|United States Economy
From the nation's earliest days, farming has held a crucial place in
the American economy and culture. Farmers play an important role in any
society, of course, since they feed people. But farming has been
particularly valued in the United States. Early in the nation's life,
farmers were seen as exemplifying economic virtues such as hard work,
initiative, and self-sufficiency. Moreover, many Americans --
particularly immigrants who may have never held any land and did not
have ownership over their own labor or products -- found that owning a
farm was a ticket into the American economic system. Even people who
moved out of farming often used land as a commodity that could easily be
bought and sold, opening another avenue for profit.
The American farmer has generally been
quite successful at producing food. Indeed, sometimes his success has
created his biggest problem: the agricultural sector has suffered
periodic bouts of overproduction that have depressed prices. For long
periods, government helped smooth out the worst of these episodes. But
in recent years, such assistance has declined, reflecting government's
desire to cut its own spending, as well as the farm sector's reduced
American farmers owe their ability to
produce large yields to a number of factors. For one thing, they work
under extremely favorable natural conditions. The American Midwest has
some of the richest soil in the world. Rainfall is modest to abundant
over most areas of the country; rivers and underground water permit
extensive irrigation where it is not.
Large capital investments and increasing
use of highly trained labor also have contributed to the success of
American agriculture. It is not unusual to see today's farmers driving
tractors with air-conditioned cabs hitched to very expensive,
fast-moving plows, tillers, and harvesters. Biotechnology has led to the
development of seeds that are disease- and drought-resistant.
Fertilizers and pesticides are commonly used (too commonly, according to
some environmentalists). Computers track farm operations, and even space
technology is utilized to find the best places to plant and fertilize
crops. What's more, researchers periodically introduce new food products
and new methods for raising them, such as artificial ponds to raise
Farmers have not repealed some of the
fundamental laws of nature, however. They still must contend with forces
beyond their control -- most notably the weather. Despite its generally
benign weather, North America also experiences frequent floods and
droughts. Changes in the weather give agriculture its own economic
cycles, often unrelated to the general economy.
Calls for government assistance come when
factors work against the farmers' success; at times, when different
factors converge to push farms over the edge into failure, pleas for
help are particularly intense. In the 1930s, for instance,
overproduction, bad weather, and the Great Depression combined to
present what seemed like insurmountable odds to many American farmers.
The government responded with sweeping agricultural reforms -- most
notably, a system of price supports. This large-scale intervention,
which was unprecedented, continued until the late 1990s, when Congress
dismantled many of the support programs.
By the late 1990s, the U.S. farm economy
continued its own cycle of ups and downs, booming in 1996 and 1997, then
entering another slump in the subsequent two years. But it was a
different farm economy than had existed at the century's start.
Early Farm Policy
During the colonial period of America's history, the British Crown
carved land up into huge chunks, which it granted to private companies
or individuals. These grantees divided the land further and sold it to
others. When independence from England came in 1783, America's Founding
Fathers needed to develop a new system of land distribution. They agreed
that all unsettled lands would come under the authority of the federal
government, which could then sell it for $2.50 an acre ($6.25 a
Many people who braved the dangers and
hardship of settling these new lands were poor, and they often settled
as "squatters," without clear title to their farms. Through
the country's first century, many Americans believed land should be
given away free to settlers if they would remain on the property and
work it. This was finally accomplished through the Homestead Act of
1862, which opened vast tracts of western land to easy settlement.
Another law enacted the same year set aside a portion of federal land to
generate income to build what became known as land-grant colleges in the
various states. The endowment of public colleges and universities
through the Morrill Act led to new opportunities for education and
training in the so-called practical arts, including farming.
Widespread individual ownership of
modest-sized farmers was never the norm in the South as it was in the
rest of the United States. Before the Civil War (1861-1865), large
plantations of hundreds, if not thousands, of hectares were established
for large-scale production of tobacco, rice, and cotton. These farms
were tightly controlled by a small number of wealthy families. Most of
the farm workers were slaves. With the abolition of slavery following
the Civil War, many former slaves stayed on the land as tenant farmers
(called sharecroppers) under arrangements with their former owners.
Plentiful food supplies for workers in
mills, factories, and shops were essential to America's early
industrialization. The evolving system of waterways and railroads
provided a way to ship farm goods long distances. New inventions such as
the steel plowshare (needed to break tough Midwestern soil), the reaper
(a machine that harvests grain), and the combine (a machine that cuts,
threshes, and cleans grain) allowed farms to increase productivity. Many
of the workers in the nation's new mills and factories were sons and
daughters of farm families whose labor was no longer needed on the farm
as a result of these inventions. By 1860, the nation's 2 million farms
produced an abundance of goods. In fact, farm products made up 82
percent of the country's exports in 1860. In a very real sense,
agriculture powered America's economic development.
