Paarlberg, Don

English

Research Papers in Economics

Production  and  Consumption  of Food;
Toward  a Better  Balance
By Don Paarlberg
Since I  propose  to venture  some tentative speculations,  let me first lay
out the ground rules and indicate my assumptions. These are assumptions,
of course,  not predictions.  I am dealing primarily with the next five or six
years,  and  will  indicate  prospective  conditions  for the  year  1960.
1.  International tensions  are assumed to continue much as at present.
2.  Economic  growth is assumed  to continue  at about its  normal rate
of  2-3  percent  per year.  The  percentage  of the  population  which  is  em-
ployed  is  assumed  to  remain  much  as  at  present.  The  general  level  of
wholesale  prices  is  assumed  to  fluctuate  within  a  narrow  range,  with
perhaps  some softness.
3.  Population  is expected  to increase about  10 percent  to  about  180
million,  by  1960.
4.  The farm legislation under which we  operate is assumed  to be the
Agricultural Act of  1954.
5.  Normal  weather,  similar to  what  we  have had  in recent years,  is
contemplated.
I know  some  of you  are thinking  that what  is  left  after all these  as-
sumptions  is  a  sterile  and  unlikely  situation  in  which  serious  problems
are not likely  to emerge  and could  easily be  resolved.  In short, I may be
accused  of solving  problems  by excluding  them from  consideration.  But
it  is  necessary  to  make  assumptions  in  order  to  deal  with  the  subject
assigned,  and I have made the assumptions  which seem  to me reasonably
probable.  Undoubtedly  they  are the  easiest  ones  with  which to  work.  If
a  discussion  follows  this  paper,  we  can  re-examine  the  analysis  in  the
light of other  assumptions.
In  1953  the excess  of production  over consumption  was about  3  per-
cent.  In other  words, with  exports and imports  of farm products  as they
were,  a  3  percent  increase  in  consumption  or a  corresponding  decrease
in marketings would  have brought  the average annual  supply in balance
with  annual  utilization.'  Stocks  on hand are large and will  affect  market
outlets for farm  production  in the  next  year  or two.
Under the assumed  conditions, what  over-all supply of farm products
would  be  anticipated  by  1960?  At  least three  views  prevail  as  to likely
'Christensen,  R.  P.,  "Needed  Adjustments  in  Farming,"  Journal  of  Farm Economics,
Vol.  XXXVI,  No.  3  (August  1954),  p.  387.
46trends in  over-all farm production  during the next  five or six  years. One
view  is  that new  and  more  efficient  production  techniques  are likely  to
be developed  and put into use so  rapidly that  total farm production  will
tend constantly  to increase  more  rapidly than  total  population.  Another
view  is that our stockpile  of improved production  techniques that remain
to  be applied  is much  less than it  was some  years  ago.  A third view,  to
which  I  subscribe,  is  that  figures  on  total  agricultural  production  are
not  particularly  meaningful,  and  that  the  composition  of  the  supply  is
far more important than its sum. Insofar as one might hazard  the totaling
of production,  I would  expect  it to  increase gradually  at a rate of  about
1-2 percent per year.
The  effect  of  acreage  reductions  now  under  way  will  be such  as  to
change  the  pattern  of  production  rather  than  reduce  over-all  volume
appreciably  if past  experience  is a reasonable  guide.  I would  expect sup-
plies  of  feed  grains  and  livestock  products  to  increase  relative  to  1953
in  the  years  ahead,  and  supplies  of  wheat  and  cotton  to  decrease  for
reasons that I will give later. If these changes  can be made, there is reason
to believe  that production  and  consumption  will be  in  reasonably  good
balance in 1960 under the assumed conditions. If these production changes
are not possible,  then  over-all  supplies  of farm  products during the  next
several  years  would  exceed the  amount the  market  would  take at  stable
or  slightly  lower  prices  by  about  3  to  5  percent.2 Prices  would  fall  and
farm incomes  would be reduced.
