and Change

How the U.S. Economy Works

The U.S. Economy:
A Brief History

Small Business and the Corporation

Stocks, Commodities, and Markets

The Role of the Government in the Economy

Monetary and Fiscal Policy

American Agriculture: Its Changing Significance

Labor in America:
The Worker's Role

Foreign Trade and Global Economic Policies

Beyond Economics


American Agriculture - Digital Cow CHAPTER 8


Its Changing

From the nation's earliest days, farming has held a crucial place in the American economy and culture. Farmers play an important role in any society, of course, since they feed people. But farming has been particularly valued in the United States. Early in the nation's life, farmers were seen as exemplifying economic virtues such as hard work, initiative, and self-sufficiency. Moreover, many Americans -- particularly immigrants who may have never held any land and did not have ownership over their own labor or products -- found that owning a farm was a ticket into the American economic system. Even people who moved out of farming often used land as a commodity that could easily be bought and sold, opening another avenue for profit.
     The American farmer has generally been quite successful at producing food. Indeed, sometimes his success has created his biggest problem: the agricultural sector has suffered periodic bouts of overproduction that have depressed prices. For long periods, government helped smooth out the worst of these episodes. But in recent years, such assistance has declined, reflecting government's desire to cut its own spending, as well as the farm sector's reduced political influence.
     American farmers owe their ability to produce large yields to a number of factors. For one thing, they work under extremely favorable natural conditions. The American Midwest has some of the richest soil in the world. Rainfall is modest to abundant over most areas of the country; rivers and underground water permit extensive irrigation where it is not.
     Large capital investments and increasing use of highly trained labor also have contributed to the success of American agriculture. It is not unusual to see today's farmers driving tractors with air-conditioned cabs hitched to very expensive, fast-moving plows, tillers, and harvesters. Biotechnology has led to the development of seeds that are disease- and drought-resistant. Fertilizers and pesticides are commonly used (too commonly, according to some environmentalists). Computers track farm operations, and even space technology is utilized to find the best places to plant and fertilize crops. What's more, researchers periodically introduce new food products and new methods for raising them, such as artificial ponds to raise fish.
     Farmers have not repealed some of the fundamental laws of nature, however. They still must contend with forces beyond their control -- most notably the weather. Despite its generally benign weather, North America also experiences frequent floods and droughts. Changes in the weather give agriculture its own economic cycles, often unrelated to the general economy.
     Calls for government assistance come when factors work against the farmers' success; at times, when different factors converge to push farms over the edge into failure, pleas for help are particularly intense. In the 1930s, for instance, overproduction, bad weather, and the Great Depression combined to present what seemed like insurmountable odds to many American farmers. The government responded with sweeping agricultural reforms -- most notably, a system of price supports. This large-scale intervention, which was unprecedented, continued until the late 1990s, when Congress dismantled many of the support programs.
     By the late 1990s, the U.S. farm economy continued its own cycle of ups and downs, booming in 1996 and 1997, then entering another slump in the subsequent two years. But it was a different farm economy than had existed at the century's start.

