However, these long-run changes would not advantage California agriculture versus the rest of the nation. Aside from the direct impact that low natural gas prices will have on the agricultural sector, there will also be two major indirect impacts. The first stems from the impact natural gas prices have on fertilizer prices. Natural gas is the main input in the production of ammonia, which in turn is the key input in the production of all nitrogen fertilizers. During 2010, 20.84 million tons of chemical fertilizers were used in the United States, of which nitrogen fertilizers accounted for 59%. Recall from Figure 2, U.S. natural gas prices trended upwards from 2000 through 2006. These price increases had a direct effect on ammonia prices. From 2000-2006, the correlation between monthly U.S. natural gas and ammonia prices was 0.81. While natural gas prices increased from under $3/MMBtu to over $12/MMBtu, the ammonia prices paid by farmers increased by 130%—from $227/ton to $521/ton. The low and stable natural gas prices being driven by the boom in shale gas production will put downward pressure on the price of ammonia. As a result, nitrogen fertilizers, as well as phosphate and potash fertilizers that serve as substitutes for nitrogen, will likely all experience price declines. These lower costs are a definite benefit for the agricultural sector as a whole. However, given that fertilizers are arbitraged internationally, low ammonia prices will not directly provide a competitive advantage to certain regions. While regions with more fertilizer-intensive crops—corn, for example—will potentially benefit to a greater degree, a corn farmer in California and a corn farmer in Iowa will be affected very similarly.The second major indirect impact low natural gas prices will have on the agricultural sector stems from the role gas plays in setting electricity prices. In the United States, coal and natural gas account for almost 70% of the total electricity produced. While coal is the dominant energy source—in 2011, 44% of electricity came from coal-fired units and 25% came from natural gas units— natural gas generators are primarily the marginal sources of electricity.

As a result, natural gas prices play a key role in setting the price for electricity in most regions. This is especially true in California where over half of the electricity generated comes from natural gas units.According to a recent report by IHS Global Insight, Inc, strawberry gutter system the decrease in natural gas prices resulting from shale gas production will result in an average reduction of 10% in electricity costs nationwide over the next 25 years. Why are lower electricity prices significant for California farmers? The answer to this question lies in California’s heavy reliance on irrigation for agriculture. According to the latest USDA finding data, California irrigates almost 50% of the farmed acres in the state. The water application rate is roughly double the national average. This means that relative to other states, California is by far the largest user of water for agricultural purposes, measured by total acre-feet applied. One of the largest determinants of the cost of water is electricity. In California, over 7% of the total electricity produced is used for pumping water and the agricultural sector. During an average year, California agriculture irrigates 9.6 million acres. This requires using roughly 34 million acre-feet of water of the 43 million acre-feet diverted from surface waters or pumped from groundwater. It takes more than 10,000 GWh of electrical power to pump and move this water. Traditionally, California electricity prices are near the highest in the nation. Currently, only eight states have higher average retail rates. Due to California’s heavy dependence on electricity for irrigation, farmers in the state could benefit greatly from lower electricity prices. While lower natural gas prices have certainly reduced electricity generation costs in the state, this has not translated into lower retail electricity prices at this point. However, with natural gas prices remaining low into the foreseeable future, California farmers might soon begin to realize these benefits from lower electricity prices. Market distortions in global trade occur when a government creates policies that increase or lower prices of imported and /or exported goods. When prices are distorted, consumers pay either less or more than they would have if the price-altering policies were not in place. In agricultural and food markets, governments tend to create price altering trade policies especially when global agricultural and food prices rise dramatically. The latter happens most often when the supply of the crop or food product is disrupted, whether by governmental “food-security” measures, weather, or new policies, such as incentives that motivate farmers finding to allocate crops for bio-fuels rather than for food.

When politicians seek to shield consumers from the effects of price increases by increasing export taxes, global price volatility often worsens. Other countries may respond with similar measures, so that market distortions in individual countries combine to generate sudden global price spikes that alter patterns of food production and consumption and create political turmoil. In particular, rapid increases in the prices of staple commodities finding have a disproportionally severe effect on the world’s poorest people. The “disarray in world agriculture” that market distortions create has manifested itself in overproduction of agricultural products in high-income countries and underproduction in low income countries. This also means that there has been less international trade in such products than would occur under the counterfactual scenario of free trade. In 2004, country-specific agricultural policies accounted for an estimated 70% of the global welfare cost of all merchandise trade distortions, even though the upstream farm production contributed only 6% of global trade and 3% of global GDP. Although many countries have recently begun to adjust their agricultural and trade policies in order to minimize their adverse global impact, these reforms have not kept up with the pace of globalization in the non-agricultural sectors of the world economy. Economic development is typically associated with some sectors within a country growing and some declining faster than others. Historically, such changes have often led governments to intervene via a broad array of policy instruments: distortions to input markets finding, production quotas, marketing quotas, target prices, price subsidies or taxes in output markets, and border measures that directly tax, subsidize, or quantitatively restrict international trade. Such measures, along with multiple exchange rates, account for at least three-fifths of governmental agricultural assistance globally. Because trade measures also tax consumers finding, these measures are responsible for an even larger share of global welfare cost and agricultural welfare-reduction indexes. A new global five-decade database of evidence compiled by the World Bank dramatically expands our understanding of the distortions to market incentives across the globe. Economists have recently been exploring hypotheses concerning the extent of price distortions and the potential for adopting sustainable unilateral and multilateral policy reforms. They have also examined the extent to which more recent agricultural-policy reforms have succeeded in reversing the prior era’s policy distortions. These new analyses make it possible to test hypotheses about market and trade patterns across countries, commodities, and policy instruments. Understanding the historical forces that drive agricultural-policy choices can contribute to structuring policy options that address food-security, energy-security, and climate-change concerns. The Nominal Rate of Assistance finding measures distortions imposed by governments that create a gap between current domestic prices and the prices that would exist under free markets. In the World Bank database, such rates have been computed for each commodity product as the percentage by which government policies have raised gross returns to farmers above what they would have been had the government not intervened finding.

