Recent Changes in Agriculture

The history of agriculture in the U.S. since the Great Depression has been one of consolidation and increasing efficiency. From a high of 6.8 million farms in 1935, the total number declined to 2.1 million in 1991 on a little less than the same area, about 397 million hectares (about 982 million acres). Average farm size in 1935 was about 63 hectares (about 155 acres); in 1991 it was about 189 hectares (about 467 acres).

About 4.6 million people lived on farms in 1990, based on a new farm definition introduced in 1977 to distinguish between rural residents and people who earned $1000 or more from annual agricultural product sales. The farm population continues to constitute a declining share of the nation's total; about I person in every 54, or 1.8 percent, of the nation's 250 million people were farm residents in 1990.

Total value of land and buildings on U.S. farms in 1990 was $658 billion, substantially less than the value in 1980. Value of products sold was $170 billion per year. Overall net farm income was more than $46 billion in 1989, of which government subsidies accounted for 23 percent. Not including real estate, major expenditures by farmers in 1989 were for feed ($22.7 billion); fuel, lubricants, and maintenance ($13.1 billion); hired labor ($11.9 billion); fertilizer ($7.6 billion); and seed ($3.7 billion).

Outstanding farm debt in 1989 was $146 billion, of which about 55 percent was owed on real estate. Interest payments on the mortgage debt were about $7.6 billion per year. In 1980 a report based on projections by the U.S. government stated that in the next 20 years world food requirements would increase tremendously, with developed countries requiring most of the increase, and food prices would double. Less than five years later, however, the U.S. farmer was enveloped in a major crisis caused by exceptionally heavy farm debts, mounting farm subsidy costs, and rising surpluses. A number of farmers were forced into foreclosure. The ailing Farm Credit System, a group of 37 farmer-owned banks under the Farm Credit Administration appealed to the government for a $5 to $6 billion fund that would keep the system solvent despite the weak national farm economy. After initial resistance, President Ronald Reagan signed legislation in December 1985 designed to create the Farm Credit System Capital Corporation to take over bad loans from the system's banks and to assume responsibility for foreclosing or restructuring distressed loans.

In December President Reagan also signed the Food Security Act of 1985, legislation designed to govern the nation's farm policies for the next five years, trim farm subsidies, and stimulate farm exports.

Government Price-Support Policies

One of the recurring problems of American agriculture in the 20th century has been the tendency of farm income to lag behind increases in the costs of production. The problem began in the 1920s, following a period of exceptional prosperity for U.S. farmers. The period 1910-14 was later taken as a standard for the level of farm prices in relation to the general price level and formed the basis for a concept called parity, aimed at maintaining farming as an essential part of the U.S. economy. After the outbreak of World War I the U.S. became the chief source of food for the warring nations of Europe, with U.S. farmers bringing some 16 million additional hectares (about 40 million acres) of land under cultivation and investing heavily in new land and equipment. These measures raised production levels until 1920, when the European demand for U.S. farm products suddenly declined, and prices began a continuing downward spiral. Although attempts were under way to ease the economic difficulties of the farmer, farm income had not begun to recover when the Great Depression of the 1930s intensified them even more. By 1932 the level of farm prices was only about 65 percent of the 1910-14 average. Farmers continued to produce almost as much as before, and even increased their production in an attempt to maintain their income. That succeeded only in lowering farm prices further. By comparison, manufacturers could control their production, thereby maintaining price levels to a certain degree. Although prices for industrial goods declined, they did not drop as severely as farm prices, so that by 1932 farmers were receiving only 58 cents from the sale of their products for every dollar they had to pay for nonfarm items.

The federal government, which had done little in the 1920s to help farmers, initiated remedial programs during the administration of President Franklin D. Roosevelt. One approach was to reduce the supply of basic farm commodities. The Agricultural Adjustment Act of 193 3 provided payments to farmers in return for agreements to curtail their acreage or their production of wheat, cotton, rice, tobacco, corn hogs, and dairy products. The act was declared unconstitutional in 1936, but in 1938, after several changes in the membership of the U.S. Supreme Court, a second Agricultural Adjustment Act was passed under which production quotas were set as before. Payments were financed from taxes imposed on processors and were based on the parity concept.

The government also lent money to farmers to enable them to withhold crops from the market when prices were low and to store the produce so that it might be available in poor crop years.

