Treating symptoms may relieve the pain but not effect a cure - unless the basic causes are recognized, understood and treated also. Here\u27s a straightforward look at the two major farm problems we have today and at some possibilities for doing something in the near future to overcome or solve them

Heady, Earl O

English

Treating symptoms may relieve the pain but not effect a cure - unless the basic causes are recognized, understood and treated also. Here's a straightforward look at the two major farm problems we have today and at some possibilities for doing something in the near future to overcome or solve them.</p

Heady, Earl

Digital Repository @ Iowa State University (ISU)

Another Look at the farm Problem Treating symptoms may relieve the pain but not effect a cure - unless the basic causes are recognized, understood and treated also. Here's a straight· forwa rd look at the two major farm problems we have today and at some possi· bilities for doi'ng something in the near future to overcome or solve them. by Earl 0. Heady OUR FARM economy has two major problems: ( 1) con-tinuing overproduction - a long-run problem and ( 2) the surplus stocks now on hand-a short-run problem. The surplus stocks, of course, are an outgrowth of the continuing overproduction. But both will have to1 be solved- and perhaps attacked in different ways-if resources in agriculture are to earn returns on a par with those in other industries. The essence of the overproduc-tion problem is that, with the present and prospective produc-tive capacity of its resources, ag-riculture now has more resources than are needed to produce food for the nation . These resources are continuing to produce more food than the market will absorb EARL 0 . HEADY is distinguished pro-fessor of agricultural economics and executive director of the Center for Agricultural Adjustment at Iowa State. at prices g1vmg satisfactory in-comes to farm families. The standard in measuring these incomes is the return to la-bor and capital used. Over the last 10 years, the average return to labor and capital in agric.qlture consistently has been.- lower ~ than the average return to the same amount of resources used in other industries. And this situation is likely to continue for some time unless some major changes can be made in the structure of American agriculture. Surplus Production This long-run problem stems partly from general economic growth. As a nation grows eco-nomically- particularly a wealthy nation in which consumers gener-ally have good incomes- the pos-sibilities for agricultural expan-sion aren't nearly as great as for many nonfarm industries . The reason lies in the way consumers (who are relatively well fed and well off) spend their growing in-comes. Studies show that for each 1-percent rise in income, consumers may spend more than 1 percent-sometimes as much as 2 percent-on many items such as health, recreation, education, transporta-tion, housing and home furnish-ings. As incomes continue to grow, consumers "invite" (by their spending) the use of more resources in these industries. Be-cause consumers want these things so much, they handsomely reward the resources used in these industries. The effect on agriculture is dif-ferent when food is plentiful. When consumers' incomes in-crease by 1 percent, they increase their spending for food by much less than this. And most of this increased spending doesn't go for more food in total. It goes most-ly for improved diets and food services, including freezing, pack-aging, additional processing, res-taurant services, etc., rather than for more pounds of food per per-son. Some shift in the quality of products eaten takes place, but it mostly replaces other products or other qualities. The main opportunity for agri-culture to expand has been with and at the rate of population growth. Certain other industries ' such as those mentioned, can ex-pand profitably at a much faster rate. Both population and na-tional income growth set the pace for them. But, without important new markets, population growth alone is the chief pacer for agri-culture. If it produces more than can be absorbed by population growth, agriculture generally finds itself with too much output, sur-pluses and lowered prices. This is in distinct contrast to certain nonfarm industries which can absorb productivity gains which exceed population growth. They're rewarded also by nation-al and per-person income gro1Vth as consumers actually · increase their spending for the goods and services offered. Farm production has increased much more rapidly than has the 3-335 demand for it arising either from ( 1 ) population growth or ( 2) in -creasing consumer incomes. This is the heart of the long-run prob-lem of agriculture in the United States. Mechanization and improved production techniques, meanwhile, also have made it possible for fewer persons to produce this in-creasing output. During World War II and the years following, we experienced an unprecedented, almost explosive, adoption of new technology on the nation's