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The farm bill that authorizes the USDA and all of its programs will expire in 2002. As the new farm bill is debated it is important to review the lessons that have been learned during the 70 years there have been well-defined national farm policies. It is also important to consider the long-term goals the new farm bill should attempt to achieve.
History of U.S. Farm Policy. During the period 1890 to 1920 U.S. farm policy concentrated on making farmers more efficient and more competitive in the market place. The number of farms grew from 4.5 million to 6.5 million. From 1920 to 1960 farm productivity improved but the depression and export market problems stimulated enactment of the Agricultural Adjustment Act of 1933. This legislation created price support programs, production control programs and conservation programs that retired land and reduced soil erosion. Despite the efforts of these programs, chronic crop surpluses developed and the number of farms fell from 6.5 to less than 3 million. In the 1960’s there was a major change is farm policy. Price supports were reduced and a system of direct payments was initiated which is still in effect. During the 1970’s there was little need for intervention in farm policy, but in the 1980’s price supports were re-established, crop surpluses returned and the largest land retirement program in history was initiated. In 1986 the cost of the farm program set a record of $26 billion and in 2000 the cost of the agricultural program rose to $32 billion.
It now seems clear that high price support programs combined with production controls were damaging to consumers, global competition and the environment. The public began to view agriculture as a few large-scale, high-income farms that produced most of the farm products and questioned whether government should support such enterprises. For these reasons farm policy moved towards less intervention while strengthening crop insurance and conservation programs combined with lower price support levels and no production controls. Farmers now receive fixed payments, independent of production, which are designed to eliminate the distortion of production incentives that were characteristic of the earlier programs.
A technique is needed to define an agricultural recession, comparable to the method used to define a recession for the nation’s economy (i.e. two quarters of negative Gross Domestic Product growth). Data in Figure No. 1 show that for the past several years farm markets have been among the poorest in the 20th century.
Prices for corn and wheat are at 15-year lows, soybeans and cotton at 25-year lows and hogs at 50-year lows. In 1999 75 percent of the net income from the major crops (wheat, rice, corn, soybeans, barley, oats, cotton, and sorghum) came from government programs. In 2000 an estimated two thirds of the net income from these crops came from government payments. Despite these low prices there has been no national farm financial crisis and the number of farms has remained stable. Farm real estate values actually increased 3 percent in 1999 and during 2000 farmland values in several mid-western states increased 7 percent. The most obvious reason why farmers are weathering the current situation is the government payments they have received including funds from four ad hoc assistance appropriations (Figure No. 2).
Another reason a national farm crisis has been averted is that the off-farm income per farm household increased from $40,000 to $60,000 during the period 1995 to 1999. This off-farm income has helped maintain small farms. Guidelines for farm debt used by bankers indicate that farmers have borrowed 60 percent of what is considered feasible, but this is much below borrowing levels in the 1980’s.
Formulating a New Farm Bill
The next farm bill will start to be debated in 2002. The main forces shaping American agriculture are globalization, trade liberalization, technology, increased production, marketing changes and domestic farm policies. The new farm bill should be formulated in ways to meet long-term goals important to the future of U.S. agriculture.
One of these goals should be the development of methods by which agriculture can gradually disengage from the massive government support it now receives.
A second goal should be creation of programs that assure agriculture will take full advantage of technology changes. The rapid growth of farm productivity was the miracle of agriculture in the 20th century. Funds should be provided so that research needed to advance technology, may be performed and used. At the present time 8 percent of the farms in the U.S. produce 72 percent of everything produced on our farms. The trend towards larger farms means that consideration must be given to the higher capital requirements of these farms.
A third objective of the next farm bill should be to work towards elimination of tariffs, export subsidies and programs that distort production incentives. This is not a problem unique to the U.S. It is estimated that support of agriculture in developed countries costs $360 billion per year or roughly 40 percent of the value of their agricultural output.
Finally the new farm bill should strengthen farmers’ capacity to succeed in a market-oriented agriculture.
Dr. Collins holds degrees from Villanova University and University of Connecticut and a Ph.D. in economics and statistics from North Carolina State University. He is Chief Economist of the U.S. Department of Agriculture. Dr. Collins’ is in charge of the Office of the Chief Economist, the World Agricultural Outlook Board, the Office of Risk Assessment and Cost-Benefit Analysis, the Global Change Program Office, and the Office of Energy Policy and New Uses. He has served as Acting Assistant Secretary of Agriculture for Economics and as Director of the Economic Analysis Staff. As Chief Economist, Dr. Collins develops the Department’s agricultural forecasts and projections and advises the Secretary on economic implications of alternative programs, regulations, and legislative proposals. He is a member of the Board of Directors of the Federal Crop Insurance Corporation and Vice Chairman of the Board of the USDA Graduate School. Dr. Collins received the Presidential Rank Award for Meritorious Executive in 1990 and 1996 and for Distinguished Executive in 1992.
Copy & Paste Presentation Summary
In an effort to provide wide-ranging views and perspectives regarding the practice of and issues surrounding agriculture, the Philadelphia Society for Promoting Agriculture (PSPA) seeks speakers representing a variety of perspectives. The statements and opinions they present are strictly their own and do not necessarily represent the views of PSPA.