United States agriculture in the twentieth century

July 19, 2012, 10:38 am
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Source: National Science Foundation; Credit: Julie Doll.

Considering that the basic facts about twentieth century agriculture are not seriously in dispute, it is surprising how differently they are seen by different observers. One constellation of views sees the farm sector as a chronically troubled place, with farmers typically hard pressed to survive economically and continually decreasing in number. Moreover, pessimistic assessments see unwelcome trends developing over recent years, with methods of farm production environmentally suspect, farm laborers exploited, the wealth farming generates increasingly concentrated on relatively few large farms, and billions of dollars taxed from the general public for the benefit principally of those large farms. Some economists have argued that even large commercial farms constitute a sector in decline.

 The article was written for EH.net by Bruce Gardner, University of Maryland

An alternative constellation of views is more optimistic. It focuses on the increased acreage and output of the average farm, the sustained growth of agricultural productivity even through the general productivity slump of the 1980s, the substantial improvements in income and wealth of commercial farmers, the predominant role of the United States in world commodity markets, and American leadership in supplying both technological innovation and food aid for the developing world. As Heady put the case, "the U.S. has had the best, the most logical and the most successful program of agricultural development of any country in the world".

Basic Facts and Trends

The generally accepted facts include:

Rising Productivity

Between 1930 and 2000 U.S. agricultural output approximately quadrupled, while the United States Department of Agriculture's (USDA) index of aggregate inputs (land, labor, capital and other material inputs) remained essentially unchanged. Thus, multifactor productivity (output divided by all inputs) rose by an average of about 2 percent annually over this period. This rate substantially exceeds the rate of multifactor productivity growth in manufacturing, and the agricultural rate did not experience the slowdown that occurred in the rest of the U.S. economy during the last quarter of the century.

Falling Real Prices

Prices received by farmers for products they sell decreased by an average of 1 percent annually in real (inflation-adjusted) terms between 1900 and 2000. Real food prices paid by consumers also decreased. The percentage of U.S. disposable income spent on food prepared at home decreased, from 22 percent as late as 1950 to 7 percent by the end of the century.

Declining Number of Farms

The number of farms decreased from a peak of close to 7 million in the mid-1930s to just over 2 million in 2000. The rate of decline was most rapid in the 1950s and 1960s, and dropped off thereafter until the 1990s, when the number stayed about constant. The U.S. had an estimated 2.16 million farms in 2002 as compared to 2.11 million in 1992.

Rising Relative Farm Household Income

Average farm household income was substantially lower than the nonfarm average during almost the whole of the century, but between the end of World War II and the mid-1960s had risen to about 70 percent of the nonfarm level, and continued to rise thereafter until achieving parity or slightly more in the 1990s. The principal cause of this increase in average income was a rise in earnings from off-farm employment of farmer operators and farm family members. By the 1990s a substantial majority of farm household income came from off-farm sources.

Increased Concentration of Production on Large Farms

Agricultural production has become highly concentrated on large farms. In 1930, when the Agriculture Census first asked about the value of farm product sales from each farm, sales per farm in the largest 10 percent of farms were 14 times the sales per farm of the smallest 10 percent. By 1992, sales in the largest 10 percent were 152 times sales in the smallest 10 percent -- the largest 10 percent of farms accounted for 70 percent of all farm product sales, while at the lower end, half of all farms accounted for only 2 percent of product sales. Large farms, those with more than $250,000 of annual sales by USDA's definition, are wealthy. Their assets, mostly land owned, had a mean value of$1.8 million according to the 1997 Census of Agriculture, which with $0.4 million average debt means a mean net worth of$1.4 million per farm.

Explanations

The driving forces behind these events that have received most attention are technological progress in farming and nonfarm economic development. Technological progress in farming results in less input required per unit output, fewer and larger farms, and lower costs of production. With competition in product markets, lower costs mean lower commodity prices. Nonetheless, returns to labor in commercial agriculture have been maintained and even increased through the opportunities provided by rising nonfarm real wages. In an "integrated" labor market, worker mobility between sectors equates wages for comparable labor in farm and nonfarm work. The integration is not only between rural and urban employment at a given location, but also between sections of the country. In 1910 farm wage rates in the Pacific Coast states were almost 3 times the level of farm wages in the South. By 1997 the difference was only 10 percent. For farm operator households, the USDA estimates that in 2000 mean household income was $62,000 compared to$57,000 for nonfarm households. But over 90 percent of farm household income was estimated to have come from off-farm sources.

