Dimitri(2005) Twentieth Century Transformation Agriculture

8/8/2019 Dimitri(2005) Twentieth Century Transformation Agriculture

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The 20th Century Transformation of U.S. Agriculture and Farm Policy / EIB-3Economic Research Service/USDA

Figure 2Nonmetro farming-dependent counties, 1950 and 2000

2000

1950

Nonmetro farming-dependent

Other nonmetro

Metro

Source: Economic Research Service, USDA. Farming-dependent counties are defined by ERS.For 1950, at least 20 percent of income in the county was derived from agriculture. For 2000,either 15 percent or more of average annual labor and proprietors' earnings were derived fromfarming during 199 8 -2000 or 15 percent or more of employed residents worked in farm occupa-tions. Metro/nonmetro status is based on the Office of Management and Budget (OMB) June2003 classification.



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1,000

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7,000Number Acres per farm

As the number of farms declined, their average size increasedFigure 3

1900 10 20 30 40 50 60 70 8 0 90 022000

Number of farmsAverage farm size(acres per farm)

Source: Compiled by Economic Research Service, USDA, using data from Census of Agriculture, Census of Population , and Census of the United States.

Year

Figure 4As farms have become more specialized, the number of commoditiesproduced per farm has decreasedCommodities per farm

1900 1930 1945 1970 20020

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Note: The average number of commodities per farm is a simple average of the number of farmsproducing different commodities (corn, sorghum, wheat, oats, barley, rice, soybeans, peanuts,alfalfa, cotton, tobacco, sugar beets, potatoes, cattle, pigs, sheep, and chickens) divided by thetotal number of farms.Source: Compiled by Economic Research Service, USDA, using data from Census of Agricul- ture, Census of the United States, and Gardner (2002).

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Longrun Forces Behind the Changes

As with the rest of the U.S. economy, the transformation in American agri-culture and rural life over the last century has been driven by longruneconomic developments, as well as periods of economic crisis. Among themost influential trends: technological development, the rise of consumerinfluence in agricultural production, and the increasing integration of Amer-

ican farming into national and global markets.

Technological developments in agriculture have been particularly influentialin driving change in the farm sector. Following World War II, technologicaldevelopments occurred at an extraordinarily rapid pace. Advances in mecha-nization and increasing availability of chemical inputs led to ever-increasingeconomies of scale that spurred rapid growth in average farm size, accom-panied by an equally rapid decline in the number of farms and in the farmand rural populations. From complete reliance on animal power in 1900,farmers rapidly embraced mechanical power (see box, “Mechanization”).Tractors had essentially replaced animal power by 1970, and mechanicalharvesting of crops (sugar beets, cotton, and tomatoes, for example) becameroutine by the late 1960s. Advances in plant and animal breedingthroughout the century facilitated mechanization and increased yields andquality, enhanced by the rapid development of inexpensive chemical fertil-izers and pesticides since 1945 (fig. 5). As a result of these advances,growth in agricultural productivity averaged 1.9 percent annually between1948 and 1999. Productivity growth in manufacturing over the same periodaveraged 1.3 percent annually, although it ranged from 0 to 2.3 percent,depending on the industry (Gullickson).

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0.0

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1.2Total factor productivity (Index 1996=100)

Farms are growing more productiveFigure 5

194 8 52 56 60 64 6 8 72 76 8 0 8 4 88 92 96

Note: Productivity captures the increase in production not accounted for by the growth inquantity of inputs used, and is expressed as total factor productivity (the ratio of total outputs tototal inputs). When total factor productivity is rising over time, a greater level of production canbe obtained from the inputs used. Productivity changes result from changes in efficiency, thescale of production, and technical change.Source: Economic Research Service, USDA, Agricultural Research and Productivity BriefingRoom, http://www.ers.usda.gov/briefing/AgResearch/ .

Year

1900Number of work animal s21.6 million

1930Number of hor s e s , mule s18.7 million

Number of tractor s

920,0001945

Number of tractor s2.4 millionNumber of mule s andhor s e s u s ed for work power on farm11.6 million

1960Number of tractor s4.7 millionNumber of hor s e s andmule s u s ed for work poweron farm3 million

Note: D a ta on work a nim a ls wereno longer collected b y the Cen susa fter 1960.S ou rce: Compiled b y EconomicRe s e a rch S ervice, U S DA, us ingda ta from Cen sus of Agric u lt u re a nd Cen sus of the United S t a te s .

