Macroeconomic Linkages to the Agricultural Supply Chain

This chapter is motivated by the seminal contribution of Gordon Rausser and his colleagues regarding macroeconomic linkages with the U.S. agricultural and rural sectors and the implications this had for policy formation. The chapter provides a general background on monetary and fiscal policy over recent decades in the general economy and points out some of the important contributions made by Rausser and his students and colleagues. It considers the effects of monetary and fiscal policy on agriculture and the rural economy in the context of agricultural sector and macroeconomic modeling. The discussion then turns to how the agricultural sector has changed in the past few decades, especially as it relates to the changing organization of much of developed agricultural from vertically linked perfectly competitive commodity markets to concentrated supply chains linking production and marketing. The stylized supply chain incorporates three levels of exchange, including farm-level production, processor, and retail levels. The model includes equations representing import and export decisions by participants at each stage in the supply chain to capture the important role international trade continues to play in many key agricultural supply chains. With supply chains where retailers and processors exercise market power, farmers receive a lower share of the consumer dollar and must also absorb much more of the total market response created through macroeconomic shocks. These results suggest new lines of research for agricultural supply chains and their linkages to the rest of the economy and a continuing need for the work initiated by Gordon Rausser and his colleagues to better understand the market and policy implications resulting from macroeconomic linkages to food and agriculture.