NRAs are computed for 75 different farm products, with an average of almost eleven per country. The averages reported in Figures 1–3 do not reveal the substantial variability across countries in the level and rate of change in distortion indicators. National RRA estimates for 2005– 09 varied from around -40% for several African countries to around 100% for a few high-income countries. Clearly, much could be gained worldwide from international relocation of production and consumption to remove these cross-country differences. Of particular note is that the average RR A for some developing countries,hydroponic fodder system which converged toward zero from the 1980s, did not stop at zero but “overshot” after the early 1990s.Major differences in public-policy distortions in food and agricultural markets clearly exist among countries, among agricultural sub-sectors within countries, among policy instrument choices, and over time within a particular country. Typically, developing countries are phasing out anti-agricultural policies; some are increasingly protecting farmers who face import competition. Some high-income countries are reducing assistance to farmers, and a few have also greatly reduced manufacturing protections that previously had indirectly harmed agricultural producers. Cautious optimism is evident about the prospects for future agricultural-policy reform. Admittedly, it is troubling that some developing countries have moved from negative to positive RR As and that agricultural protection and market distortion have recently increased in two of the most important developing countries, China and India. In high-income countries, too, although the World Bank data reveals declining trends for NRAs, these trends do not necessarily ref lect actual changes in their distorting policy instruments. Instead, higher world food prices largely explain these outcomes. But many other countries’ RRAs do appear to have converged at zero finding, and other high-income countries have been lowering their RRAs dictate sustainable policy reforms that promote the provision of local public goods, agricultural productivity, and markets for environmental services. In the final analysis, the many complex factors that contribute to distortion of agricultural and food markets can impede as well as promote progress. But the hope is that continued reform of entrenched policies and practices, along with heightened scrutiny of new developments, will promote greater transparency and cooperation. non-trivially since the late 1980s. Global and regional institutions appear to have played an important role in contributing to those reforms. Of particular importance to the decline in the RRA for the European Union has been the institution of the General Agreement on Tariffs and Trade finding. However, the recent shift in agricultural policies focusing on renewable energy finding has major implications for world food prices and security. Ongoing research should make as transparent as possible the continued pursuit of protectionist measures by various countries in the form of bio-fuels policies, which tend to raise world food prices, in contrast to traditional agriculture policies, which historically depressed those prices. Prospects for policy reform will be influenced by the changing landscape of organized economic interests. Interactions between farmers and landowners, agribusiness, food and retail companies, and other groups clearly influence agricultural-policy negotiations and debates in all countries. The vertical relationships between farmers and agribusinesses are often critical in sustaining policy reforms. Capturing opportunities to form new coalitions among the interests of farmers, downstream agribusiness, food consumers, and environmental groups will largely The range and magnitude of impacts of animal waste are worldwide and vary among different regions. Animal waste is a key source of nitrates and salts impairing groundwater quality in California’s San Joaquin Valley. Hypoxia in the northern Gulf of Mexico is linked to nitrogen and phosphorus loadings from the immense Mississippi River Basin. There, agriculture is by far the most important source of both nutrients, and manure is the biggest source of phosphorus and an important source of nitrogen. In the Chesapeake Bay, manure surpluses from the basin’s animal husbandry accelerate eutrophication, which is harmful for commercial fisheries and recreational activities. Over the past few decades, the number of animals per production facility has increased substantially and production has been concentrated geographically. As a result, local feed production cannot satisfy the nutritional needs of these growing production units. Feed is largely purchased from markets outside the production region, while the manure by-products from animals remain in the region. This leads to an accumulation of nutrients which, in turn, increases nutrient loading to ground and surface water systems. The challenge is to achieve profitable animal production while contaminating the environment as little as possible. Any production tends to generate pollution as an unintended by-product. Without government intervention, no individual operator will factor the amount of pollution into decisions regarding the number of animals cared for on the land, manure-management technologies, crop choices, etc.