Supply Reduction Programs versus Subsidies

The increase in payments does not indicate an increase in governmental direction of U.S. agriculture. The supply management programs of earlier decades had bigger market effects; indeed, the mechanism by which they supported farm income was principally by holding up the prices paid by buyers of farm products. A key reason these programs fell from favor politically is the belief that supply controls created a world market price umbrella under which other countries, most notably in Latin America, expanded their own crop acreages and reduced the demand for U.S. exports. Subsidy payments not tied to [[acre]age reductions will instead tend to increase U.S. output and thus drive down both U.S. and world prices. Some of the strongest objectors to recent U.S. farm programs have, for this reason, been representatives of foreign agricultural producers. However, the U.S. programs have evolved over time to be less and less tied to production decisions. This "decoupling" of payments reached its peak in the Farm Act of 1996, which replaced the former "deficiency payment" program with payments that were fixed for each farmer based on the farm's past receipt of payments. This system of payments was argued to provide little if any incentive to produce, since if a grower increased production the payments did not rise, and if a grower decreased production they did not fall. It has been argued that the main economic effect of the payments is to increase the value of cropland to which the payments are tied.

Role of Markets

Despite the salience of commodity programs in public perceptions of U.S. agriculture, the majority of farm output (by value) has no price support or other direct market intervention. Even for the program crops, it is arguable that their production history over the longer term has been little influenced by commodity programs. Market conditions, according to this view, have been more important in determining the product mix, land, labor and other inputs used, as well as innovations in production and the economic organization of farming. Throughout the twentieth century the sector remained a reasonably close approximation of the competitive supply-and-demand model.

Impact of Technological Progress and Competitive Markets

Consequently, the explanations outlined above can be well understood in basic supply-demand terms. Technological progress reduced the cost of producing farm products, and profit-seeking farmers therefore adopted the innovations embodying new technology. Competition ensured that the resulting profits were squeezed out of farmers' hands and accrued largely to buyers of those products, with a consequent decrease in consumers' real costs of food. Returns to farm labor, land, and capital investment were governed by changes in demand generated by technological innovation, buyers' responses to lower prices (notably the responses of foreign buyers, evident in increased agricultural exports), and the supply conditions of the factors of production (notably the availability of non-agricultural alternatives for labor, capital, and land).

Political Economy

Farmers as an interest group in the political arena have done well in achieving legislation providing support for commodity prices and returns, public investment in rural infrastructure, and exemption from some regulatory and tax burdens that have fallen on other business sectors. This is understandable under conditions of the 1930s, when farmers' incomes were well below those of nonfarm people and they constituted 25 percent of the nation's population. But farmers' political clout was more puzzling at the end of the century, when they constituted less than 2 percent of the population and on average had higher incomes and wealth than nonfarm people.

The Puzzle of Farmers' Continued Political Clout

Disproportional representation of rural people in the U.S. Senate -- inherent in a system where low-population rural states each have the same number of Senators as high-population urban states -- is a source of political benefit. For many years the system of powerful authorizing and appropriations committees whose chairs were determined by seniority was seen as giving extraordinary power to long-serving Southerners with strong agricultural ties. But this advantage largely ended with the Congressional reforms of the 1960s and 1970s, so the trends in political institutions as well as economic and demographic evolution would appear to work against agriculture in the political arena. Yet outlays in support of agriculture were higher in real terms at the end of the twentieth century than at any earlier time. Why? Aspects of the situation that are likely to play a role are the organizational capability and cohesiveness of farm groups, their willingness to spend time and funds lobbying, and the general lack of serious opposition to farm interests. But an applicable and testable theory of farmers' political influence remains out of reach. For discussion and analysis see, for example, Olson 1985, Winters, 1987, Browne 1988, Abler 1989, Swinnen and van der Zee 1993, and Orden, Paarlberg, and Roe 1999.

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• [1] Sources: Unless otherwise specified, see U.S. Department of Agriculture, Agricultural Statistics (annual) and Agricultural Outlook (tables)

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, E. (2012). United States agriculture in the twentieth century. Retrieved from http://www.eoearth.org/view/article/156782