Early Farm Policy
During the colonial period of America's history, the British Crown carved land up into huge chunks, which it granted to private companies or individuals. These grantees divided the land further and sold it to others. When independence from England came in 1783, America's Founding Fathers needed to develop a new system of land distribution. They agreed that all unsettled lands would come under the authority of the federal government, which could then sell it for $2.50 an acre ($6.25 a hectare).
     Many people who braved the dangers and hardship of settling these new lands were poor, and they often settled as "squatters," without clear title to their farms. Through the country's first century, many Americans believed land should be given away free to settlers if they would remain on the property and work it. This was finally accomplished through the Homestead Act of 1862, which opened vast tracts of western land to easy settlement. Another law enacted the same year set aside a portion of federal land to generate income to build what became known as land-grant colleges in the various states. The endowment of public colleges and universities through the Morrill Act led to new opportunities for education and training in the so-called practical arts, including farming.
     Widespread individual ownership of modest-sized farmers was never the norm in the South as it was in the rest of the United States. Before the Civil War (1861-1865), large plantations of hundreds, if not thousands, of hectares were established for large-scale production of tobacco, rice, and cotton. These farms were tightly controlled by a small number of wealthy families. Most of the farm workers were slaves. With the abolition of slavery following the Civil War, many former slaves stayed on the land as tenant farmers (called sharecroppers) under arrangements with their former owners.
     Plentiful food supplies for workers in mills, factories, and shops were essential to America's early industrialization. The evolving system of waterways and railroads provided a way to ship farm goods long distances. New inventions such as the steel plowshare (needed to break tough Midwestern soil), the reaper (a machine that harvests grain), and the combine (a machine that cuts, threshes, and cleans grain) allowed farms to increase productivity. Many of the workers in the nation's new mills and factories were sons and daughters of farm families whose labor was no longer needed on the farm as a result of these inventions. By 1860, the nation's 2 million farms produced an abundance of goods. In fact, farm products made up 82 percent of the country's exports in 1860. In a very real sense, agriculture powered America's economic development.
     As the U.S. farm economy grew, farmers increasingly became aware that government policies affected their livelihoods. The first political advocacy group for farmers, the Grange, was formed in 1867. It spread rapidly, and similar groups -- such as the Farmers' Alliance and the Populist Party -- followed. These groups targeted railroads, merchants, and banks -- railroads for high shipping rates, merchants for what farmers considered unscrupulous profits taken as "middlemen," and banks for tight credit practices. Political agitation by farmers produced some results. Railroads and grain elevators came under government regulation, and hundreds of cooperatives and banks were formed. However, when farm groups tried to shape the nation's political agenda by backing renowned orator and Democrat William Jennings Bryan for president in 1896, their candidate lost. City dwellers and eastern business interests viewed the farmers' demands with distrust, fearing that calls for cheap money and easy credit would lead to ruinous inflation.

Farm Policy of the 20th Century
Despite farm groups' uneven political record during the late 19th century, the first two decades of the 20th century turned out to be the golden age of American agriculture. Farm prices were high as demand for goods increased and land values rose. Technical advances continued to improve productivity. The U.S. Department of Agriculture established demonstration farms that showed how new techniques could improve crop yields; in 1914, Congress created an Agricultural Extension Service, which enlisted an army of agents to advise farmers and their families about everything from crop fertilizers to home sewing projects. The Department of Agriculture undertook new research, developing hogs that fattened faster on less grain, fertilizers that boosted grain production, hybrid seeds that developed into healthier plants, treatments that prevented or cured plant and animal diseases, and various methods for controlling pests.
     The good years of the early 20th century ended with falling prices following World War I. Farmers again called for help from the federal government. Their pleas fell on deaf ears, though, as the rest of the nation -- particularly urban areas -- enjoyed the prosperity of the 1920s. The period was even more disastrous for farmers than earlier tough times because farmers were no longer self-sufficient. They had to pay in cash for machinery, seed, and fertilizer as well as for consumer goods, yet their incomes had fallen sharply.
     The whole nation soon shared the farmers' pain, however, as the country plunged into depression following the stock market crash of 1929. For farmers, the economic crisis compounded difficulties arising from overproduction. Then, the farm sector was hit by unfavorable weather conditions that highlighted shortsighted farming practices. Persistent winds during an extended drought blew away topsoil from vast tracts of once-productive farmland. The term "dustbowl" was coined to describe the ugly conditions.
     Widespread government intervention in the farm economy began in 1929, when President Herbert Hoover (1929-1933) created the federal Farm Board. Although the board could not meet the growing challenges posed by the Depression, its establishment represented the first national commitment to provide greater economic stability for farmers and set a precedent for government regulation of farm markets.
     Upon his inauguration as president in 1933, President Franklin D. Roosevelt moved national agricultural policy far beyond the Hoover initiative. Roosevelt proposed, and Congress approved, laws designed to raise farm prices by limiting production. The government also adopted a system of price supports that guaranteed farmers a "parity" price roughly equal to what prices should be during favorable market times. In years of overproduction, when crop prices fell below the parity level, the government agreed to buy the excess.
     Other New Deal initiatives aided farmers. Congress created the Rural Electrification Administration to extend electric power lines into the countryside. Government helped build and maintain a network of farm-to-market roads that made towns and cities more accessible. Soil conservation programs stressed the need to manage farmland effectively.
     By the end of World War II, the farm economy once again faced the challenge of overproduction. Technological advances, such as the introduction of gasoline- and electric-powered machinery and the widespread use of pesticides and chemical fertilizers, meant production per hectare was higher than ever. To help consume surplus crops, which were depressing prices and costing taxpayers money, Congress in 1954 created a Food for Peace program that exported U.S. farm goods to needy countries. Policy-makers reasoned that food shipments could promote the economic growth of developing countries. Humanitarians saw the program as a way for America to share its abundance.
     In the 1960s, the government decided to use surplus food to feed America's own poor as well. During President Lyndon Johnson's War on Poverty, the government launched the federal Food Stamp program, giving low-income persons coupons that could be accepted as payment for food by grocery stores. Other programs using surplus goods, such as for school meals for needy children, followed. These food programs helped sustain urban support for farm subsidies for many years, and the programs remain an important form of public welfare -- for the poor and, in a sense, for farmers as well.
     But as farm production climbed higher and higher through the 1950s, 1960s, and 1970s, the cost of the government price support system rose dramatically. Politicians from non-farm states questioned the wisdom of encouraging farmers to produce more when there was already enough -- especially when surpluses were depressing prices and thereby requiring greater government assistance.
     The government tried a new tack. In 1973, U.S. farmers began receiving assistance in the form of federal "deficiency" payments, which were designed to work like the parity price system. To receive these payments, farmers had to remove some of their land from production, thereby helping to keep market prices up. A new Payment-in-Kind program, begun in the early 1980s with the goal of reducing costly government stocks of grains, rice, and cotton, and strengthening market prices, idled about 25 percent of cropland.
     Price supports and deficiency payments applied only to certain basic commodities such as grains, rice, and cotton. Many other producers were not subsidized. A few crops, such as lemons and oranges, were subject to overt marketing restrictions. Under so-called marketing orders, the amount of a crop that a grower could market as fresh was limited week by week. By restricting sales, such orders were intended to increase the prices that farmers received.

