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U.S. Agriculture in the Twentieth Century
Bruce Gardner, University of Maryland
Considering that the basic facts about twentieth century agriculture are not seriously in dispute, it is surprising how differently they are seen by different observers. One constellation of views sees the farm sector as a chronically troubled place, with farmers typically hard pressed to survive economically and continually decreasing in number. Moreover, pessimistic assessments see unwelcome trends developing over recent years, with methods of farm production environmentally suspect, farm laborers exploited, the wealth farming generates increasingly concentrated on relatively few large farms, and billions of dollars taxed from the general public for the benefit principally of those large farms. Some economists have argued that even large commercial farms constitute a sector in decline (see Blank, 1998).
An alternative constellation of views is more optimistic. It focuses on the increased acreage and output of the average farm, the sustained growth of agricultural productivity even through the general productivity slump of the 1980s, the substantial improvements in income and wealth of commercial farmers, the predominant role of the United States in world commodity markets, and American leadership in supplying both technological innovation and food aid for the developing world. As Heady (1976) put the case, "the U.S. has had the best, the most logical and the most successful program of agricultural development of any country in the world" (p. 77).
Basic Facts and Trends
The generally accepted facts include:
Between 1930 and 2000 U.S. agricultural output approximately quadrupled, while the United States Department of Agriculture's (USDA) index of aggregate inputs (land, labor, capital and other material inputs) remained essentially unchanged. Thus, multifactor productivity (output divided by all inputs) rose by an average of about 2 percent annually over this period. This rate substantially exceeds the rate of multifactor productivity growth in manufacturing, and the agricultural rate did not experience the slowdown that occurred in the rest of the U.S. economy during the last quarter of the century.
Falling Real Prices
Prices received by farmers for products they sell decreased by an average of 1 percent annually in real (inflation-adjusted) terms between 1900 and 2000. Real food prices paid by consumers also decreased. The percentage of U.S. disposable income spent on food prepared at home decreased, from 22 percent as late as 1950 to 7 percent by the end of the century.
Declining Number of Farms
The number of farms decreased from a peak of close to 7 million in the mid-1930s to just over 2 million in 2000. The rate of decline was most rapid in the 1950s and 1960s, and dropped off thereafter until the 1990s, when the number stayed about constant. The U.S. had an estimated 2.16 million farms in 2002 as compared to 2.11 million in 1992 (USDA, 2003, p. 2).
Rising Relative Farm Household Income
Average farm household income was substantially lower than the nonfarm average during almost the whole of the century, but between the end of World War II and the mid-1960s had risen to about 70 percent of the nonfarm level, and continued to rise thereafter until achieving parity or slightly more in the 1990s. The principal cause of this increase in average income was a rise in earnings from off-farm employment of farmer operators and farm family members. By the 1990s a substantial majority of farm household income came from off-farm sources.
Increased Concentration of Production on Large Farms
Agricultural production has become highly concentrated on large farms. In 1930, when the Agriculture Census first asked about the value of farm product sales from each farm, sales per farm in the largest 10 percent of farms were 14 times the sales per farm of the smallest 10 percent. By 1992, sales in the largest 10 percent were 152 times sales in the smallest 10 percent -- the largest 10 percent of farms accounted for 70 percent of all farm product sales, while at the lower end, half of all farms accounted for only 2 percent of product sales. Large farms, those with more than $250,000 of annual sales by USDA's definition, are wealthy. Their assets, mostly land owned, had a mean value of $1.8 million according to the 1997 Census of Agriculture, which with $0.4 million average debt means a mean net worth of $1.4 million per farm.
The driving forces behind these events that have received most attention are technological progress in farming and nonfarm economic development. Technological progress in farming results in less input required per unit output, fewer and larger farms, and lower costs of production. With competition in product markets, lower costs mean lower commodity prices. Nonetheless, returns to labor in commercial agriculture have been maintained and even increased through the opportunities provided by rising nonfarm real wages. In an "integrated" labor market, worker mobility between sectors equates wages for comparable labor in farm and nonfarm work. The integration is not only between rural and urban employment at a given location, but also between sections of the country. In 1910 farm wage rates in the Pacific Coast states were almost 3 times the level of farm wages in the South. By 1997 the difference was only 10 percent (Gardner, 2002, p. 173). For farm operator households, the USDA estimates that in 2000 mean household income was $62,000 compared to $57,000 for nonfarm households. But over 90 percent of farm household income was estimated to have come from off-farm sources (USDA 2002, p. 54).
