hierarchical structure with a clear, formal chain of command. However, when goals are not clear or are subject to large uncertainties, a less hierarchical, more decentralized and informal decision process works far better. In ERS, the conduct of basic research usually falls into the latter category, whereas information products and services fall into the first, more typically bureaucratic, category. Thus, there has long been a dilemma faced in managing ERS, whether recognized by its leadership or not: it is the conflict between the hierarchical organization of government and the need for decentralized, more informal, interactive research leadership. The branch chiefs and division directors want to know when their lines are being traversed, but researchers just walk down the hall and exchange information across bureaucratic lines. The formal organization conflicts with the informal organization. Some administrators have encouraged and abetted this duality because it was productive, and some have pressed for more central control. Shifts from decentralized research decisions to relatively centralized control over research have changed not only with leadership preferences but also with technology. Examples are the shift from decentralized typewriters and word processors centralized word processors and from decentralized, unnetworked personal computers (highly decentralized) to desktop computers attached to one central computer (highly centralized) to networks among personal computers (capable of either). The dilemma lies in the fact that the management system that is ideal to achieve good-quality research is out ideal for the information and systematic intelligence output of the agency—and vice versa. Good management of the policy analysis function would seem to lie in a mix between the two extremes. Organizational Support In the budget reduction environment of recent years, mother long-time problem for ERS has become more intense. ERS must work its way in a highly political environment dominated since the 1930s by action agencies that are po-

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litically well-connected to organized clientele and the Congress. As Chapter 3 shows, government research and analysis agencies do not compete well for resources sources with strong clientele-based program agencies. In this environment, the question of who does or must support government research and analysis capacity, if that capacity is to survive, is relevant and, in the case of ERS, it appears to be urgent. Although the primary and most direct customers of ERS products are the Office of the Secretary and the Congress, historically it is clear that consistent protection and institutional support of ERS have not been forthcoming from either. One active policy participant and analyst has observed about support for ERS (Doering, 1991:19): The fact that ERS has no clear client base and client service relationship (other than the Secretary of Agriculture) robs it of a definite base of support and the assurance of a stable and safe agenda. Its clientele are going in different directions wanting different things. The White House is a distant and unconscious though dependent user of ERS intelligence and policy analysis. The White House is too occupied by larger questions to be concerned about ERS. The Office of Management and Budget (OMB) in the Executive Office of the President is another matter. OMB has a conscious, direct stake in the quality of ERS products. Although it is dependent on ERS products, in recent years the executive budget for ERS has been cut far more deeply than for the entire USDA. This appears to reflect a dissatisfaction with ERS performance. The action agencies of the USDA are in many cases suppliers of information to ERS as well as important users of all ERS products. But they either presume ERS will always be there for them or, as likely, are nervous over whether ERS research and analytic results will support or undermine their programs. Many, though not all, are quick to criticize results they do not like and tend to support ERS only in a negative way when ERS proposes, as it did recently, to stop providing some product or service the action agencies use regularly. That way, they suddenly discover that ERS is doing something of value. Many private-sector market and policy interest groups depend on ERS information and research products, but they also tend to behave in the same way. Similar behavior can be found among academics who one dependent on ERS products. The agricultural economics profession as a whole is dependent on ERS research and information products and on ERS membership and participation in the American Agricultural Economics Association. Since the 1980s and the withdrawal of ERS field staff from university departments of agricultural economics, the high levels of interdependence and mutual support that characterized the period of the 1930s through the 1970s or so have all but vanished. With this change, conscious attention to and support of ERS among agricultural economists also seems to have declined. The depth of cuts in ERS budgets in the 1990s need explanation beyond the