A third method to limit production provided payments for shifting acreage of soil-depleting crops such as corn, wheat, cotton, tobacco, and rice to soil-conserving plants such as grasses and legumes and for carrying out soil-building practices. In 1939, an all-risk crop insurance program was initiated for interested farmers to prevent economic distress in case of crop failure for hail, floods, and other natural disasters. Until World War 11 the problem of low farm prices was not basically a result of overproduction. Rather, it was a consequence of the cycles of business and weather, and of problems of internal distribution, transportation, and credit. Following World War II, however, overproduction became a serious problem. Both during and immediately after the war, farm prices were generally high. Because production costs also were high, parity payments remained in force. Federal transactions in surplus commodities, principally the sale of such commodities at prices less than those paid to farmers, proved costly for the government. To reduce costs of the federal farm program, the administration of President Dwight D. Eisenhower proposed the substitution of flexible or variable price supports for the rigid 90 percent of parity that was in force. A bill authorizing a sliding scale of payments at 82.5 percent to 90 percent of parity on the basic commodities was enacted by the U.S. Congress in 1954.

The Agricultural Act of 1956, otherwise known as the soil-bank program, authorized federal payments to farmers if they reduced production of certain crops. A subsidy plan was formulated whereby farmers would be paid for converting part of their cropland to soil-conserving, uses. In practice, the farmers shared the costs of planting trees or grasses and received annual payments compensating them for the economic loss incurred by the removal of some of their land from production.

The Department of Agriculture in the administrations of Presidents John Kennedy and Lyndon Johnson during the 1960s made control of overproduction a primary goal of farm policy. Farmers were offered what was in effect a rental payment for a part of their land that would be taken out of production during the following year. At the same time, measures were undertaken to expand the export market for agricultural products. During this period the ratio of a farmer's per capita income to that of a nonfarm person increased from about 50 percent to about 75 percent.

Direct subsidies for withholding agricultural land from production were phased out in 1973, as a result of a proposal by President Richard M. Nixon. In the same year, net farm income swelled to $33.3 billion. Poor grain harvests throughout the world, particularly in the Soviet Union, prompted massive sales of U.S. government-owned grain reserves. World climatic conditions also helped keep demand for U.S. produce high through the mid- I 1970's Toward the end of the decade, exports lessened, prices dropped, and farm income began to fall without a corresponding decrease in costs of production. U.S. net farm income in 1976 fell to $18.7 billion.

In 1978, a limited, voluntary output restriction was begun by President Jimmy Carter. Called the "farmer-held grain reserve program," the action took grains off the market for up to three years or until market prices reached stated levels. The program was intended also to provide an adequate reserve, lessen food-price gyrations and combat inflation, give livestock producers protection from extremes in feed costs, and contribute to greater continuity in foreign food aid. On January 4, 1980, President Carter declared a limited suspension of grain sales to the Soviet Union in response to that country's invasion of Afghanistan, Additional restrictions included a prohibition on sales of U.S. phosphate. Despite the grain embargo, the U.S. continued to honor a 5 year agreement already in effect that committed it to sell 8 million tons of grain to the Soviets yearly. The year 1980 was an election year, and despite efforts by President Carter's opposition to void the embargo, it continued. Administration officials argued that the Soviets had never been a major customer or even a reliable buyer. U.S. farmers maintained, however, that the action was at their expense and had made 1980 one of their worst years. In fact, U.S. farm exports in 1980 reached an alltime high of $40 billion, but the continued rise in costs of production and an extremely hot summer with accompanying droughts affected many farmers adversely. A new crop insurance program, passed by Congress in the fall of 1980, offered relief from such conditions rather than having to rely on disaster loans, which amounted to $30 million for feed alone in that year.

Whether the 1980 grain embargo had a strong effect on the USSR was a matter of conjecture. Beef production dropped 16 percent, pork was off 10 percent, and milk production fell 4 percent, but by the end of the year the Soviets had apparently obtained their needed grain from other sources. When President Ronald Reagan took office in 198 1, he lifted the embargo and extended the agreement that allowed the USSR to purchase 8 million tons of grain yearly from the U S. The two nations then signed a new 5 Year agreement in 1983 that obliged the Soviet Union to import a minimum of 9 million tons of U.S. grain every year.

Agricultural Exports

The U.S. is the world's principal exporter of agricultural products. In 1989 the value of produce exported was about $39.7 billion, including roughly $1.5 billion in donations and loans to developing nations.

A substantial percentage of the wheat, soybeans, rice, cotton, tobacco, and corn for grain produced in the U.S. Is exported. The major foreign markets are Asia, Western Europe, and Latin America. Japan heads the list of individual countries that import U.S. farm products.