Mechanization

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Since 1900, new technology and development of rural infrastructure havelinked farm households ever more tightly to increasingly integrated nationalmarkets for labor and capital as well as goods and services. The growinguse of purchased inputs for farm production has required cash income, ashas the growing demand for consumer goods by farm households. As farmwork and household consumption have required more cash and less labor,members of farm households have had both incentive and opportunity toseek off-farm work, which has made rural areas increasingly attractive tononfarm industries.

Consumer influence in agricultural production has also grown over theyears, as consumers have become more time-pressed and affluent, creatingnew pressures on the farming sector. Demand has shifted toward productsthat meet convenience, ethnic, and health-based preferences, while efforts tomeet these new demands have led to new relationships between foodproducers, processors, and retailers. Contracting and vertical integration forsupply and quality control, and development of special-use, high-valuecommodities, have changed the structure of agricultural markets, furtherincreasing the specialization and scale, particularly of livestock andspecialty crop operations. (See MacDonald et al. )

Consumers have also recently demanded attention to environmental issuesin agriculture. Growing interest in environmentally friendly production prac-tices has expanded markets for organic and other specialized products andhas influenced the direction of environmental policy for agriculture.Programs have moved from a focus on soil conservation and fertility, largelyaimed at boosting farm productivity, to include measures addressing waterand air quality, wildlife and landscape protection, food purity, and animalwelfare, phenomena whose effects are felt and manifested away from thefarm. (See the ERS web briefing room on Conservation and EnvironmentalPolicy. )

While increasingly integrated market structures have developed to meet thequality and safety demands of American consumers, global markets haveintroduced new consumers and new competitors. Global markets wereincreasingly important to U.S. farmers as the first wave of globalization—propelled by steam and the telegraph—was at its peak, and exports helpedto fuel rising prices that helped to make 1910-14 the “golden age” of Amer-ican agriculture. However, as world market prices began to drop in the1920s, farmers joined manufacturing interests to push for increased tariff protection. These efforts culminated in the passage of the Smoot-Hawleytariffs in 1930. The United States was not alone in escalating tariffs, andworld trade plunged. In the 1930s, the volume of U.S. agricultural exports

fell by more than 20 percent from the previous decade.

Agricultural exports remained flat until the 1960s but began to rise dramati-cally by the 1970s (fig. 6), propelled by adjustments in exchange rates asthe dollar was freed from the gold standard and by the Soviet Union’sgrowing appetite for imported grains and oilseeds. Global markets haveproved volatile at times, however, and disruptions in foreign demand helpedto precipitate a farm financial crisis in the 1980s.

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By the 1990s, a second wave of globalization was in full swing and Amer-ican agriculture was becoming part of an increasingly integrated globalmarket, with both agricultural imports and exports rising rapidly. Asemerging competitors reformed their policies and adopted technologiesalready being used in the United States and other developed countries,global competition for international markets grew, pressuring U.S. producersin both export and domestic markets. (See “The U.S. Trade Balance,”

Amber Waves , February 2004, and “Dynamics of Agricultural Competitive-ness: Policy Lessons From Abroad,” Amber Waves , April 2003.)

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Agricultural exports (indexed, 19 8 7=100)

U.S. exports grew dramatically in the last half of the centuryFigure 6

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1915 20 25 30 35 40 45 50 55 60 65 70 75 8 0 8 5 90 95 2000

Note: Standard techniques were used to combine four series of data for quantity of goodsexported.

Source: Compiled by Economic Research Service, USDA, using data from Agricultural Statistics.

Year

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U.S. Farm Policy in the Contextof Sectoral Change

Since the passage of the first Agricultural Adjustment Act (AAA) in 1933,farm price and income support programs have been the core of agriculturalpolicy in the United States. This policy initially arose as an emergencyresponse to post-World War I economic distress in agriculture that worsenedwith the onset of the Depression. However, the programs have been adjustedover time as policymakers have responded to the political, social, andeconomic pressures that agricultural productivity growth, market integration,and structural change have imposed on the farm sector. (See box, “Mile-stones in U.S. agricultural policy.”)