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effort to reduce budget deficits. Diverse reasons have been alleged for the apparent lack of support for ERS. The possibilities raised range from significant ERS performance failures, unrealistic and conflicting expectations of ERS, belief that ERS analysis was on occasions politicized by USDA, to a few instances of supposed denial by the secretary's office of access to ERS products. No matter the degree of validity or generality of these criticisms, they create a perception that must be dealt with. Otherwise ERS will have little chance of achieving the full potential of a federal research and analysis agency. Three things are clear. First, ERS needs to work in improve its customer satisfaction and support—whatever the sources of its problems are. Second, the Office of the Secretary and the appropriate units of Congress need to establish a common set of rules and expectations to govern their and other user access to ERS products. Third, the appropriate future role of ERS, its product mix, and resource constraints need to be jointly assessed by USDA, ERS, and major users of ERS products. Expanding Scope of Responsibility and Shrinking Resource Base Over the life of ERS, an expanding USDA agenda of policy issues and problems has created dilemmas affecting almost every dimension of ERS's performance. Not only has the diversity of information and analysis demanded of ERS substantially increased, but also, ever the entire period, its real resource and personnel base has seriously eroded (see Tables 3.1 and 3.2). The ERS potential solutions must either stabilize the resource base or define its mission more clearly and perhaps narrowly, if it is to regain the quality of performance of which it has been, and should be, capable. ERS has faced many negative external influences and constraints on its performance over the years. During the 1990s, as several respondents observed, it has been ''jerked around continuously" with little concern in USDA for the stability or integrity if its functions. In this disorder and conflicting expectations, many of its best young economists and even more of its most experienced professionals have left for more promising positions elsewhere in government, academia, or business. At the same time, recruiting either has been constrained by downsizing or has simply not succeeded in attracting the best candidates. Morale is low and the current role of the agency continues to lack clarity. Many of the professional staff do not believe their work on the different but complementary ERS products (research, various types of analysis, and secondary data and information) is or will be rewarded. Such a situation cannot be allowed to continue, if ERS is to perform well or even survive. Over the years, it has often been alleged that the quality of ERS performance and that of its staff has declined. Such statements have been made since the 1970s but were then being measured against the record of the BAE of 20 to 30

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years earlier. BAE economists were an intellectually dominant element in a very small agricultural economics profession. By the 1970s, both the quality and size of academic faculties and the number of Ph.D. programs in agricultural economics had tripled or more. The ERS of the 1960s and 1970s still had many of the BAE economists plus outstanding newcomers, but ERS, although the same size, had a smaller relative presence in a much larger, growing profession. It no longer dominated the profession, but it was not accurate to say that either the quality of the ERS staff or its performance had eroded. The ERS of the 1990s is an even smaller, though still significant part of the agricultural economics profession. Today, there is widespread perception that the quantity and quality of ERS products are not what they should be, given the number of professionals in ERS and the size of its budget. These reservations about the capabilities of ERS are becoming more acute as ERS is asked to address an ever-widening range of serious economic issues. Historically, ERS operated with a mandate that was heavily circumscribed, relative to what it is asked to do now. The professionals who could best meet this mandate were produced almost exclusively by graduate programs in agricultural economics, In turn, a career in ERS was an attractive opportunity for many of the best students in these programs. Relative salaries for academics were lower, and until the 1950s ERS dominated the market for recently trained Ph.D.s in agricultural economics. Private-sector opportunities for agricultural economists were less plentiful. When agriculture was a sector that could not be ignored in national politics, a successful career professional in ERS could reasonably expect to have a significant impact on turn policy. Today a professional with these ambitions is likely to look elsewhere, as the responsibilities of ERS have grown and compete for impact on policy. Today, ERS is asked to address a much broader scope of economic issues. For many of these issues, professionals who can best do the required work are just as likely (if not more so) to be the products of graduate programs in economics and some other social science disciplines, as of agricultural economics programs. Although ERS has broadened its recruiting efforts beyond the land grant universities over the past decade, its mix of staff expertise is still short of that needed to respond to the growing scope of issues facing USDA. Even more telling, salaries and other dimensions of career opportunities in the academic and private sectors are much more attractive than they once were. These two circumstances critically limit the ability of ERS to provide research, analysis, and information in emerging areas of responsibility that is both of high quality and is perceived to be of a quality, comparable to the best that could be obtained. These difficulties in meeting the broadened mandate of ERS with the work of career professionals have been compounded by several other factors. First, it has been difficult for ERS, or any other agency, to reward their best professionals with rapid advancement, and at higher levels to offer substantial advancement