Again, there are two different interpretations of the facts. The pessimistic view is that off-farm jobs are taken out of desperation to cushion the blow of inadequate returns from farming, and that the increasing importance of such jobs reflects the increasingly precarious status of small farms. The optimistic view is that the increase in off-farm work was a response to its greater availability, as commuting became easier and nonfarm industries moved into rural areas, and that this has become a means for farmers to enjoy the desirable aspects of farm living without having to subsist on an income well below the U.S. household average. In 1997, as estimated in the Census of Agriculture, 1.2 million (59 percent) of farms had sales of less than $20,000, so even if they had zero costs, their net farm incomes would have been less than half the median U.S. household income.
Evidence for the optimistic interpretation is that the decline in farm numbers stopped in the 1990s, indicating that off-farm income is not a means of postponing small-farm business failure, but rather a long-term means of small-farm survival. The pessimistic response is that those farms may be surviving but their operators are stressed and unhappy. A similar divergence of interpretation pertains to large farms. On average they are wealthy, with incomes well above those of the average U.S. household. But the large farmer's situation is not an economic idyll. Their incomes are variable, subject to vagaries of weather and markets, and several thousand face financial failure every year. A balanced assessment, incorporating both economic information and surveys of farmers' views of the broader situation of their farms and communities, is that of Danbom (1995), which concludes on a guardedly optimistic note.
A complicating factor is economic instability in the agricultural economy. The trend of decreasing real farm prices has not been steady, and most notably was punctuated by price spikes during three periods in which the annual average of USDA's index of prices received by farmers remained well above the long-term trend (1917-19, 1943-48, and 1973-74 (Figure 1). High-price periods have led farmers to take on debt and invest to an extent which has proven unsustainable, particularly in driving up land prices. This has led to periods of widespread financial distress in farming. The "farm crisis" of the 1980s is the most recent example.
Role of Government
Since the Great Depression, the fate of hard-working farmers facing low prices has drawn a governmental response in the form of commodity support programs. Even earlier, governmental involvement in the form of investment in rural roads, irrigation works, utilities, agricultural research, and education was important in farm productivity growth. From the Progressive Era of the early twentieth century, federal and state regulation has attempted to increase the market power of farmers, reduce that of processors and suppliers of farm inputs, protect food quality and safety, and provide public services such as market information and improved soil conservation and environmental quality. The extent to which governmental activity has generated benefits that exceed the costs is a matter of controversy in every area. Best accepted have been activities in research, education, and food quality and safety regulation. Most central in political debate, most costly to taxpayers, and most controversial have been commodity programs.
Commodity Support Programs
Commodity support programs have aimed to boost farmers' receipts from commodity production in all but the highest-price years. The bulk of support has gone to the main traditional crops (grains, cotton, peanuts, tobacco) and milk; other livestock products and most fruit and vegetable crops have received only sporadic and small-scale support. Between the 1930s and the 1960s, the main mechanisms of support involved increasing the U.S. market prices of these commodities, through government purchases, supply controls, import restrictions, or export promotion. Since the 1960s, the support mechanism has increasingly been government subsidy payments made directly to farmers. From the 1930s through the 1950s, annual government payments to farmers averaged about $3 billion (in 1996 dollars). In the 1980s these payments averaged about $11 billion. In 1998-2001 they averaged $20 billion (USDA 2002, p. 54, adjusted to 1996 dollars).
Supply Reduction Programs versus Subsidies
The increase in payments does not indicate an increase in governmental direction of U.S. agriculture. The supply management programs of earlier decades had bigger market effects; indeed, the mechanism by which they supported farm income was principally by holding up the prices paid by buyers of farm products. A key reason these programs fell from favor politically is the belief that supply controls created a world market price umbrella under which other countries, most notably in Latin America, expanded their own crop acreages and reduced the demand for U.S. exports. Subsidy payments not tied to acreage reductions will instead tend to increase U.S. output and thus drive down both U.S. and world prices. Some of the strongest objectors to recent U.S. farm programs have, for this reason, been representatives of foreign agricultural producers. However, the U.S. programs have evolved over time to be less and less tied to production decisions. This "decoupling" of payments reached its peak in the Farm Act of 1996, which replaced the former "deficiency payment" program with payments that were fixed for each farmer based on the farm's past receipt of payments. This system of payments was argued to provide little if any incentive to produce, since if a grower increased production the payments did not rise, and if a grower decreased production they did not fall. It has been argued that the main economic effect of the payments is to increase the value of cropland to which the payments are tied (for discussion see chapters in Tweeten and Thompson, 2002).
Role of Markets
Despite the salience of commodity programs in public perceptions of U.S. agriculture, the majority of farm output (by value) has no price support or other direct market intervention. Even for the program crops, it is arguable that their production history over the longer term has been little influenced by commodity programs. Market conditions, according to this view, have been more important in determining the product mix, land, labor and other inputs used, as well as innovations in production and the economic organization of farming. Throughout the twentieth century the sector remained a reasonably close approximation of the competitive supply-and-demand model.