In the 1930s, the economic, social, and political (the AAA played an impor-tant role in solidifying rural and southern support for the New Deal)rationale for a new approach to farm policy was clear. Farm householdincomes were low even by Depression-era standards and off-farm employ-ment opportunities were few—farming dominated the rural economy. TheFederal approach to dealing with these problems—commodity-specific pricesupports and supply controls—were a product of the farm sector’s structure;farms were generally small, diversified operations selling primarily todomestic markets behind high tariff walls. In this environment, the originalAAA and subsequent farm legislation into the 1960s relied heavily on pricesupports and supply controls to increase returns to farmers. (See History of

Agricultural Price-Support and Adjustment Programs, 1933-84 for adetailed history of farm legislation.)

After World War II, rising productivity, driven by the rapid adoption of mechanical and chemical technology, led to growing surpluses even as thenumber of farms and production agriculture’s share of economic activitycontinued to decline. For over a decade centered in the 1950s, the farmpolicy debate focused on whether to continue high price supports andsupply controls or get the government out of agriculture. A compromisesolution was reached in the Food and Agricultural Act of 1965, whichretained elements of supply control but relied on a combination of reducedprice supports and new income support payments to protect farm income. Atthe same time, it became obvious that a more market-oriented policy wasnecessary to help American farmers take advantage of the rising exportdemands of global markets. The loan rates used to support prices neveragain rose to the high levels of the 1940s and 1950s. The 1985 Food Secu-rity Act and the 1990 Food, Agriculture, Conservation, and Trade Act helpedcreate incentives to encourage marketing commodities (rather than forfeiting

them to government-held surpluses), as well as some flexibility in plantingdecisions. Supply controls ended with the 1996 Federal AgricultureImprovement and Reform Act, and new forms of income support paymentsnot tied directly to farmers’ current production decisions— “decoupled”payments—replaced the older income support programs. The evolution of farm policy from one based on supply controls and high price supports toone based primarily on direct Government payments has undoubtedlyreduced the economic inefficiencies of resource misallocation and pricedistortions associated with farm programs.



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Mile s tone s in U. S . a g ricultural policy

1933Agricu ltu ra l Adjus tment Act: Fir s t “fa rm b ill” es tab lis hed the New De a l mix of commodity- s pecificprice a nd income su pport progr a m s .

1936S oil Con s erv a tion a nd Dome s tic Allotment Act: Fir s t direct link s cre a ted b etween s oilcon s erv a tion a nd commodity progr a m s .

1949Agricu ltu ra l Act: E s tab lis hed policy of high, fixed-price su pport s a nd a cre a ge a llotment s as

perm a nent f a rm policy. Progr a m s revert to the 1949 provi s ion s s ho u ld a new f a rm b ill fa il to p ass .

1954Agricu ltu ra l Act: Introd u ced flexi b le price su pport s to commodity progr a ms .

1956Agricu ltu ra l Act: E s tab lis hed S oil Ba nk, which introd u ced us e of con s erv a tion re s erve in a dditionto a cre a ge control for su pply m a na gement. The progr a m ended a fter only 2 ye a rs .

1965Food a nd Agric u ltu ra l Act: Introd u ced new income su pport p a yment s in com b ina tion with red u cedprice su pport s a nd contin u ed su pply control s .

1970Agricu ltu re Act: Fir s t incl us ion of title for R u ra l Development in a fa rm b ill.

1973Agricu ltu re a nd Con su mer Protection Act: Introd u ced t a rget price s a nd deficiency p a yment s torepl a ce price su pport s , co u pled with low commodity lo a n r a te s , to incre as e prod u cer reli a nce onma rket s a nd a llow for free movement of commoditie s a t world price s .

1977Food a nd Agric u ltu re Act: Fir s t incl us ion of title for Food S ta mp s a nd other commodity di s tribu tionprogr a ms in a fa rm b ill.

1985Food S ec u rity Act: Introd u ced m a rketing lo a n provi s ion s to commodity lo a n progr a ms to red u ceforfeit u re s b y a llowing rep a yment of lo a ns a t lower r a te when m a rket price s fell, with the intentionof a iding in red u cing Government-held su rplus gra in. Re-e s tab lis hed a con s erv a tion re s erve.

