The government’s role in agriculture

The government’s role in agriculture

The Government’s Role in Agriculture

For the last half-century, U.S. agriculture has been among the most productive in the world. Not only has it made possible a high-quality and low-cost diet for a growing population at home, but it has, from its abundant exports, fed millions abroad. Although U.S. agriculture has beenimmensely successful, American farmers have not always prospered to the same degree. The reason forthis disparity lies in agriculture’s unique characteristics:

* Agricultural commodities are homogeneous products. For example, wheat of the same type and grade – whether it is produced in Kansas or Texas – is used to make flour. Manufacturers regard price as the main determinant of their wheat purchases. * Commodities are produced on a large number of farms, each accounting for a small part of total output. No individual farmer can influence prices by limiting supplies to the market. * Most of the time, the productive capacity of U.S. agriculture exceeds the demands of domestic and foreign markets by a wide margin.

Because of these characteristics, individual producers cannot influence market forces. Prices can be low and quite variable, depending on the level of output. Higher production usually translates into lower prices for most commodities. At such times, incomes of most farmers are bolstered by commodity programs designed to even out the large swings in prices. Widespread Federal involvement in farm commodity programs began during the Great Depression. After the stock market crash in October 1929, farm prices dropped even further from their depressed levels of the 1920’s. In 1933, farm income per person was less than a quarter of nonfarm income. Congress responded to the crisis, at the behest of President Franklin Roosevelt, by passing the Agricultural Adjustment Act of 1933. The goals of the 1933 Act were to raise farm prices, thus improving income, and bring supply in line with demand. Only the Government had the power to do this.

At times, prices have been high enough to bring sufficient return to farmers with little Federal assistance. The early 1970’s was such a period. Growing world demand caused an explosion in agricultural exports, dramatically reducing the importance of commodity programs to farmers’ incomes. Economic conditions, however, changed in the early 1980’s. World demand stagnated, production soared, and prices for major commodities plunged. A rising dollar and highly competitive world markets cut the U.S. share of exports for many agricultural commodities. Agricultural surpluses mounted, despite efforts to reduce them. Many producers experienced financial stress.

The Food Security Act of 1985 – the latest major farm legislation – addressed many of these problems. The goals of Government involvement in agriculture remain the same. According to a 1985 report by the Senate Committee on Agriculture, Nutrition, and Forestry: “The essential purpose of successful farm policy is to provide for a measure of stability in the agricultural sector, thereby increasing the opportunity for farmers to derive fair and reasonable profits in the marketplace. The aim of Federal farm policy is to induce elements of predictability into the inherently unpredictable business of farming.”

Congress is now considering legislation to replace the soon-to-expire Food Security Act of 1985. This issue of National Food Review is designed to help the public understand farm commodity programs. The articles – covering all program commodities – discuss the history of the programs, current provisions, and their effects.

For further reading: A history of commodity programs can be found in History of Agricultural Price Support and Adjustment Programs, 1933-84, AIB-485, by Douglas E. Bowers, et al., ERS, USDA, December 1984. A Congressional perspective on farm commodity programs can be found in Food Security Act of 1985, Report of the Committee on Agriculture to Accompany H.R. 2100, House Report 99-271, Part 1, U.S. Congress, September 13, 1985; and Agriculture, Food, Trade, and Conservation Act of 1985, Report of the Committee on Agriculture, Nutrition, and Forestry to Accompany S. 1714, Senate Report 99-145, U.S. Congress, September 30, 1985. The Agricultural-Food Policy Review: U.S. Agricultural Policies in a Changing World, AER-620, ERS, USDA, November 1989, contains a wide-ranging economic discussion of commodity programs.

COPYRIGHT 1990 U.S. Government Printing Office

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