There is, thus, the prospect that food supplies will be abundant  during
the  years  ahead,  and  the  question  arises  as  to  how  these heavy  supplies
might be utilized to the advantage  of both farmers  and consumers.
INCREASED  PER  CAPITA  CONSUMPTION
One  possibility,  which  I  will  dismiss  very  quickly  as  improbable,  is
that  per  capita  food  consumption  would  be  appreciably  increased,  as-
suming  the  same  composition  of  the  diet as  at  present.  The reasons  are
that  food  is  now  abundant  and  relatively  low  in  cost  and  that  income
is  high  and broadly  distributed.  If  the  assumptions  hold,  people  will be
able  to afford  a higher  level of living in the years  ahead than at present.
But  the  share  of that  added  income  which  would  be  spent  for  added
total  food  would  be  very  small.  If  the  aggregate  index  of  farm  prices
were to decline, this would not be expected to set the stage for an appreci-
able  increase  in  total  food  consumption.
From time to  time  there  is talk  of  food  stamp plans  and  a national
food  allotment  program  to  meet  the  unfilled  food  needs  of  low-income
2Wilcox,  Walter  W.,  "Methods  of  Increasing  Domestic  Consumption  of  Farm
Products,"  Journal of Farm Economics, Vol.  XXXVI,  No.  3  (August 1954),  p.  509.
47people.  The likelihood that plans  of this kind would  be inaugurated  and
would  reach  such  a  magnitude  as  appreciably  to  affect  total  food  con-
sumption appears to me unlikely within the time span and the assumptions
that  have been  indicated.
EXPORTS
There are,  in the world outside the United States,  a large number  of
people  who,  on  the  basis  of  common  measurements,  have  tremendous
unfilled  needs  for  food.  It  is  sometimes  suggested  that,  because  of  this
need,  there  should  be  an indefinite  continuation  of  give-away  programs
on the part of the United States.
Assistance to meet  acute  emergency  needs can be a constructive  form
of aid, and does provide a limited and erratic export outlet. Three hundred
million  dollars  has  been  made  available  by  the  Congress  over  the  next
three years  to  meet  needs  of  this kind.  Continued  gifts,  however,  are  a
doubtful kind of help.  They tend to displace normal trade, both our own
and  that  of  friendly  foreign  nations.  They  lower  prices  and  inhibit  the
production  of  food  in  the  recipient  countries,  making  these  countries
dependent  upon our continued  and increased  gifts.  In this strange world
at least  as  much skill  is required  to  give  products  away  as  to sell  them.
Normal  export  outlets,  utilizing the  conventional trade  channels,  are
not  likely  to  increase  appreciably  from  present  levels  during  the  years
ahead.  World  agriculture  has  largely  recovered  from  the  effects  of  war.
Last year's  agricultural production in the world as a whole was estimated
at  15  percent  above  prewar.3 Production  of  cotton,  wool,  tobacco,  rice,
sugar,  meat,  animal  fats,  and  citrus  was  at  record  levels.  Production
was high, though not at record levels, for wheat, potatoes, beans and peas,
edible  vegetable  oils, and  dairy products.
This  year, in  Public Law No.  480,  Congress has provided  a new and
broad basis for the sale of agricultural surpluses against foreign currencies.
Over the next three years,  a total  of  700 million dollars  will be available
for  local  currency  sales.  Sales  are  to  be  made  at  prices  which  will not
disrupt world  prices,  and are to be in addition to usual  dollar purchases.
Foreign  currencies  acquired  under  this  program  will  be  utilized  in  a
variety of ways, generally intended to build up the economy of the country
of origin. Steps have been taken to make effective use of this new authority.
Every  effort  will  be made  to use  this authority  to expand  foreign  trade.
The degree  of success cannot now be anticipated with accuracy.
While  exports  are of vital importance  for  a few crops, they  represent
3Burmeister,  G.,  "The  Current  and  Prospective  Foreign  Trade  Situation  With
Respect  to  Farm  Products,"  Paper  given  at  the annual  meeting  of the  American  Farm
Economic  Association,  State  College,  Pennsylvania,  August  25,  1954.
