Agricultural Policy, Technology Adoption, and Farm Structure

The linkages among farm policy instruments, technological introduction and adoption, and the structure of agriculture are illustrated in an economic model. The model shows that policy merely delays, but cannot prevent, the consequences of technological advance. New technology permits fewer farms to produce more output at lower cost, and ultimately About the same per-farm profit, than possible under the old technology. Producer-preserving policies encourage more farms to adopt the new technology than the market will support and impose adjustment costs as these farms exit after switching technologies rather than directly leaving the sector. Exit annuity payments could facilitate the adjustment process at less than one-third the cost of current program instruments, and benefit both the exiting farmers and those who remain in business.