In the 1980s and 1990s
By the 1980s, the cost to the government (and therefore taxpayers) of these programs sometimes exceeded $20,000 million annually. Outside of farm areas, many voters complained about the cost and expressed dismay that the federal government was actually paying farmers NOT to farm. Congress felt it had to change course again.
     In 1985, amid President Ronald Reagan's calls for smaller government generally, Congress enacted a new farm law designed to reduce farmers' dependence on government aid and to improve the international competitiveness of U.S. farm products. The law reduced support prices, and it idled 16 to 18 million hectares of environmentally sensitive cropland for 10 to 15 years. Although the 1985 law only modestly affected the government farm-assistance structure, improving economic times helped keep the subsidy totals down.
     As federal budget deficits ballooned throughout the late 1980s, however, Congress continued to look for ways to cut federal spending. In 1990, it approved legislation that encouraged farmers to plant crops for which they traditionally had not received deficiency payments, and it reduced the amount of land for which farmers could qualify for deficiency payments. The new law retained high and rigid price supports for certain commodities, and extensive government management of some farm commodity markets continued, however.
     That changed dramatically in 1996. A new Republican Congress, elected in 1994, sought to wean farmers from their reliance on government assistance. The Freedom-to-Farm Act dismantled the costliest price- and income-support programs and freed farmers to produce for global markets without restraints on how many crops they planted. Under the law, farmers would get fixed subsidy payments unrelated to market prices. The law also ordered that dairy price supports be phased out.
     These changes, a sharp break from the policies of the New Deal era, did not come easily. Congress sought to ease the transition by providing farmers $36,000 million in payments over seven years even though crop prices at the time were at high levels. Price supports for peanuts and sugar were kept, and those for soybeans, cotton, and rice were actually raised. Marketing orders for oranges and some other crops were little changed. Even with these political concessions to farmers, questions remained whether the less controlled system would endure. Under the new law, government supports would revert to the old system in 2002 unless Congress were to act to keep market prices and support payments decoupled.
     New dark clouds appeared by 1998, when demand for U.S. farm products slumped in important, financially distressed parts of Asia; farm exports fell sharply, and crop and livestock prices plunged. Farmers continued to try to boost their incomes by producing more, despite lower prices. In 1998 and again in 1999, Congress passed bailout laws that temporarily boosted farm subsidies the 1996 act had tried to phase out. Subsidies of $22,500 million in 1999 actually set a new record.