48less  than  10  percent  of  our  total  production.  Such  increases  as  can  be
attained  will  be  helpful,  but our  main  opportunities  for  increasing  the
consumption  of farm  products  are here  at  home.
SHIFTS  IN  THE  DIET
The  various  proposals  considered  up  to  this  time  have,  in  general,
been  evaluated  as  holding  relatively  little  promise  for  increased  con-
sumption of American food.  We  come now to the one type of adjustment
which  many,  including  myself,  hold  in  high  regard.  It  is  a  shift  in  the
composition  of  the  diet,  toward  more  livestock  products.  Does this  type
of  shift  provide  an  opportunity  during  the  years  ahead  to  keep  our
agricultural  resources  largely  in use,  to consume  the production  of these
resources,  and  to  do  this  without  sharply  depressing  farm  prices  and
incomes?  I believe  it does,  if we can make the needful  changes.
Livestock  condense  about  7  pounds  of  dry  matter  in  the  form  of
grain and other feed  to about  1 pound of dry matter in the form of meat,
milk,  and eggs.  The other  6  pounds  are used  for heat and  energy or are
wasted  and  cannot  be  recovered  by  man.  Thus,  far  more  agricultural
resources  are needed  to provide  a  diet which contains  a high percentage
of  livestock  products.  Increasing  and  decreasing  livestock  numbers  is
the time-honored  method  of adjusting the food supply  to changing needs.
The amount  of  flexibility  provided  by  this  system  is  tremendous.
Europe normally imports about one-fourth of her food supply. During
World War II these imports were cut off, while men, steel,  and chemicals
normally  used  in  agriculture  went  to  war.  Mass starvation  might  have
been  expected.  But Europe  reduced  her livestock population.  She  ate the
livestock and then ate the grain and potatoes which the livestock otherwise
would  have  eaten.  Thus,  she  stretched  her  food  supply  and  avoided
starvation.
From  1940 to  1953,  crop production  in  the United  States increased
rapidly,  faster  than  population  growth.  Per  capita  meat  consumption
increased  12  percent,  while  per  capita  consumption  of  wheat  and
potatoes  declined.  Thus,  the  slack  was taken  up.  There  is  every  reason
to believe that per capita consumption of livestock products in the United
States  could  be  increased  from  present  levels,  if  prices  were  such  as  to
permit  it.  New  Zealand,  Australia,  Uruguay,  and Argentina  exceed  the
United  States in  per capita consumption  of livestock  products.
Much  concern  is expressed  regarding  current stocks of feed grains.  If
stocks  were  reduced  to  the  1946-50  levels  by  moving  them  into  con-
sumption  in  the  form  of  livestock  products,  they  would  provide  the
equivalent  of  about  5 'percent  more  poultry,  eggs,  and  red  meat  at
current  annual  consumption  rates.  Of  course,  time  would  be  required
49to  convert  feed  grains  into  animal  products;  liquidation  of  stocks  to
the  1946-50  levels  spread  over  a  five-year  period  would  provide  about
1 percent  more  poultry,  eggs,  and  red  meat  per year.  In  their  present
form these  stocks  bulk large.  Converted  to livestock  products, they would
be manageable.  If all the 25  million acres diverted from corn, wheat,  and
cotton during 1954 were used for feed grains, hay, and pasture, they would
provide  about  a  billion  pounds  of  beef  and veal  each  year,  or about  4
percent  more red meat than was produced in  1953.
There  are numerous  advantages  to  shifting  more in  the  direction  of
an  animal  agriculture.  There  is the  obvious  advantage  to  farmers  that
by  this  method  we  could  more  easily  find  a market  for the  production
from  our entire  acreage.  There  is  likewise  this  unique  advantage  to the
farmer:  If  production  of  crops  is  increased,  the  price  in  most  cases  is
depressed  much  more  than  proportionately,  so  that  gross  income  is  di-
minished.  For  livestock  products,  a  given  increase  in  production  also
depresses price but not nearly so  much as in the  case  of crops.  The  gross
income  from  livestock  products  is  slightly  diminished  by  a  production
increase,  whereas  the  gross  income  from  crops  is  sharply  diminished  as
production  rises.  One would not expect livestock farmers to be enthusiastic
about  the  price  and  income  effects  of  increasing  supplies  of  livestock
products.  But,  undeniably,  with  a  given  increase  in  production,  such
increase  could  be handled  in  the  form  of  livestock  products  with much
less  disturbance  than  in  any  other  manner.