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that does not entail administrative responsibilities. Second, the fractious political environment in Congress, and between Congress and the executive branch, has meant that policy makers have intervened more heavily in ERS agenda and publication decisions. Third, both current and former ERS professionals perceive that what is expected of them has changed drastically, as ERS administrators and division directors, plus USDA political leadership, have come and gone. The best graduates of economics and agricultural economics graduate programs have choices that largely avoid these problems, in positions with the same or better salaries and opportunities for advancement. The best professionals in ERS have also had these opportunities, and many have taken them. There is thus ample basis for concerns about the quality of ERS performance, in the future as well as today. But these concerns are also a reflection of the larger scope of new USDA policy and information need embedded in an inconsistent and conflicting set of priorities held by a diverse set of new and old clientele, all colliding in the context of a progressively thinner ERS resource base. Academics, for example, cannot happily continue to criticize ERS performance, while discouraging their better students from considering ERS employment and still expect ERS to provide a high-quality, comprehensive, information, and analytical base for the profession—as it now does. The critical problem is that ERS, like USDA, is now trapped between the politics and political pressures of older, mostly agricultural clientele and newer USDA clientele and issue advocates. But ERS has little or no capacity in resolve the growing conflict over priorities for the use of its limited resources. That responsibility lies in the Office of the Secretary and the Congress. The future of the ERS information and analysis base is clearly at hazard today, a situation that few of the major users seem to be aware of. Although there are today other sources for some of ERS products, both within USDA program agencies and in the external public and private sector, there is clearly no real alternative for much of what ERS can do. If any value is placed on high-quality research, analysis, and secondary data that is independent of political bias or private interest, it is time to act. Although it is difficult to judge, it should noted as well that some critics of ERS do not believe the agency has used its resources effectively. In the judgment of one historian of ERS (Bowers, 1990:234–235): Its success or failure would depend more than most agencies on the quality of its work, especially as perceived in the Secretary's office. If it could do high quality, unbiased, and timely work, adapt its organization to changing needs, avoid political mine fields, it might prosper. If not, it might meet the fate of its predecessor with no voices raised to defend it outside of the economic profession. Agriculture Does Not Count Anymore USDA and ERS have a continuing problem in serving both their older agricultural clientele and all the new clientele that have entered the USDA's legisla-

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tive coalition since the 1960s. There is a tendency for some groups and individuals in USDA—and outside—to accept an "Agriculture does not count anymore" theory. It is true that the politics of the USDA mission are now dominated by a wide variety of causes and organized interests. And although the political clout of farm and agricultural business groups to create new benefits has been eroded (as has that of most of the older political interests in Washington), they still appear to have the defensive power to protect their interests against assault in the political combat inside USDA and in the Congress. Consequently, the all-too-common habit of setting one group against another in what is a fragile coalition is politically dangerous, especially for politically neutral units like ERS, which to survive must be allowed to serve the diverse claims on its expertise. As the first director of Agricultural Economics put it, ERS "must be prepared to respond regularly and effectively, without compromising itself, to the economic analytical needs of the Office of the Secretary; it must understand and appreciate the intelligence needs of the Congress and find ways of satisfying those needs without coming into conflict with the administration in power; and it must recognize and anticipate the information and intelligence needs of a diverse national public and develop effective channels for meeting those diverse needs" (Cochrane, 1983:30). It is clear today that ERS cannot achieve this without, at a minimum, both Congress and the secretary's support and understanding of the nature and limits of a federal research and analysis agency. At the same time ERS must be provided clear political direction with a consistent set of expectations and rules, if its behavior and performance are to meet professional expectations, including those of its diverse clientele. Impact of ERS Location in USDA The early BAE (1922–1938), like all USDA agencies, reported directly to the secretary of agriculture. In the 1938–1946 period, during which the BAE became the planning staff for the secretary, the BAE was moved to within the Office of the Secretary. This politicized the BAE and its secondary data and analysis functions and led to the demise of the BAE in 1953, when party control of the executive branch changed. When the ERS was established in 1961, it reported to a director of agricultural economics (at the assistant secretarial level), who reported to the secretary of agriculture and, for some matters, to the under secretary of agriculture. In that era, an under (later deputy) secretary handled most of the internal day-to-day management of USDA, while the secretary had a full-time job dealing with the Congress, the White House, and the politics of agriculture and clientele groups. The director of agricultural economics (later assistant secretary for economics) was the chief economist and economic adviser to the secretary and an experi-