As the U.S. farm economy grew, farmers
increasingly became aware that government policies affected their
livelihoods. The first political advocacy group for farmers, the Grange,
was formed in 1867. It spread rapidly, and similar groups -- such as the
Farmers' Alliance and the Populist Party -- followed. These groups
targeted railroads, merchants, and banks -- railroads for high shipping
rates, merchants for what farmers considered unscrupulous profits taken
as "middlemen," and banks for tight credit practices.
Political agitation by farmers produced some results. Railroads and
grain elevators came under government regulation, and hundreds of
cooperatives and banks were formed. However, when farm groups tried to
shape the nation's political agenda by backing renowned orator and
Democrat William Jennings Bryan for president in 1896, their candidate
lost. City dwellers and eastern business interests viewed the farmers'
demands with distrust, fearing that calls for cheap money and easy
credit would lead to ruinous inflation.
Farm Policy of the 20th Century
Despite farm groups' uneven political record during the late 19th
century, the first two decades of the 20th century turned out to be the
golden age of American agriculture. Farm prices were high as demand for
goods increased and land values rose. Technical advances continued to
improve productivity. The U.S. Department of Agriculture established
demonstration farms that showed how new techniques could improve crop
yields; in 1914, Congress created an Agricultural Extension Service,
which enlisted an army of agents to advise farmers and their families
about everything from crop fertilizers to home sewing projects. The
Department of Agriculture undertook new research, developing hogs that
fattened faster on less grain, fertilizers that boosted grain
production, hybrid seeds that developed into healthier plants,
treatments that prevented or cured plant and animal diseases, and
various methods for controlling pests.
The good years of the early 20th century
ended with falling prices following World War I. Farmers again called
for help from the federal government. Their pleas fell on deaf ears,
though, as the rest of the nation -- particularly urban areas -- enjoyed
the prosperity of the 1920s. The period was even more disastrous for
farmers than earlier tough times because farmers were no longer
self-sufficient. They had to pay in cash for machinery, seed, and
fertilizer as well as for consumer goods, yet their incomes had fallen
The whole nation soon shared the farmers'
pain, however, as the country plunged into depression following the
stock market crash of 1929. For farmers, the economic crisis compounded
difficulties arising from overproduction. Then, the farm sector was hit
by unfavorable weather conditions that highlighted shortsighted farming
practices. Persistent winds during an extended drought blew away topsoil
from vast tracts of once-productive farmland. The term
"dustbowl" was coined to describe the ugly conditions.
Widespread government intervention in the
farm economy began in 1929, when President Herbert Hoover (1929-1933)
created the federal Farm Board. Although the board could not meet the
growing challenges posed by the Depression, its establishment
represented the first national commitment to provide greater economic
stability for farmers and set a precedent for government regulation of
Upon his inauguration as president in
1933, President Franklin D. Roosevelt moved national agricultural policy
far beyond the Hoover initiative. Roosevelt proposed, and Congress
approved, laws designed to raise farm prices by limiting production. The
government also adopted a system of price supports that guaranteed
farmers a "parity" price roughly equal to what prices should
be during favorable market times. In years of overproduction, when crop
prices fell below the parity level, the government agreed to buy the
Other New Deal initiatives aided farmers.
Congress created the Rural Electrification Administration to extend
electric power lines into the countryside. Government helped build and
maintain a network of farm-to-market roads that made towns and cities
more accessible. Soil conservation programs stressed the need to manage
By the end of World War II, the farm
economy once again faced the challenge of overproduction. Technological
advances, such as the introduction of gasoline- and electric-powered
machinery and the widespread use of pesticides and chemical fertilizers,
meant production per hectare was higher than ever. To help consume
surplus crops, which were depressing prices and costing taxpayers money,
Congress in 1954 created a Food for Peace program that exported U.S.
farm goods to needy countries. Policy-makers reasoned that food
shipments could promote the economic growth of developing countries.
Humanitarians saw the program as a way for America to share its
In the 1960s, the government decided to
use surplus food to feed America's own poor as well. During President
Lyndon Johnson's War on Poverty, the government launched the federal
Food Stamp program, giving low-income persons coupons that could be
accepted as payment for food by grocery stores. Other programs using
surplus goods, such as for school meals for needy children, followed.
