April 30, 2014
Greater Stability in AgricultureBy Stewart Truelsen
“Agriculture is notoriously unstable,” wrote Purdue University economist Don Paarlberg in his classic book “American Farm Policy,” published in 1964. He went on to say, “Variations in costs and returns from year to year on a given farm come largely from the vagaries of weather and market behavior, both of which are to a great extent beyond the control of the individual operator.”
Yet, when given the choice of more stability many farmers and ranchers recoiled at the notion. Stability became an unpopular concept because it usually meant stability at low price levels and a heavy reliance on government programs to achieve it through acreage controls and storage of surplus production.
Paarlberg certainly recognized this, and so too did the American Farm Bureau Federation which campaigned vigorously against farm programs offering that approach to stability. As Paarlberg put it, “Farmers have long been venturesome. They are risk takers in part by historical attitude, in part by deliberate choice and only to a degree by necessity.”
In a similar vein, AFBF policy even today reads, “Individual freedom and opportunity must not be sacrificed in a quest for guaranteed ‘security.’”
Paarlberg reached the conclusion that instability in agriculture was a problem, but neither the smallest nor greatest farm problem. However, “greater stability” would be a step forward for the farm economy and agriculture as a whole, in his view.
American agriculture is reaching the point of greater stability, but maybe not in the sense Dr. Paarlberg meant. By any number of measures the farm economy is stronger today than it has been several times in the past. According to the Agriculture Department’s Economic Research Service, the farm debt-to-asset ratio is expected to be at its lowest level since 1960, when ERS first began calculating it. Farm assets in both real and nominal terms are forecast to be the highest on record.
Demand for our products has never been higher. On the domestic front we are talking about a corn crop three and a half times larger than that grown in Paarlberg’s 1960 with use rates to match. More than one in 10 gallons of milk, chickens, hogs and cattle produced in the United States are now consumed outside the country. Price movements in Paarlberg’s day were measured in terms of 50 cents a bushel for wheat. Now we talk about three and four dollar moves on corn from one year to the next.
Historically, instability resulted in some farmers getting “washed out,” as Paarlberg put it, not because they were poor operators or lacked managerial skills, but because they didn’t have the reserves to stay in business during bad times. He also said instability led to dissatisfaction. The end result was a steady decline in farm numbers, but growth in the size of the operations that stayed.
The number of farms and amount of land in farming are still declining today, but the pace is slowing. Between 2007 and 2012, farmland decreased in 31 states but was up in 19. Likewise, the number of farms decreased in 34 states but was up in 16. Very large and very small farms are holding steady or increasing, while declines persist in mid-sized farming operations.
Fifty years ago a major problem for American agriculture was excess productive capacity, a factor that contributed to instability. That’s no longer the case. The growth in farm exports through beneficial trade agreements and marketing, and the development of biofuels and other bio-based products have given farmers greater outlets for their production. Direct-to-consumer marketing also is benefiting many smaller farm operations.
Greater stability also has been achieved through a consistent, long-term farm policy that is market-oriented and provides a safety net to help farmers manage the risk of extreme weather events and precipitous declines in farm prices. Much of that policy is based on a crop insurance program Dr. Paarlberg could only dream about. Expectations are that we will have over 200 million acres covered this year giving producers protection from both price and yield variability. This allows producers to take advantage of the upside as well as letting them buy protection on the downside.
Stewart Truelsen, a food and agriculture freelance writer, is a regular contributor to the Focus on Agriculture series.