farms . The demand for farm products tapered off following the war. But the pricing structure after the war continued to encourage both in-creased output and increased use of new technology by making both unusually profitable relative to actual demand. Agriculture has already made some changes because of this sit-uation. Over 1939-50, the num-ber of commercial farms in the nation dropped by 2 7 percent, and the average size of commercial farms increased by about 50 per-cent. The number of persons em-ployed in agriculture declined by 2 5 percent in this same period and dropped another 2 5 percent during the 1950-58 period. Surplus Stocks • . . The immediate short-run prob-lem is our mammoth surplus stocks of wheat, feed grains and cotton. While this short-run prob-lem is "part and parcel" of the long-run problem, it's not entirely the same problem. The changes that are taking place in response to the long-run problem offer no immediate promise of solving the short-run surplus problem. Currently, as some operators leave the farm for opportunities elsewhere, their farm usually is consolidated with that of a nearby neighbor. And, as it turns out, 4-336 the operator remaining often has more capital and the management ability to get greater yields. Likewise, solving the present problem of surplus stocks won't automatically solve the long-run problems of agriculture stemming from national economic growth. Insurmountable? ... We're all pretty much aware of the size of the short-run surplus problem. The carryover of feed grains at the end of this year is predicted to total 70 million tons -compared with a "normal" an-nual carryover of 20 million tons and an average annual use over the last 5 years, including exports, of 130 million tons. With corn acreage uncontrolled and average weather (and consid-ering also that wheat stocks have some feed-grain potential), our grain stocks at the end of next year will be nearly as large as the normal usage of all feed grains in an average year. Considering the size of current stocks, it's easy to think that our first and most pressing problem is to reduce the size of these stocks. It is and, at the same time, it isn't. There's an even more press-ing problem: To stop adding to these stocks. Let's face it. There's no "mag-ic" way to reduce these stocks im-mediately. At best, it would take several years to work the stocks down to a reasonable level. But to do this, even over a period of years, means that we'd have to stop adding to the stocks. We've all hoped to find some easy and workable formula to ex-pand demand or to improve mar-ket outlets for getting rid of our surpluses. But no such magic formula exists! Surplus stocks now are six times greater than the record 1957-58 rate of feed-grain exports. And we can't expand domestic demand for feed grains to remove the sur-plus rapidly. People can't eat the feed grains unless they're proc-essed through livestock. But, if we increased livestock production enough to eat up the surplus in 1 or 2 years, livestock prices would be highly unprofitable. So it seems that the best oppor-tunity is in stopping additions to the feed-grain surplus, and, then, in using all of the methods at our disposal to reduce the surplus stocks over a 5- or 6-year period. Can It Be Done? . • . Could this be done? We'd need to work out a "timetable" for any such attempt. Let's "try one on for size." It's too late to do anything about the problem in 1959. With average weather, stocks will in-crease because there are no con-trols on corn acreage. Thus, the first chance to put any machinery in operation to cease adding to stocks would be in 1960. Needed then would be a vigorous program to keep annual production from exceeding annual use. With the very large stocks on hand, acreage might well be re-duced to a point where production would fall somewhat short of an-nual use. This operation would have to be continued for 4-6 years while: ( 1) We use every means possible to expand markets and to use up the excessive stocks now on hand; and (2) we use these years to make a transition to a more reasonable long-run structure of the national agricultural produc-ing plant. What Method? The first im-portant step would be to decide on an acceptable method to cut back production, say, in 1960. Unless we do so and get it into action, we'll add even more to a stockpile of grains that's going to be tremendous by next year. And we can't even begin to make p h y s i c a I arrangements before 1960 to use up stocks. Even if it were to be fed in a short time--a possibility that's re-mote and probably undesirable on a "quick-tempo" basis- we could not get more sows bred and more cattle into the feedlot until next year. And, even if we were able to export it all in 1 year (a pos-sibility even more remote and harmful to foreign relations), we couldn't get the m a c h i n e r y cranked up to do a complete job in less than a year. The suggested first step is to stop adding to stocks which are already very large - because it can cost considerably less to pay j or