These food programs helped sustain urban support for farm subsidies for
many years, and the programs remain an important form of public welfare
-- for the poor and, in a sense, for farmers as well.
But as farm production climbed higher and
higher through the 1950s, 1960s, and 1970s, the cost of the government
price support system rose dramatically. Politicians from non-farm states
questioned the wisdom of encouraging farmers to produce more when there
was already enough -- especially when surpluses were depressing prices
and thereby requiring greater government assistance.
The government tried a new tack. In 1973,
U.S. farmers began receiving assistance in the form of federal
"deficiency" payments, which were designed to work like the
parity price system. To receive these payments, farmers had to remove
some of their land from production, thereby helping to keep market
prices up. A new Payment-in-Kind program, begun in the early 1980s with
the goal of reducing costly government stocks of grains, rice, and
cotton, and strengthening market prices, idled about 25 percent of
Price supports and deficiency payments
applied only to certain basic commodities such as grains, rice, and
cotton. Many other producers were not subsidized. A few crops, such as
lemons and oranges, were subject to overt marketing restrictions. Under
so-called marketing orders, the amount of a crop that a grower could
market as fresh was limited week by week. By restricting sales, such
orders were intended to increase the prices that farmers received.
In the 1980s and 1990s
By the 1980s, the cost to the government (and therefore taxpayers) of
these programs sometimes exceeded $20,000 million annually. Outside of
farm areas, many voters complained about the cost and expressed dismay
that the federal government was actually paying farmers NOT to farm.
Congress felt it had to change course again.
In 1985, amid President Ronald Reagan's
calls for smaller government generally, Congress enacted a new farm law
designed to reduce farmers' dependence on government aid and to improve
the international competitiveness of U.S. farm products. The law reduced
support prices, and it idled 16 to 18 million hectares of
environmentally sensitive cropland for 10 to 15 years. Although the 1985
law only modestly affected the government farm-assistance structure,
improving economic times helped keep the subsidy totals down.
As federal budget deficits ballooned
throughout the late 1980s, however, Congress continued to look for ways
to cut federal spending. In 1990, it approved legislation that
encouraged farmers to plant crops for which they traditionally had not
received deficiency payments, and it reduced the amount of land for
which farmers could qualify for deficiency payments. The new law
retained high and rigid price supports for certain commodities, and
extensive government management of some farm commodity markets
That changed dramatically in 1996. A new
Republican Congress, elected in 1994, sought to wean farmers from their
reliance on government assistance. The Freedom-to-Farm Act dismantled
the costliest price- and income-support programs and freed farmers to
produce for global markets without restraints on how many crops they
planted. Under the law, farmers would get fixed subsidy payments
unrelated to market prices. The law also ordered that dairy price
supports be phased out.
These changes, a sharp break from the
policies of the New Deal era, did not come easily. Congress sought to
ease the transition by providing farmers $36,000 million in payments
over seven years even though crop prices at the time were at high
levels. Price supports for peanuts and sugar were kept, and those for
soybeans, cotton, and rice were actually raised. Marketing orders for
oranges and some other crops were little changed. Even with these
political concessions to farmers, questions remained whether the less
controlled system would endure. Under the new law, government supports
would revert to the old system in 2002 unless Congress were to act to
keep market prices and support payments decoupled.
New dark clouds appeared by 1998, when
demand for U.S. farm products slumped in important, financially
distressed parts of Asia; farm exports fell sharply, and crop and
livestock prices plunged. Farmers continued to try to boost their
incomes by producing more, despite lower prices. In 1998 and again in
1999, Congress passed bailout laws that temporarily boosted farm
subsidies the 1996 act had tried to phase out. Subsidies of $22,500
million in 1999 actually set a new record.
Farm Policies and World Trade
The growing interdependence of world markets prompted world leaders
to attempt a more systematic approach to regulating agricultural trade
among nations in the 1980s and 1990s.
Almost every agriculture-producing country
provides some form of government support for farmers. In the late 1970s
and early 1980s, as world agricultural market conditions became
increasingly variable, most nations with sizable farm sectors instituted
programs or strengthened existing ones to shield their own farmers from
what was often regarded as foreign disruption. These policies helped
shrink international markets for agricultural commodities, reduce
international commodity prices, and increase surpluses of agricultural
commodities in exporting countries.
In a narrow sense, it is understandable
why a country might try to solve an agricultural overproduction problem
by seeking to export its surplus freely while restricting imports. In
practice, however, such a strategy is not possible; other countries are
understandably reluctant to allow imports from countries that do not
open their markets in turn.