Consumers, of course, would be enthusiastic about an increased  supply
of livestock products.  Considerations  of wise land use would also argue for
increased  livestock  production.
Some real difficulties would be encountered in shifting to more livestock
products,  and they should not be glossed  over.  A change from cash crops
to  livestock  requires  time  to  get  grass  established.  It  requires  money  to
purchase  stock.  During the interim, which will range from a year to three
or four years  depending  on  the  area and the  type of  livestock,  income  is
sharply  reduced.  This  is  the  reason  that out  in the  Great  Plains a  shift
from wheat to  livestock occurs  slowly,  while the  opposite  shift can  come
rapidly.  Livestock  farming  requires  special  skills which  can  be  acquired
only  over  time,  and  for some  people,  not  at  all.
We  could hardly recommend  an over-all  increase in dairy production
under  present  circumstances.  And we  can  readily  understand  the  reluc-
tance  of present  beef,  pork,  and poultry  producers to  welcome  the entry
of  new  producers  into  the  market.  But  the  shift  need  not  be  large,  as
previously  indicated,  and it undoubtedly would  be gradual.
How  might  resources  be  shifted  from  crops  like  wheat  and  cotton,
which are  in  excess  supply,  to  livestock  products,  in  order that  a  better
50balance  might  be struck  between  the  supply  and  consumption  of  farm
products? Relative prices,  if favorable to livestock products, would induce
such a shift.  This would  come slowly,  on a selective  basis,  and in circum-
stances with reasonable  prospect of success.  Acreage  reductions for wheat
and cotton  will  have  the  effect  of  inducing  the  shift.  Cross  compliance
and  compliance  with  a total  acreage  allotment,  with  provision that the
diverted  acres  may be used for forage  crops,  will  encourage  a shift.  Even
here,  however,  the shift  would  come gradually  and the full  effect would
not be felt  for a  period of years.
I have the feeling that within the assumptions  specified  at the outset,
livestock  production  is almost  certain  to increase  gradually  from present
levels. Adjustments, if they conform in general to the over-all best interests
of producers  and consumers,  have a subtle way of occurring  regardless  of
how we  may wish  to guide them.
I have endeavored  to evaluate  the promise, or lack of promise,  associ-
ated with  various  ways  of  achieving  a better balance  of  production  and
consumption.  I  may  be  wrong.  Maybe  the  one  that  looks  good  to  me
will  turn  out to  be  the least  promising,  and some  other  proposal  which
I have discounted will prove to be best. Maybe none of them hold promise.
Maybe my assumptions  will prove  wrong, in which case what  I have  said
will  not be relevant.
But  this is  one thing  of which  I  am sure:  Changes  of  some sort  are
certain  for  both  production  and  consumption  of  food  during  the  years
ahead.  Nothing  remains static.  Whatever these changes  may prove to be,
they  can be  accomplished  more  easily  within a price  structure  that  em-
bodies  some  flexibility.  Prices can help  allocate  resources,  guide  distribu-
tion, and influence consumption. The more of this we can do in the market
place,  in  accordance  with  the economic  balloting  of individuals,  the less
we  shall have  to  do  with  government  programs.
As we  face  the  uncertainties  which  lie  ahead,  both  farmers and  ad-
ministrators  can tackle the problems with more freedom than would have
been  possible  prior to  August  28,  when  President  Eisenhower  signed the
Agricultural Act  of  1954.
51PART  II
Alternative Methods of Stabilizing
Farm Income

PRODUCTION AND CONSUMPTION OF FOOD TOWARD A BETTER BALANCE

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