not producing th.an to pay for producing and to pay j or the stor-age costs in addition. Producers participating w i th present price supports and whose grain moves into government-held stocks still pay their production costs. They get some returns on the crop but also bear, along with the public in general, the storage cost. These, like the surplus stocks, have been increasing an-nually. There are ways, however, in which production could be re-duced - with payments large enough to provide about the same returns as under the present sys-tem-but without also having to cover either the costs o j growing or storing the crops. There are a number of ways this could be done. Some have suggested rigid production quotas. But it's an open question whether such a system is acceptable in our society. Another possibility is to apply an old principle-that of "supply and demand." Experience from the past -whether for hogs, chickens, corn, milk or other farm products-has shown that if the price of a thing is high enough, the supply also will be high enough. This same principle would work in produc-tion control: If a high enough price is paid, the "supply" of land going out of production also will be large enough. A high price? Higher than the current levels designed to do a part of this job. But the total cost probably would be considerably less than the current public outlay needed ( 1) to pay some farmers to take some land out of produc-tion, though not enough to elimi-nate the surplus buildup; (2) to provide support prices to others for producing more and offsetting the land taken out of production; and ( 3) to pay for storing the added surplus production. Avoid "Won't Work's": We know that the old methods of acreage control won't do the job. They haven't taken enough land out of production: (a) to make up for the trend in increased yields; (b ) to offset the tendency for the lowest-yielding land to go out of production first; and ( c) to offset the tendency for farmers to take out part of their acreage and then to more than make up for it by using the " released funds" to get a greater output from the remaining acres. Many producers enter parts of their farms in the acreage-control programs and then offset the acre-age cut by using more fertilizer and better practices on the land that's left in production. And, in total, the acreage-control pro-grams of the past have, in the main, merely shifted the relative surplus production from one crop to another. Producers, in effect, were asked to reduce the output of one surplus crop but allowed to shift production to other surph1s crops. Parts of the wheat and cotton surplus problems have been shift-ed to feed grains in this way. During 1945-49, for example, 76 million acres of wheat, 22 million acres of cotton and 164 million acres of feed grains, including soybeans, were produced. Over the 1954-58 period, we produced 58 million acres of wheat, 16 mil-lion acres of cotton and 174 mil-lion acres of feed grains. The Great Plains area cut wheat acreage, but increased the acreage of feed grains. The South reduced cotton acreage, but di-verted some of the acreage into feed grains. And even the Corn Belt and the Lake States increased feed-grain acreage between 1945-49 and 1954-58 as producers shift-ed away from corn into soybeans and grain sorghums. Attack Both Problems? In the short run, acreage might be taken out of production "across the board." The present "whole-farm" approach to land retire-ment provides some machinery for accomplishing this. But it might be necessary to extend such machinery to the limits allowed by community considerations and to spread it over more acres than at present. A different system of land re-tirement would be needed in the long run, however. In this case, it would be better to withdraw land by regions where a perma-nent shift is needed in agricultural production and resource use. If agriculture is to be meshed with national economic growth and the real social challenges that lie ahead, it will be necessary to concentrate more on leaving in production the land with the greatest comparative advantage in productivity of capital and man-power - with less production where the comparative advantage is lower. Thus, some of the land which needs to be or might be taken out of production to meet the immedi-ate surplus situation wouldn't be the same as that needed to meet the long-run growth and produc-tivity problem. Research is in progress at Iowa State in analyz-ing possibilities for the latter, and we'll report some of the results soon in IowA FARM SCIENCE. Needed first, however, is think-ing and action so that we can stop adding to the surpluses each year. And this is needed quickly. Then, the next 5 years, or whatever pe-riod is necessary, can be used to reduce existing stocks through whatever gains can be made in demand and market expansion. 5.337 

Another Look at the Farm Problem

https://dr.lib.iastate.edu/handle/20.500.12876/37029

Another Look at the Farm Problem

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