By the mid-1980s, governments began
working to reduce subsidies and allow freer trade for farm goods. In
July 1986, the United States announced a new plan to reform
international agricultural trade as part of the Uruguay Round of
multilateral trade negotiations. The United States asked more than 90
countries that were members of the world's foremost international trade
arrangement, known then as the General Agreement on Tariffs and Trade
(GATT), to negotiate the gradual elimination of all farm subsidies and
other policies that distort farm prices, production, and trade. The
United States especially wanted a commitment for eventual elimination of
European farm subsidies and the end to Japanese bans on rice imports.
Other countries or groups of countries
made varying proposals of their own, mostly agreeing on the idea of
moving away from trade-distorting subsidies and toward freer markets.
But as with previous attempts to get international agreements on
trimming farm subsidies, it initially proved extremely difficult to
reach any accord. Nevertheless, the heads of the major Western
industrialized nations recommitted themselves to achieving the
subsidy-reduction and freer-market goals in 1991. The Uruguay Round was
finally completed in 1995, with participants pledging to curb their farm
and export subsidies and making some other changes designed to move
toward freer trade (such as converting import quotas to more easily
reduceable tariffs). They also revisited the issue in a new round of
talks (the World Trade Organization Seattle Ministerial in late 1999).
While these talks were designed to eliminate export subsidies entirely,
the delegates could not agree on going that far. The European Community,
meanwhile, moved to cut export subsidies, and trade tensions ebbed by
the late 1990s.
Farm trade disputes continued, however.
From Americans' point of view, the European Community failed to follow
through with its commitment to reduce agricultural subsidies. The United
States won favorable decisions from the World Trade Organization, which
succeeded GATT in 1995, in several complaints about continuing European
subsidies, but the EU refused to accept them. Meanwhile, European
countries raised barriers to American foods that were produced with
artificial hormones or were genetically altered -- a serious challenge
to the American farm sector.
In early 1999, U.S. Vice President Al Gore
called again for deep cuts in agricultural subsidies and tariffs
worldwide. Japan and European nations were likely to resist these
proposals, as they had during the Uruguay Round. Meanwhile, efforts to
move toward freer world agricultural trade faced an additional obstacle
because exports slumped in the late 1990s.
Farming As Big Business
American farmers approached the 21st century with some of the same
problems they encountered during the 20th century. The most important of
these continued to be overproduction. As has been true since the
nation's founding, continuing improvements in farm machinery, better
seeds, better fertilizers, more irrigation, and effective pest control
have made farmers more and more successful in what they do (except for
making money). And while farmers generally have favored holding down
overall crop output to shore up prices, they have balked at cutting
their own production.
Just as an industrial enterprise might
seek to boost profits by becoming bigger and more efficient, many
American farms have gotten larger and larger and have consolidated their
operations to become leaner as well. In fact, American agriculture
increasingly has become an "agribusiness," a term created to
reflect the big, corporate nature of many farm enterprises in the modern
U.S. economy. Agribusiness includes a variety of farm businesses and
structures, from small, one-family corporations to huge conglomerates or
multinational firms that own large tracts of land or that produce goods
and materials used by farmers.
The advent of agribusiness in the late
20th century has meant fewer but much larger farms. Sometimes owned by
absentee stockholders, these corporate farms use more machinery and far
fewer farm hands. In 1940, there were 6 million farms averaging 67
hectares each. By the late 1990s, there were only about 2.2 million
farms averaging 190 hectares in size. During roughly this same period,
farm employment declined dramatically -- from 12.5 million in 1930 to
1.2 million in the 1990s -- even as the total U.S. population more than
doubled. In 1900, half of the labor force were farmers, but by the end
of the century only 2 percent worked on farms. And nearly 60 percent of
the remaining farmers at the end of the century worked only part-time on
farms; they held other, non-farm jobs to supplement their farm income.
The high cost of capital investment -- in land and equipment -- makes
entry into full-time farming extremely difficult for most persons.
As these numbers demonstrate, the American
"family farm" -- rooted firmly in the nation's history and
celebrated in the myth of the sturdy yeoman -- faces powerful economic
challenges. Urban and suburban Americans continue to rhapsodize about
the neat barns and cultivated fields of the traditional rural landscape,
but it remains uncertain whether they will be willing to pay the price
-- either in higher food prices or government subsidies to farmers -- of
preserving the family farm.
Source: U.S. Department of State