Bishop, Charles E.

English

Research Papers in Economics

FARM  PRICE  AND  INCOME  ISSUES,  1965
C. E. Bishop, Head
Department of Agricultural Economics
North Carolina  State of the University
of North Carolina
For  more  than  thirty  years  the  federal  government  has  taken
deliberate  action  to  influence  the incomes  of  many  farmers.  Action
during  the  1930's  included  marketing  quotas,  acreage  controls,  con-
servation  and diversion  payments,  marketing  agreements  and  orders,
price  supports,  and  government  storage  programs.  In  spite  of  this
array  of programs,  excessive  stocks  of some  farm  commodities  accu-
mulated.  However,  World  War  II depleted  these  stocks.  By  the  late
1940's,  except  for the  South,  earnings  for  resources  used  in  farming
were  approximately  equal  to the earnings  of comparable  resources  in
other sectors  of the  economy.  Farmers  were  in good  financial  condi-
tion,  and  they  were  eager  to  reorganize  production  and  to  increase
productivity.
Few, if  any,  anticipated  the unprecedented  increases  in yields  per
acre  or  the  amazing  increase  in  output  per  worker  which  was  to
occur on United States farms during the 1950's. Neither  did we antici-
pate  the  remarkable  recovery  of  agriculture  which  was  made  in
Western  Europe  nor  the  greatly  increased  productivity  of  Japanese
agriculture.
Consequently,  the  continuing  drive  on  the part  of  farmers  to  in-
crease  output  per  farm,  coupled  with  the readily  available  technolo-
gies for increasing farm  output and the slowly  expanding  demand  for
farm products resulted in an excess of farm products  during the  1950's
except for the brief period of the Korean War.
As  early  as  1954  prices  of  many  agricultural  commodities  had
fallen  sharply,  and  farm  incomes  had  declined  accordingly.  Farm
surpluses began to pile up once more.
THE  SHIFT  TOWARD  DEMAND  EXPANSION
In  1954  there  was  a  definite  shift  in  the  direction  of  our  farm
policy.  Agricultural  policy  turned toward  greater freedom  in  produc-
tion  decisions.  We  moved  away  from  heavy  dependence  upon  price
supports  and controls  and toward  more emphasis  upon building  mar-
kets.  Such  was  not  the  case  in  most  other  nations,  but  many  nations
with food  shortages had  a shortage  of dollars  with  which  to  purchase
our products. Consequently,  the Agricultural  Trade and Development
97Act,  P.  L.  480,  was  passed  in  1954.  Domestic  food  distribution
programs  also were expanded.
In  spite  of  these  efforts  to  expand  demand  stocks  continued  to
mount,  and in  1956 the  Soil Bank was  created  in an effort  to reduce
the supply of farm products by retiring land.  Also, the  Rural Develop-
ment  Program  was  initiated  in  the  hope  that  this  program  would
expand economic  opportunities  in rural  areas.
In summary,  during the  1950's the  Administration  in the  Depart-
ment  of Agriculture  made a  concerted  effort  to  move farming  in  the
direction  of less government controls  toward a freer market.  Emphasis
was  placed  upon  expanding  the  demand  for  farm  products,  removal
of  production  controls,  greater  freedom  in  making  production  deci-
sions,  and  rural  development.  But  the  Congress  refused  to  abandon
high price  supports.  In the  meantime,  therefore,  stocks  of feed  grain
and wheat accumulated in unprecedented  quantities.
THE  RETURN  TO  SUPPLY  CONTROLS
In  1961  the  new  Administration  proposed  a  two-pronged  attack
to meet the problems  of rural America:  (1)  the Rural Areas Develop-
ment  Program  and  (2)  supply  management.  Primary  emphasis  was
to be  placed upon strict marketing  controls and  assignment  of quotas
to  farmers.  Changes  in  the  number  of  persons  employed  on  farms
were  to be brought  about  largely  through  the  Rural  Areas  Develop-
ment  Program  and  through  a  reduction  of  land  devoted  to  major
crops.  Migration  off farms,  therefore,  would be entirely  voluntary.
