June 16, 2004
At the end of May, prices received by farmers were the
highest since monthly statistics began to be accumulated in 1910.
They also were 99 percent of parity.
Part of this increase in prices is the result of the
strong gains in world economic activity. With
India’s economy surging 10 percent in the past quarter and China’s
economy 9.7 percent above previous year levels, the number of people not
able to afford an adequate diet has plummeted.
Moreover, the dollar has fallen relative to the
currencies of many of our agricultural competitors, such as Australia,
Canada, and South Africa. Thus,
we can sell abroad the crops and some of the livestock that is not needed at
home at higher dollar prices.
Of course, there also have been production problems.
European agriculture has not yet fully recovered from last year’s
heat wave. The cotton and lower
wheat and soybean belts in the U.S. have been drenched this spring.
China’s cotton fields also have been reduced as industrialization
has removed some agricultural acreage.
As a result of strong world demand and reduced supply,
prices at the grocery may be as much as 4 percent above previous year levels
at the end of this year. Those
farmers experiencing normal production conditions should be able to buy new
equipment and pay down previous loans.
However, some agricultural commentators may point out
that a bushel of wheat only buys as many nails, board feet of lumber and
other agricultural necessities as it did almost a hundred years ago.
This is exactly what parity is all about.
Unfortunately, agricultural policy has been based upon
bushels of wheat, head of cattle and other specific measures of agricultural
production rather than the more relevant measure of farm income.
We have assumed that a bushel of corn or a bale of cotton should
purchase the same quantity of non farm goods as it did a century ago.
If the ability to produce a bushel of wheat improved in tandem with the ability to produce other goods in the economy, maintaining similar price changes for farm production as for other goods would be relevant. But that has not been the case.
Right after World War II, a farmer would be proud to
produce 50 bushels of corn on an acre of land.
Today, the average farm produces more than 130 bushels and bragging
rights are reserved for those with yields of more than 200 bushels.
To be sure, the ability to produce other goods and
services also has improved. However,
productivity gains on the farm have been twice as rapid as in the overall
economy. American agriculture
has been one of the greatest success stories in the industrialized world.
Agriculture clearly has some unique problems that
justify government intervention. A
farmer should not lose the family farm because rain did not fall or an
untimely windstorm destroyed production.
Farmers should not be forced to sell because tight
credit conditions cause banks to deny loans or reduce loan balances.
These are problems that clearly justify some community intervention.
In Europe, governments also argue that family farms
must be preserved to insure the viability of the quaint villages that dot
the countryside. (Many of our
quaint villages are in New England, where most family farms disappeared a
long time ago.) Indeed,
Europe’s desire to maintain agricultural subsidies is one of the major
reasons why the Doha tariff discussions have been stalled.
I clearly believe that low cost crop and livestock
insurance should be made available by our government.
I also believe that credit availability should be assured to farm
supporting product prices or restricting production through acreage quotas
is as antiquated as the parity measure that continues to be reported with
If this were not an election year, now would be an ideal time to remove some of the farm programs that no longer are justified by prevailing farm conditions.