1996Feder a l Agricu ltu re Improvement a nd Reform Act: Repl a ced price su pport a nd su pply controlprogr a m with progr a m of direct p a yment s bas ed on hi s toric a l prod u ction. Introd u ced ne a rlycomplete pl a nting flexi b ility.

2002Fa rm S ec u rity a nd R u ra l Inve s tment Act: Introd u ced co u nter-cyclic a l pa yment s progr a m triggeredwhen c u rrent price s fa ll b elow a ta rget level, bu t p a id bas ed on hi s toric a l prod u ction. Introd u cedworking-l a nd s con s erv a tion p a yment s thro u gh the Con s erv a tion S ec u rity Progr a m. Contin u edpla nting flexi b ility a nd progr a m of direct p a yment s bas ed on hi s toric a l prod u ction, a llowingu pd a ting of hi s toric a l bas e a cre s a nd a dding hi s toric a l s oyb e a n a cre s .

S ou rce: Compiled b y Economic Re s e a rch S ervice, U S DA. The complete text s of U. S . fa rm b ills from 19 33 to2002 a re a va ilab le on the we bs ite of the N a tiona l Agricu ltu ra l La w Center(http://www.n a tion a la gla wcenter.org/f a rm b ills /).

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Conclusion

Overall, farmers found ways to adapt to the changes of the last century.Those who remained in agriculture increased their efficiency by expandingand specializing their operations to take advantage of economies of scale, orby identifying niche markets to maintain profitability. Others moved out of farming and into other enterprises or occupations, or combined farming with

off-farm work, with other family members tapping different sources of income. In some cases, farming has become a secondary occupation,providing a preferred lifestyle rather than a primary source of income.

Certainly, not all adjustments have been voluntary or preferred, and regionaldifferences have affected the outcomes. Areas closer to centers of economicgrowth or to attractive natural amenities have benefited, while areas far fromurban development and natural amenities, and areas of persistent poverty—associated with higher concentrations of racial and ethnic minorities—inmost cases have not. (See ERS briefing rooms on Rural Population andMigration and on Rural Income, Poverty, and Welfare .)

Farm policies have never fundamentally altered the trajectory of change, butthey have in some cases affected its pace. For example, the institutionaliza-tion of what began as emergency income support in the 1930s has likelyslowed the movement of labor out of the farm sector. In other cases, policieshave spurred change—for example, the risk-reduction effects of pricesupports and the planting rigidities imposed by supply controls encouragedspecialization.

As the new century gets underway, technological development and marketintegration remain forces of change, and their influence, along with that of consumers, appears likely to continue. The structure of farming continues tomove toward fewer, larger operations producing the bulk of farm commodi-ties, complemented by a growing number of smaller farms earning most of their income from off-farm sources, all increasingly affected by globalevents. Although many details of U.S. farm programs have changed over thelast 40 years in response to new economic and political circumstances, twokey features of commodity programs—commodity specificity and focus onincome support—have remained constant. Today, cash receipts forsupported commodities (wheat, feed grains, rice cotton, oilseeds, dairy, andsugar) account for only 34 percent of total farm cash receipts. Directgovernment payments for income support reach only about 500,000 farms(around 25 percent of all farms). The extent to which farm policy meetscontemporary objectives for maintaining the well-being of farm householdsand for sustaining the agricultural economy is a matter for public debate.

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References

Bowers, D.E., W.D. Rasmussen, and G.L. Baker. History of AgriculturalPrice-Support and Adjustment Programs, 1933-84 . U.S. Department of Agri-culture, Economic Research Service, Agricultural Information Bulletin No.485. 1984.

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Dohlman, E., S. Osborne, and B. Lohmar, “Dynamics of AgriculturalCompetitiveness: Policy Lessons From Abroad,” in Amber Waves , April 2003.www.ers.usda.gov/AmberWaves/April03/Features/ DynamicsofAg.htm .

Gardner, Bruce L. American Agriculture in the Twentieth Century: How it Flourished and What it Cost . Cambridge, MA, and London, England:Harvard University Press, 2002.

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http://www.ers.usda.gov/Amberwaves/February04/Features/USTradeBalance.htm

http://www.www.ers.usda.gov/AmberWaves/April03/Features/DynamicsofAg.htm



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Dimitri(2005) Twentieth Century Transformation Agriculture