Key  proposals  contained  in  the  Administration's  programs  were
soundly  defeated.  The  Agricultural  Act  of  1961,  placing  emphasis
upon  marketing  controls  and  marketing  orders,  was  defeated  in  the
Congress.  A  turkey  marketing  order  was  defeated  by  farmers  and
handlers  in  a  referendum.  Strong  feed  grain  controls  were  defeated
in  the  Congress.  The  1962  wheat  program  emphasizing  marketing
quotas  was  passed by  the  Congress  but  defeated  in  a  referendum  by
farmers.  In each  case,  the Administration  has  had  to  settle  for supply
adjustment alternatives with more flexibility.
WHICH  RESOURCES  ARE  TO  BE  RELEASED?
Although  virtually  all  proposals  to  improve  the  farm  situation
would  entail  a  removal  of  resources  from  agriculture,  the  proposals
differ  radically  in  which  resources  will  be  removed  and  in  how  this
will be accomplished.
During the  1950's  and early  1960's  the  Secretaries  of the Depart-
ment  of Agriculture  placed  emphasis  upon  the  retirement  of  land  as
98a means of withdrawing  resources  from  agriculture.  Land withdrawal
has been,  is,  and must be  expected to  continue to  be a major policy
variable  for the United States Department  of Agriculture.
The Department of Agriculture  continues  to place  emphasis  upon
land  retirement even  though we  now find  ourselves  in  a period  when
the  relative  importance  of land  in farm production  declines  annually
as  new  technology  makes  its  easier  for  farmers  to  substitute  other
resources  for  land.  Under  these  conditions  withdrawal  of  land  is  a
weak and expensive means of reducing farm production.
Pursuing  a  conscious  policy  of  training,  retraining,  and  transfer
of  labor  from  farm  to  nonfarm  employment  may  be  expected  as  a
policy variable from the Departments of Labor and of Health, Educa-
tion, and Welfare. However,  such a policy is not expected  to constitute
a major position  in the Department  of Agriculture.  In the  Committee
for  Economic  Development  proposal,'  emphasis  was  placed  upon
achieving  and  maintaining  a  high  level  of  employment,  providing
better  education,  training,  and  skills  for  farm  youth  to enable  them
to  enter  nonfarm  occupations;  increasing  labor  mobility  through  im-
proved  job information  services; and  granting  loans to  cover  the  cost
of  moving  families  from  farms  to  nonfarm  locations.  The  proposal
received  little more  than  ridicule  from  the  agricultural  committees  in
the Congress.
In summary, during the past decade and a half numerous proposals
have  been made for  coping  with farm  problems in the  United  States.
The  policy  directions  have  shifted  from  one  extreme  to  another.
Proposals  have  ranged  from  free  market  operations  with  no  govern-
ment  interference,  regulation,  or  support  of farm  prices  to complete
and  rigid  controls  which  determine  the  amount  of  each  commodity
an  individual  is  entitled  to  market.  The  proposals  which  have  been
submitted by the Department  of Agriculture  have approximated  these
extremes.  When  the  decisions  have been  made  by  the  Congress  and
the people,  however,  it has become clear that neither  is ready  to move
to  either  extreme.  Consequently,  compromises  have  been  effected
resulting  in policies  different  from  those  advocated  by  the  Adminis-
tration  or any  major  farm  organization.  We  appear  to  be  in  such  a
stalemate  at present.
SOME  EMERGING  AREAS  OF  AGREEMENT  AND
SOME  POLICY  PROBLEMS  FOR  1965
Farm policy discussion has given rise to broad  areas  of agreement
'An  Adaptive  Program for Agriculture, Committee  for  Economic  Development,
New  York,  1962.
