ABSTRACT
Rapid growth of agricultural exports coupled with the switch to floating exchange rates in the early 1970s increased the sensitivity of agricultural commodity prices to domestic and foreign macroeconomic policies. Banking deregulation has served to integrate rural financial markets into the national money markets, making the interest rates farmers pay on their loans and receive on nonfarm investments far more sensitive to national economic conditions. There are at least two important differences between farming and other production activities: everyone depends on food for life, and farming is conducted in an uncontrollable environment. The first difference makes it clear that the public has serious and legitimate concerns about the efficiency and reliability of the agricultural industry. The second difference implies that farmers face larger risks than other producers, and without public intervention, such risks lead to the underproduction and the overpricing of food. The chapter also presents an overview of the key concepts discussed in this book.
