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Symptoms of a more basic reason

Agriculture.com Staff 11/02/2006 @ 8:37am

We recently ran across an article that discussed five reasons why the U.S. has farm programs. The five objectives listed were: Reduce poverty on the farm, reduce farm income variability, increase export competitiveness, provide for food security, and promote rural development.

One by one, the author then debunked each of the five objectives, leading the reader to conclude that U.S. crop agriculture would function just fine without any program at all.

While elimination of farm programs would be welcomed by many, it is important that the recommendation is made for the correct reason. That is, because the core problem of aggregate agriculture has disappeared. So has the fundamental "farm problem" gone away? Well if it has, such a self-healing event should be the focus of the article. But, no such discussion was included.

Completely missing was any acknowledgment of the unique dynamics of crop markets that underlie "the" fundamental rationale for farm policy: The issue of market failure on the part of aggregate crop agriculture. Without successfully arguing that the fundamental problem is no more, it is impossible for discussions about the five symptoms to lead to any meaningful policy conclusions.

Let us take a look more closely at the first of the five "reasons" that were given for farm programs. The list begins with the oft repeated line that farm programs were started in the 1930s because rural incomes were a fraction of urban incomes at that time. And as far as the story goes, it is true that farm income in the 1930s was below the national average. Without a knowledge of agricultural history it would be very easy to conclude that the 1930s farm income problem was simply associated with the Great Depression.

The low farm incomes of the 1930s did not begin with the Crash of 1929. By the time the Great Depression hit, U.S. farmers had been experiencing their own depression for more than a decade. World War I had brought with it unprecedented prosperity to U.S. farmers as the government adopted policies to encourage farmers to engage in all out production to help with the war effort. Farmers responded and the significant amounts of U.S. agricultural products were shipped to European nations whose agricultural sectors had been devastated by the war.

When the war ended, European farmers resumed agricultural production and exports shut off abruptly. U.S. prices plummeted as the market for agricultural commodities was flooded with excess production. Corn which sold for $1.44 in 1919 a bushel went for 54 cents in 1920 and 46 cents in 1921.

What we saw in the post-World War I period is only a part of a longer-term story that can be traced back to the end of the Civil War. In 1867, the price of corn was 78 cents a bushel. Over the next 30+ years the price of corn trended downward, reaching a low of 28 cents in 1898. Corn prices did not reach their 1867 price again until 1916 and the outbreak of war in Europe.

The pressure for national legislation to relieve farm income problems comes not simply from the problems associated with the Great Depression, but more completely from 60 years of low farm prices punctuated by a year or two here or there of relief.

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