99as  well  as  to  sharp  differences  of  opinion.  Too  often  the  areas  of
disagreement  are  emphasized  while  the broad  areas  of  general  agree-
ment which  seem  to be emerging  fail to  be recognized.  Some areas  of
general agreement  and some of the emerging issues of importance are:
First, there  is  a  growing  appreciation  among  farm  and  other
people of the importance of obtaining a high level of nonfarm employ-
ment  in  the  solution  of  farm  problems.  The  major  point  of  argu-
ment  here  concerns  the  extent  to  which  a  substantial  reduction  in
unemployment  per  se  would  improve  the  incomes  of  people  now
living  on  farms.  A  reduction  in  unemployment  would  increase  the
demand  for farm products  but,  more  importantly,  would  create  addi-
tional  jobs  for  farm  people.  Clearly,  the  attainment  of  full  employ-
ment  in a long-run  classical  economic  view  would  solve  the  resource
allocation  problems.  The  issues  concern  the  short-run  and  interme-
diate-term  transitional  problems  and  the  ensuing  distribution  of  in-
come.
Second,  there  is  a  growing  public  understanding  of the  fact  that
agriculture  has more  resources,  both land  and labor,  than  can profita-
bly be employed in the industry.  There is  far less agreement,  however,
concerning  the  amount  of  land  and  labor  which  can  profitably  be
employed  in agriculture  over the  long run,  which  land  and  labor will
be  used,  and  how  it  will  be  organized  and  controlled.  Questions  of
location  and  of  structure  are  receiving  little  analysis.  In  the  future
they  will  receive  more  attention  in  the  United  States,  as  in  other
countries.
Third, there is an increased  appreciation  of the necessity for facili-
tating  occupational  and  geographic  mobility  as  means  of  obtaining
more equitable  incomes  for persons  now  living  on  farms.  There  is  a
growing  recognition  that  increased  emphasis  must  be  placed  upon
education  and  training  as  means  of  enabling  rural  youth  to  enter
those  occupations  where  opportunities  are  greatest.  Depopulation  of
many  rural  areas  has  been  so  extensive  that  decadence  of  social
institutions is obvious.  Each year tens  of thousands  of nomads wander
over  the  country  seeking  jobs  for which  they  have  no  skills.  Yet  we
have been unwilling  to develop an explicit policy on migration.  Where
are  people  in  the  United  States  to  live  and  work  in  the  future?  Will
rural  people  have  the  same  educational  opportunities  and  social
amenities  as  other  people?  What  constitutes  an  economically  and
socially  viable  community?  What  types  of  structural  changes  are
necessary  to  achieve  such  viability?  Our  knowledge  in  this  area  is
woefully lacking.
Fourth, there  is  general  agreement  that  the  nation  will  continue
100to need some form  of welfare program for its underprivileged  citizens.
The  major  issues  which  are  emerging  here  concern  not  whether  we
should  have  such  a  program  but  what  the  content  of  the  program
should  be.  For  example,  a  direct  food  distribution  program  is  now
operating in some  counties,  and a food stamp program  is operating  in
other  counties.  One  of  the  basic  questions  involved  in  these  two
programs  concerns  whether  we  shall  have  a  welfare  program  built
around the objective  of disposing  of agricultural  surpluses  or whether
we  should  orient  such  a  program  to  the  needs  of  underprivileged
citizens.  If  the  needs  of  the  underprivileged  are  given  priority,  the
distribution of benefits  among farmers  may be altered sharply.  Empha-
sis, for example, would be placed upon fruits, vegetables,  and meats.
