Washington Insider -- Monday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

More Young Farmers Entering the Profession

For years, there has been a public worry about the advancing age of U.S. farmers, with the prototypical agricultural producer seen by many as someone in his 60s or 70s.

Last Friday, USDA issued the results of its twice-a-decade Census of Agriculture that show that things may be turning around. According to the department's summary, more than 20% of U.S. farmers have operated their farms for fewer than 10 years and the number of young, beginning principal farm operators is up 11.3% since the last Census of Agriculture in 2007.

The disparity in farm size and income remains, however. There were 2,109,303 U.S. farms in 2012, of which 813,183 (38.6%) comprised 49 or fewer acres, but the average farm size was 434 acres. And 1,193,977 farms (56.6%) had annual gross (not net) sales of farm products of less than $10,000.

On the income side, there were 8,565 farms that had annual sales of agricultural products plus government payments of $5 million or more. Their total income was $125.6 billion, an average of $14.7 million. At the other end of the spectrum, there were 896,699 farms that had annual sales of agricultural products plus government payments of less than $5,000. Their total income was $1.3 billion, an average of $1,500.

The USDA data are always much anticipated and will be chewed over by economists, agribusinesses and policymakers for the foreseeable future.

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Study Points to Link Between Ethanol Use, Higher Ozone Levels

Researchers in Brazil have found that the amount of ozone in the air rises as the amount of ethanol burned by local drivers also rises. The finding appeared last week in the science journal Nature Geoscience, and was reported by the Los Angeles Times.

The researchers chose São Paulo, Brazil for their study, largely because 40% of the city's light-duty vehicles can run on either ethanol, gasoline or a blend of the two. Scientists found that when the percentage of those vehicles using gasoline rose from 14% to 76%, ambient ozone concentrations in the city fell by about 20%.

As scientists are fond of noting, correlation does not indicate causation, which in this case means that something other than that the declining use of ethanol could have caused the declining amount of ozone in the air. This brings us one of the phrases that researchers employ to conclude virtually every study: "more research is needed."

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Washington Insider: More Economic Perspective Needed Globally

In something of a sidelight on ideas, there were been lots of news stories last week about how wonderfully big some developing country economies have become. China and India are, the press is saying, bigger than almost everybody and are overtaking the developed country laggards.

If you care about that sort of thing, and read those reports with interest or alarm, or both, you need to keep a handy bottle of salt grains within reach. Mostly this stuff is not what it seems. Here's why:

These reports are based on special comparisons and one thing all such visions share is that they are based on narrow mathematical transformations that support only one or a few interpretations. And, they tend to become almost humorous when extended further.

The comparisons say, essentially, that, sure, the incomes in China or India are low and the economies very modest, but prices are low so their incomes buy a lot. That's true — as long as the buying is done locally where choices are fairly limited. The further these currencies get from home, the less useful they are and can expect to be treated rudely in most of the world.

Still, the World Bank is eager to show that the small economies of many developing countries are providing a pretty fair existence for many and so has developed a whole "branch" of experts who ponder how well off the Chinese or Indians may be in their home environments.

So, the Bank's International Comparison Program tells us with a straight face that, after inflating its income numbers, India is the third largest world economy — in "purchasing power parity" (PPP), of course, after the United States and China — and, that it has replaced Japan as one of the largest.

Still talking about the PPP "indicator," the Bank tells us that India's global share is seen as accounting for 6.4% of the global total in 2011 compared with United States with 17.1% and China with 14.9%.

In addition, this exercise asserts that the world economy produced goods and services worth over $90 trillion in 2011 and that almost half the world total came from low and middle income countries.

The six largest middle income economies — China, India, Russia, Brazil, Indonesia and Mexico are seen as accounting for 32.3% of world GDP — whereas the six largest high income economies –– the United States, Japan, Germany, France, United Kingdom, and Italy –– account for almost the same, 32.9%.

Well, this is interesting in geopolitical terms but should we really believe all that? If you do, I have this bridge I want to talk to you about. The fact is that a comparison between Germany's capacity to attract investment with its salaries in hard currency with that of India based on the Indian rupees, PPP comparisons provide little help — except to solve some of the internal and external political "correctness" problems of international institutions who constantly strive to demonstrate their sensitivity in describing local standards of living.

Showing how big the Indian economy is compared to the United States on a shadow scale may achieve that, but it also can lay traps to policy makers who may be reading their own press clippings rather than making hard evaluations on their own. For another perspective, in current market prices, India's economy really is roughly comparable to that of the state of California.

The reality is that even a very large developing country basking in a World Bank jiggered image of its economy (which really is smaller than that of several U.S. states) still must come to grips with the hard realities of the global system. There may be observers somewhere who really believe the Russian economy is the sixth largest in the world and India third but few will want to invest on that basis. And, one has to wonder about the value of the World Bank's publicity machinations in all this.

In fact, standards of living — determined by real market prices — are vastly different in India and Germany, for example, and the realities of how limited the PPP vision really is needs to be kept in mind.

Increasingly, as the World Bank creates images of the economies of developing countries and compares them with the developed world, questions can be expected about just how helpful those "special" comparisons really are, Washington Insider believes.

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