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Figure 4.2 U.S. Department of Agriculture headquarters organization, 1994–1998. enced professional economist. Also reporting to the director/assistant secretary was a small policy analysis and advisory group (selected by the director/assistant secretary) that handled highly political, quick turnaround demands, keeping prescriptive political and policy advice at the political level and thus insulating ERS from direct political involvement. This arrangement worked reasonably well from 1961 to 1993. It was less effective in periods when ERS was temporarily merged with two other agencies (1977–1981), and when the Office of the Secretary was held by individuals who operated as their own economist or, more frequently, by individuals who ignored economic analysis and advice and based their decisions entirely on the political process. In the 1994 reorganization of the Department of Agriculture, all this changed. The assistant secretary for economics was eliminated. Why is not clear. Perhaps the secretary had little use for economic analysis, or perhaps the position was wanted for another purpose (the number of presidential appointment positions in a department is fixed by law); or again, under White House pressure to reduce the number of USDA agencies, internal politics led action agencies and clientele to rid themselves of a highly visible economic adviser with whom they were often at odds. ERS was moved to report to an under secretary for research, education, and economics (see Figure 4.2). The small policy analysis and advisory group, which had reported to the assistant secretary for economics, moved to the Office of the Secretary of Agriculture as the Office of the Chief Economist, where its director became the economic adviser to the secretary.

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This arrangement has left ERS and NASS isolated from the policy process, making ERS support of the chief economist at best awkward and inefficient. The Office of the Chief Economist is left without the unhindered access to analytic and research support needed to sustain its potential capacity. The current arrangement creates ambiguity in the reporting line for economic policy and the potential to isolate ERS. ERS Mission The expectation of the early directors of agricultural economics that ERS would provide all economic work done in USDA was never a realistic goal and was never achieved. Partly in an effort to deal with the analysis that ERS provides the secretary, individual program or action agencies have long employed their own economic researchers and analysts, often hired from ERS ranks. In addition, from the early days of the BAE, the leadership of some action agencies has attempted to acquire the sections of the BAE or ERS and/or the professionals assigned to work on the when agency's programs. Today, more economists work in the action agencies of the USDA than in ERS. The current role of ERS in serving USDA agencies urgently needs to be clarified and stabilized. More attention needs to be devoted by the secretary's office to creating a productive ERS-USDA agency relationship in a USDA environment that is again rapidly changing. The ERS mission of providing research, shorter-run problem analysis, and

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secondary data does not appear to have changed. The mix of services has fluctuated with the pressures exerted by the changing problems facing USDA. Although the farm sector, narrowly defined, accounts for less than 2 percent of gross domestic product, the total food and agriculture sector accounts for about 16 percent. The output of this sector is a significant proportion of U.S. exports, reflecting the technology-based comparative advantage of the United States in agricultural products. Besides its food and agriculture mission, USDA has major responsibilities in natural resources and environmental policy, food safety, rural development, and the welfare system, all of which in varying degrees now have global dimensions. The vastly expanded scope of policy issues and problems needing research and policy analysis has had the most significant impact on the ERS mission. The mandate of USDA, and by extension that of ERS, extends into broad issues of environmental and natural resource policy. The increasing interdependence of domestic economic sectors, the globalization of financial and commodity markets, and the institutional implication, of revolutions in information and biotechnology are creating interdependencies that require major multidepartment policy responsibilities. Demand for USDA collaboration in research with other parts of government is growing. This is evident in the diversity of ERS research and information services over the last decade. In part because of the lack of significant intramural economic research capacity in many cabinet agencies, ERS has increasingly been called on for collaborative or contract research. The demands for new skills and greater diversity in expertise and the large decline over time in real resources and personnel ceilings leave USDA facing the question: Should ERS resource be increased, or should ERS cut the scope of its mission to fit its resources, and if so, where should the cuts come and what is the appropriate balance between different ERS products? It is not clear today what the secretary or the Congress expect of ERS. It is clear that their expectations are frequently inconsistent. This needs to be clarified if ERS is to be effectively supported, organized, and led. ERS cannot by itself resolve this dilemma. It can substantially affect but not control its future.