Fifth, there is a growing concern in the United States about the po-
tential contribution  that agriculture can make to United States foreign
policy.  The  gap  between  the  have and  have  not  nations  continues  to
increase.  In the meantime,  the programs  for disposal  of United  States
agricultural  commodities  through  P.  L.  480  have  been  greatly  ex-
panded.  These  programs  emphasize  the  movement  of  surplus  com-
modities.  In  effect,  therefore,  we  have  permitted  the  producers  of
surplus  commodities  to  determine  what  foreign  policy  should  be.  It
would  seem  more  logical  to  determine  what  our  foreign  policy  is  to
be  and  then  to  gear  our  vast  agricultural  potential  to  our  foreign
policy  needs.  This  is  a  continuing  problem  that  will  become  more
important over the-long run, when Western Europe and possibly other
regions join us in the game of dumping surpluses.
Sixth,  the  Kennedy  Round  of trade  negotiations  has  focused  in-
creased  attention  upon the  importance  of international  trade  in  farm
products.  There  is  a growing  concern  over  tariffs  and  trade  barriers
and  the need to exploit  to the fullest the  potential  commercial  market
for  United  States  agricultural  products.  It  has  become  increasingly
apparent  that  we  can  no  longer  afford  to  take  foreign  markets  for
granted.  The  policy issues here  are  largely  international  in  scope  and
are  to a considerable  extent beyond  our control.  International  market
sharing  schemes  are  likely  to become more  important.  Also,  at  issue
is  the  question  of  whether  we  can  continue  to  have  conflicting  do-
mestic and international farm policies.
Seventh,  there  is rather  general  agreement  that the nation  should
maintain  an adequate  reserve  of  food and  fiber  for  contingency  pur-
poses. Storage policy is being determined  by default and is determined
largely by the producers of a few commodities.  The main policy ques-
tions  here turn on the  size  of the  reserve  to be  maintained,  the  form
in which  it it  to be  held,  and whether  the  reserve  should  be  used  for
101contingencies  or  as  a means  of supporting  farm  product  prices.  Ob-
viously,  the distribution of the  benefits  will be  affected  greatly  by  the
decisions made concerning  these issues.
The big bone of contention in agricultural  policy remains  that  of
determining the distribution  of income between  the farm and nonfarm
sectors of the economy  and the  distribution  of income  within agricul-
ture.  In  short,  how  much  of the  gains  from  increased  resource  pro-
ductivity  and  economic  development  and  the  benefits  from  public
programs  will society permit farmers  to retain?  How  shall  these bene-
fits  be  distributed  among farmers  and  between  farmers  and  the  agri-
cultural  industries?  I  have  purposely  placed  these  questions  at  the
end  of  this  discussion  because  I  believe  they  must  be  developed  in
relation  to  the  decisions  reached  with  respect  to  the  policy  areas
outlined  above.  If  we  can  decide  upon  the  kind  of  domestic  food
distribution  programs  which  are to  be  employed for  the  needy,  upon
the  foreign policy  objectives  to be  used  in the marketing  of our farm
products  abroad,  and  upon  the  policy  of  the  nation  in  maintaining
a  reserve  for  contingencies,  we  should  be  able  to  derive  realistic
estimates  of potential  demand  for United  States  products.  Only  after
this  has been done  can  we arrive  at reasonable  judgments  concerning
the  quantities of resources  that will be  needed to produce  these prod-
ucts,  how  these  resources  can  be  attracted  to  agriculture,  and  how
they can be organized.
At best, however,  we will find that in the  short run the productive
capacity  of United States agriculture far exceeds  the potential markets
for our products.  The issues of types of control programs  and govern-
ment  costs,  therefore,  will  continue  to  occupy  a  prominent  place  in
the public  dialogue on farm policy.  We should  not expect  quick,  easy
solutions.  Our farm  problems  are  not short-run  problems.  They  will
not be solved by short-run policies.  The problems  involved  are funda-
mental problems  which have been  generated  over decades  by changes
in  the  underlying  structure  of our  economy.  The  adjustments  which
are implied  in these  changes  will  require  decades  before  they can  be
successfully  completed.
102

FARM PRICE AND INCOME ISSUES, 1965

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics