Toward A Sensible Agricultural Policy
?e 4-e'r 4 1. cJ
Agricultural price supports and control of agricultural
output have become well ingrained in American farm policy today.
They have become so much a part of the policy picture, in fact,
that when changes in policy are discussed, only new means of
supply control or different (usually higher) levels of price
support are considered. Almost completely lost is the notion
or possibility of remaining price and control programs. It
is with a plea for honest and deliberate consideration of all
possible agricultural policies that this paper is written.
Past and present price support programs have been
based on the knowledge that the demand for farm products is
highly inelastic so that increases in aggregate output cause
decreases in total income to the farm sector of the economy.
This knowledge, coupled with the expressed desire of congress
to raise total farm income leads logically to the control of
output and its stable-mate price control. The inconsistency
is not in the conclusions reached, but rather in the expressed
goals of fare policy. The basic goal should not be to raise
total fare income. The sensible, and much more realistic goal
should be to increase per capital net farm income. This goal
can be accomplished without the endless continuation of artificial
price supports and supply controls and all the inefficiencies
concomitant with them.
The variables which affect total farm income are out.
put and price. To change total farm income it is necessary to
change one or the other or both. A higher price is an incentive
for each farmer to increase his output. To raise prices
without simultaneously restricting output is not economically
feasible. On the other hand, to restrict output without,at
the same time, artificially raising prices seems to be politically
impossible (and probably economically impossible with the
mountainous surpluses the past support programs have created).
The variables affecting per capital net farm income,
in addition to output and product price, are factor prices,
efficiency of production and number of people farming. Any
control on factor prices can safely be omitted fromplanned
farm policy. Given aggregate farm output and product prices,
net per capital farm income can be increased by either or both
an increase in efficiency of production and a decrease in the
number of people farming. The historic trend for both has been
in the indicated direction. This trend, however, has been
retarded by our current and past farm policies.
Farm product prices which are pegged artificially
high encourage those farmers who, because of their relatively
small farms and restricted total resources, are less efficient
in production. Even though their costs are high, some profit is
possible because of the high price received for their products.
Acreage restrictions have little effect on these small producers.
A shift in a few acres fromone crop to another or from coop
production to idleness has little effect on their already high
costs of production. At the same time, they benefit little
from product price increased because of their small output. Thus,
current farm policies tend to retard the movement of people
out of agriculture and encourage high cost producers, both of
which serve to lower net per capital farm income.
Suppose, for sake of argument, the government announced
that prices would be allowed to return to free market levels,
gradually, over a ten year period. That is, free market prices
ten years from now would be predicted and current support prices
reduced by 1/10 of the difference each year. (Adjustments
would have to be made from time to time, of course, but
essentially prices wuuld be known one to two years in advance.)
Acreage controls would have to be removed at the same rate and
over the same period of time. What effects would this policy
haveon the goal of increasing per capital net farm income and what
other measures would be made necessary to cope with the problems
which would arise. Finally, would the new problems be of
greater or less magnitude and burden than the problems we
The effect of such a policy would be felt first by
the smaller, high cost producers. Prices would drop tobelow
their cost of production and without the promise of higher
prices in the future, they would be forced out of production.
This would free much needed land for expansion of the medium size
and longer producers and allow them to further reduce their
The wheat and feed grain farmers of the Great Plains
produce crops which are among the most abundant in surplus and
present one of the biggest problems of adjustment. This group
of farmers should serve as a good example of what could happen
under the proposed policy.
Much of the land which is now cultivated in this area
and producing surplus and price supported crops should be returned
to grass and used for livestock grazing. (This statement should
not need to be documented). Much of this margninal land is in
the hands of the small farmer who cannot afford the out-of-pocket
cost of returning cropland to grass, let along the deferment of
income which necessarily results. If this land is shifted into
larger units, several factors will be inoperation that tend
to return this land to grass.
First, the price of wheat will drop relative to the price
of cattle (or other livestock) making thelivestock grazing
enterprises relatively more profitable. Secondly, the farmer with
more resources at his command is in a much better position to be
able to return cropland to grass. Because his income is larger
initially and because he has more assets, the current cash
expenses and income deferment required for regrassing are not
As this recombination of resources takes place, several
of the old "farm problems" are simultaneously alleviated. Land
is taken out of crop production and returned to grass reducing the
production of surplus crops. Livestock numbers are increased as is
consumption of feed grain another gain on the surplus. The
of the period.
The most severe problem which would result from this
proposed policy would be the displaced farm people and their farm
assets. Except for the land involved, much of the remaining
assets would be old and depreciated machinery and equipment due
to the very nature of the reason these people were forced out
of farming. The capital loss for these assets would be slight.
The value of the land (either sale price or rental rate)
these people were abandoning could undergo a decline in the face
of declining farm prices and with a relatively large supply coming
on the market in a short period of time. Since it is the price or
rent received for this land upon which these people must depend
during their period of adjustment, it may be necessary to subsidize
land values to some extent. One effective means would be a
conservation or recreation reserve program. The governmental rental
or purchase rates would have to be high enough to allow a fair
trade, but not so high that neighboring farmers desiring to
expand could not afford the land.
Aland subsidy program would partially offset the need
for direct aid to those persons moving off the farm. However,
many of these people would require additional aid at least to
the extend of a subsidized re-education program. Relocation and
*A decrease in the farm labor force would be a movement along
the current production function. An expansion in farm size and
concurrent advanced in technology relative to a given labor
force would represent shifts of production function. Either change,
of course, would lead to more optimum use of labor if, as is argued,
farm labor is working for less than opportunity wages.
resettlement might well require and receive subsidation also.
The cost of these new subsidy programs could well
be quite high and could be required over a long period of time.
The cost of the new subsidies could be accounted for by the de-
creasing cost of the price support program -- perhaps or even
probably the new program would cost less over the logg run)
The problem causing the need for these new programs, however, could
be placed in its appropriate perspective. The problem is a surplus
of labor and solution requires relocation and re-education or
at least a change in the industry of employemnt. Machinery already
developed in the Department of Health, Education and Welfare
would be more appropriately applied to this problem than the price
subsidy program machinery of the Department of Agriculture.