Food, Farming, and the Future
By Carl Zulauf
Three myths overshadow agricultural policy.
U.S. Agriculture Secretary Mike Johanns is holding forums across America to hear what
farmers have to say about their future.
Whatever the outcome of these meetings and the coming debates in Congress over the next
farm bill, farm policy must be shaped in a very different context from that which existed
when the first farm bill were enacted in the 1930s. Yet the past continues to affect farm
policy.
Here are three important myths that continue to influence farm policy and need to be
removed from our thinking.
Myth
One: U.S. farmers produce food. When the first farm bill was written, farmers
produced food for both themselves and others. In 1947, the first year data are available,
47% of the value of food originating on U.S. farms was the value of farm products used in
the food. This share represents the wheat in bread, the corn in corn flakes, and the cow's
milk in a gallon of milk bought at a supermarket. However by 2002, the farm share had
declined to less than 19% (see Figure 1).
Today's consumers choose food that embody time savings, whether the food is prepared by
someone else at a restaurant or prepared using ingredients that can be conveniently
combined at home. In summary, a more accurate portrayal of the current situation is that
U.S. farmers produce raw ingredients--i.e., farm commodities--which are transformed into
what Americans call food.
Myth Two: Agriculture is the largest U.S. economic sector. Though
agriculture is a large and important part of the U.S. economy, I am aware of no study that
systematically compares all economic activity generated by the various U.S. economic
sectors. One reason for the lack of such studies is that it is difficult to identify all
inputs and outputs associated with an economic sector. Without comparable accounting,
skepticism should abound regarding what is the largest U.S. economic sector.
Figure 2
underscores the reason for skepticism. I have reorganized the data on expenditures by U.S.
consumers into categories associated with housing, medical care, and the food and fiber
system. This data is reported by the U.S. Department of Commerce, Bureau of Economic
Analysis. Even though all expenditures on clothing, including synthetic fibers, are
included in the food and fiber sector, consumers' annual expenditures for housing and
medical care exceed expenditures for food and fiber products. So it is more accurate to
say that agriculture is among the largest sectors of the U.S. economy.
Myth Three: The U.S. farm sector will disappear. The share of
expenditures that U.S. consumers devote to domestically produced farm commodities has
declined dramatically over the last half century, from 11.9% of all expenditures by U.S.
consumers in 1947 to 1.8% today. The ongoing, long-term decline in farming's role in the
U.S. economy has produced the myth that eventually the U.S. farm sector will disappear.
This overlooks the important role that relative prices play in directing the evolution of
economic activity. For example, as computer chips have become cheaper, they have been used
not just in computers, but also in cars, refrigerators, greeting cards, and even tennis
shoes.
U.S. farm products have steadily become cheaper relative to both fuel and non-fuel
industrial commodities. What makes these price trends so exciting is that they coincide
with an explosion in our knowledge of biological processes. This knowledge offers the
potential for radical new processing systems in which farm commodities become a source of
industrial raw material. Already, ethanol accounts for over 10% of U.S. corn use, and
farther in the future, farm products may be increasingly used in drugs, clothing, building
materials, and more, as the biotech revolution proceeds.
While the role that government subsidies play in stimulating the use of ethanol cannot
be dismissed, long-run fundamental economic forces are also at work. So we can conclude
that farming will remain part of the diversified portfolio of U.S. economic activities,
provided technology evolves to make farm commodities an efficient source of raw materials.
Implications for Farm Policy Making
Clearly the debate about the upcoming farm bill needs to shift its focus away from farm
prices, a focus that grew out of the Depression-era farm bills designed to protect
producers and consumers. Government acquired commodities when prices were low, then
released previously accumulated stocks when farm prices rose substantially, thus easing
the strain on consumers' budgets.
But now, U.S. consumers are less concerned about being protected from high farm prices,
because they are now spending less on farm commodities compared with other things, like
housing and health care. As a result, farm policy is now free to look beyond price. In
particular, gross revenue based programs would be more effective than price based programs
at helping farmers deal with risk, because gross revenues decrease not just with lower
prices, but also with lower yields. For taxpayers (another major farm-policy stakeholder
group), a more-effective program could be a less-expensive program, since the same net
impact on the well-being of farmers can be achieved for less money.
Farming's future as a provider of raw material for industrial commodities rests upon
maintaining the trend toward a favorable price ratio against other sources of energy and
industrial material. Thus, while it is certainly appropriate to invest more in basic
research and development for industrial uses of farm products, it is more important to
push for research into technologies that increase farm output. This will keep farming
profitable, and at the same time advance environmental goals by making it less necessary
to convert marginal land into production in order to satisfy the growing demand for
farm-based energy and industrial products.
The three most recent farm bills (1985, 1990, and 1996) have increased the market
orientation of U.S. farm policy. They eliminated those programs that removed land from
production and that established floors under farm commodity prices. As a result, farm
products that were used as energy sources and as industrial raw material became more
competitive. The next farm bill needs to continue and expand this trend toward market
orientation.
Consumers are becoming less concerned about the impact of farm prices on their budgets
and more concerned about the farm sector's impact on the environment. This conservation
theme emerged in the 1985 farm bill. The 2002 farm bill embraced this trend toward a
conservation mind-set, but redirected it toward encouraging environmentally friendly
practices on land currently being farmed, so-called working lands, and away from programs
that retire land from production. The focus on working lands needs to continue in the 2007
farm bill because removing land from production for environmental reasons is at odds with
expanding the use of farm commodities as a source of energy and industrial materials.
An opportunity exists to update farm policy for the future. Doing so requires the will
to confront myths, recast them to conform to reality, and adjust policy to reflect this
reality. The ultimate question is whether the political will exists to do so. We will find
out shortly, but it is worth noting that recent farm bills suggest there are reasons for
hope. They have already taken steps consistent with the recasting of farm myths, but the
transformation process remains a work in progress.
About the Author
Carl Zulauf is an agricultural economist at Ohio State University. E-mail
zulauf.1@osu.edu
For more information about the Farm Bill Forums, visit the U.S. Department of
Agriculture's Web site, www.usda.gov.