Farm Policies and World Trade
The growing interdependence of world markets prompted world leaders to attempt a more systematic approach to regulating agricultural trade among nations in the 1980s and 1990s.
     Almost every agriculture-producing country provides some form of government support for farmers. In the late 1970s and early 1980s, as world agricultural market conditions became increasingly variable, most nations with sizable farm sectors instituted programs or strengthened existing ones to shield their own farmers from what was often regarded as foreign disruption. These policies helped shrink international markets for agricultural commodities, reduce international commodity prices, and increase surpluses of agricultural commodities in exporting countries.
     In a narrow sense, it is understandable why a country might try to solve an agricultural overproduction problem by seeking to export its surplus freely while restricting imports. In practice, however, such a strategy is not possible; other countries are understandably reluctant to allow imports from countries that do not open their markets in turn.
     By the mid-1980s, governments began working to reduce subsidies and allow freer trade for farm goods. In July 1986, the United States announced a new plan to reform international agricultural trade as part of the Uruguay Round of multilateral trade negotiations. The United States asked more than 90 countries that were members of the world's foremost international trade arrangement, known then as the General Agreement on Tariffs and Trade (GATT), to negotiate the gradual elimination of all farm subsidies and other policies that distort farm prices, production, and trade. The United States especially wanted a commitment for eventual elimination of European farm subsidies and the end to Japanese bans on rice imports.
     Other countries or groups of countries made varying proposals of their own, mostly agreeing on the idea of moving away from trade-distorting subsidies and toward freer markets. But as with previous attempts to get international agreements on trimming farm subsidies, it initially proved extremely difficult to reach any accord. Nevertheless, the heads of the major Western industrialized nations recommitted themselves to achieving the subsidy-reduction and freer-market goals in 1991. The Uruguay Round was finally completed in 1995, with participants pledging to curb their farm and export subsidies and making some other changes designed to move toward freer trade (such as converting import quotas to more easily reduceable tariffs). They also revisited the issue in a new round of talks (the World Trade Organization Seattle Ministerial in late 1999). While these talks were designed to eliminate export subsidies entirely, the delegates could not agree on going that far. The European Community, meanwhile, moved to cut export subsidies, and trade tensions ebbed by the late 1990s.
     Farm trade disputes continued, however. From Americans' point of view, the European Community failed to follow through with its commitment to reduce agricultural subsidies. The United States won favorable decisions from the World Trade Organization, which succeeded GATT in 1995, in several complaints about continuing European subsidies, but the EU refused to accept them. Meanwhile, European countries raised barriers to American foods that were produced with artificial hormones or were genetically altered -- a serious challenge to the American farm sector.
     In early 1999, U.S. Vice President Al Gore called again for deep cuts in agricultural subsidies and tariffs worldwide. Japan and European nations were likely to resist these proposals, as they had during the Uruguay Round. Meanwhile, efforts to move toward freer world agricultural trade faced an additional obstacle because exports slumped in the late 1990s.

Farming As Big Business
American farmers approached the 21st century with some of the same problems they encountered during the 20th century. The most important of these continued to be overproduction. As has been true since the nation's founding, continuing improvements in farm machinery, better seeds, better fertilizers, more irrigation, and effective pest control have made farmers more and more successful in what they do (except for making money). And while farmers generally have favored holding down overall crop output to shore up prices, they have balked at cutting their own production.
     Just as an industrial enterprise might seek to boost profits by becoming bigger and more efficient, many American farms have gotten larger and larger and have consolidated their operations to become leaner as well. In fact, American agriculture increasingly has become an "agribusiness," a term created to reflect the big, corporate nature of many farm enterprises in the modern U.S. economy. Agribusiness includes a variety of farm businesses and structures, from small, one-family corporations to huge conglomerates or multinational firms that own large tracts of land or that produce goods and materials used by farmers.
     The advent of agribusiness in the late 20th century has meant fewer but much larger farms. Sometimes owned by absentee stockholders, these corporate farms use more machinery and far fewer farm hands. In 1940, there were 6 million farms averaging 67 hectares each. By the late 1990s, there were only about 2.2 million farms averaging 190 hectares in size. During roughly this same period, farm employment declined dramatically -- from 12.5 million in 1930 to 1.2 million in the 1990s -- even as the total U.S. population more than doubled. In 1900, half of the labor force were farmers, but by the end of the century only 2 percent worked on farms. And nearly 60 percent of the remaining farmers at the end of the century worked only part-time on farms; they held other, non-farm jobs to supplement their farm income. The high cost of capital investment -- in land and equipment -- makes entry into full-time farming extremely difficult for most persons.
     As these numbers demonstrate, the American "family farm" -- rooted firmly in the nation's history and celebrated in the myth of the sturdy yeoman -- faces powerful economic challenges. Urban and suburban Americans continue to rhapsodize about the neat barns and cultivated fields of the traditional rural landscape, but it remains uncertain whether they will be willing to pay the price -- either in higher food prices or government subsidies to farmers -- of preserving the family farm.

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