Impact of Technological Progress and Competitive Markets
Consequently, the explanations outlined above can be well understood in basic supply-demand terms. Technological progress reduced the cost of producing farm products, and profit-seeking farmers therefore adopted the innovations embodying new technology. Competition ensured that the resulting profits were squeezed out of farmers' hands and accrued largely to buyers of those products, with a consequent decrease in consumers' real costs of food. Returns to farm labor, land, and capital investment were governed by changes in demand generated by technological innovation, buyers' responses to lower prices (notably the responses of foreign buyers, evident in increased agricultural exports), and the supply conditions of the factors of production (notably the availability of non-agricultural alternatives for labor, capital, and land).
Farmers as an interest group in the political arena have done well in achieving legislation providing support for commodity prices and returns, public investment in rural infrastructure, and exemption from some regulatory and tax burdens that have fallen on other business sectors. This is understandable under conditions of the 1930s, when farmers' incomes were well below those of nonfarm people and they constituted 25 percent of the nation's population But farmers' political clout was more puzzling at the end of the century, when they constituted less than 2 percent of the population and on average had higher incomes and wealth than nonfarm people.
The Puzzle of Farmers' Continued Political Clout
Disproportional representation of rural people in the U.S. Senate -- inherent in a system where low-population rural states each have the same number of Senators as high-population urban states -- is a source of political benefit. For many years the system of powerful authorizing and appropriations committees whose chairs were determined by seniority was seen as giving extraordinary power to long-serving Southerners with strong agricultural ties. But this advantage largely ended with the Congressional reforms of the 1960s and 1970s, so the trends in political institutions as well as economic and demographic evolution would appear to work against agriculture in the political arena. Yet outlays in support of agriculture were higher in real terms at the end of the twentieth century than at any earlier time. Why? Aspects of the situation that are likely to play a role are the organizational capability and cohesiveness of farm groups, their willingness to spend time and funds lobbying, and the general lack of serious opposition to farm interests. But an applicable and testable theory of farmers' political influence remains out of reach. For discussion and analysis see, for example, Olson 1985, Winters, 1987, Browne 1988, Abler 1989, Swinnen and van der Zee 1993, and Orden, Paarlberg, and Roe 1999.
Abler, David. "Vote Trading on Farm Legislation in the U.S. House." American Journal of Agricultural Economics 71(1989): 583-591.
Blank, Steven. The End of Agriculture in the American Portfolio. Westport, CT: Quorum Books, Greenwood Publishing Group, 1998.
Browne, William P. Private Interests, Public Policy, and American Agriculture. Lawrence, KS: University Press of Kansas, 1988.
Danbom, David B. Born in the Country: A History of Rural America. Baltimore: Johns Hopkins University Press, 1995.
Gardner, Bruce L. American Agriculture in the Twentieth Century: How It Flourished and What It Cost. Cambridge, MA: Harvard University Press, 2002.
Heady, Earl O. "The Agriculture of the U.S." In Food and Agriculture, A Scientific American Book, pp. 77-86, San Francisco: W.H. Freeman, 1976.
Hurt, R. Douglas. Problems of Plenty: The American Farmer in the Twentieth Century. Chicago: Ivan R. Dee, 2002.
Olson, Mancur. "Space, Agriculture, and Organization." American Journal of Agricultural Economics 67(1985): 928-937.
Orden, David, Robert Paarlberg, and Terry Roe. Policy Reform in American Agriculture. Chicago: University of Chicago Press, 1999.
Swinnen, Jo, and Frans A. van der Zee. "The Political Economy of Agricultural Policies: A Survey." European Review of Agricultural Economics 20 (1993): 261-290.
Tweeten, Luther, and Stanley R. Thompson. Agricultural Policy for the 21st Century. Ames: Iowa State Press, 2002.
Winters, L.A. "The Political Economy of the Agricultural Policy of the Industrial Countries." European Review of Agricultural Economics 14 (1987): 285-304.
United States Department of Agriculture. Agricultural Outlook, Economic Research Service, July-August, 2002.
United States Department of Agriculture. "Farms and Land in Farms." National Agricultural Statistics Service, February 2003.
 Sources: Unless otherwise specified, see U.S. Department of Agriculture, Agricultural Statistics (annual) and Agricultural Outlook (tables at rear of each monthly publication).
Citation: Gardner, Bruce. "U.S. Agriculture in the Twentieth Century". EH.Net Encyclopedia, edited by Robert Whaples. March 20, 2003. URL http://eh.net/encyclopedia/article/gardner.agriculture.us