Food is cheap in the United States. The percentage of U.S. disposable income spent on food prepared at home decreased, from 22% in 1950 to 7% in 2000, even if we add back the roughly 7% of our income that we spend on average on restaurant food in the US, we can see that the cost of food to us is relatively small.
For all of our food dollar, the farmer continues to get a smaller share as we buy our food more heavily processed. Even bread, which really hasn't changed in the past half century, has become notably more expensive compared to wheat. According to the census bureau a pound loaf cost between twenty and twenty-five cents in the sixties, while the farmer got about a buck sixty a bushel for wheat. Now the farmer gets about four dollars for a bushel (well below the inflation rate) while a pound of bread is generally two dollars or more. Corn prices have fared worse.
Meanwhile, sugar is so relatively expensive, compared with other sweeteners, that commercial businesses now do as much of their sweetening with high fructose corn syrup as they can. Still, it's no surprise that there are sugar farmers complaining about the price of sugar in the US, they just don't happen to be American sugar farmers.
Farming is a risky business. It is also a business that offers a poor return. Sure, farmers currently have a roughly average income, but they do it with a substantially larger investment of capital than others. The US has about two million farms today and half of them are responsible for 98% of all production. We could almost say that we only have a million farms left.
Yet, for all of that, farm policy is contentious. Ever since the depression, there have been some sort of federal policies that have been designed to help farmers. There are two clear conclusions about those policies: they have been expensive and they have not worked, except in a temporary sense.
Farmers in the north, east of the Great Plains used to have a good mix of crops in their farms. They also had a mix of animals. This was good for an economy where transportation was expensive or time consuming and it was possible to grow what you wanted on the farm. Of course, that economy is gone. A quarter-section (160 acres) farm, once the backbone of the economy in the states of the old Northwest Territories, is now obsolete. Growing a dozen crops, raising three or four kinds of animal and having a large garden are rare outside an Amish or Mennonite settlement. Yet, that is how we got started on our federal farm programs. Needless to say, our programs don't always work very well.
The one thing we can say about our federal farm programs is that we have tried just about everything. For tobacco farmers we tried something like giving them a monopoly as of a certain date. In simplified form, no other farmers were allowed to grow tobacco and the farmers who did grow tobacco were not allowed to increase their tobacco acreage. Dairymen were given price targets. Grain had a variety of approaches, generally giving them loans for X amount per expected bushel. The farmer could either pay back the loan or give the bushels. We've even paid our farmers not to grow.
Nothing works. Well, none of it works very well or over the long run. Basically we have tried three approaches: subsidies, production caps, and production buyouts.
Subsidies that keep a price high either encourage overproduction and, as we saw with sugar, depresses demand. It generally also require production caps and import controls to work. Often these subsidies are coupled with a purchasing arrangement with the USDA that gives them the excess food, which is dumped (a technical term, really) in the world market. I won't get into the problems this causes third world farmers in this diary.
Production caps work only if there is some restriction on imports and on productivity increases. If not, the farmers don't benefit at all any more. A cap on orange production in Florida just encourages Brazilian farmers. A tax on Brazilian orange juice violates our WTO treaty obligations. An acreage cap does no good if corn goes from 80 bu/acre to 160 bu/acre over a decade or two.
Production buyouts could be a good idea, but it also could end up paying the farmer not to grow on the marsh that they had never grown anything on anyway or the farmer may just grow more aggressively to get a higher yield, and, in the absence of other actions, it also manages to encourage other farmers to increase their production.
I have gone through all of this because there are no easy solutions to the problem of the market and the farmer. I think that the best we can do, however poor it is, is encourage marginal farmers to get out of farming and get marginal land out of farmland. At the same time, we don't need to subsidize the successful and corporate farms. We only need to keep from undercutting them with bad policies. The number of farms will continue to shrink in the years ahead. That isn't likely to change. What we can do is try to make it possible for farmers on smaller farms who want to make a go of it to farm in a way that is profitable for them.
We can target federal production loans to particular crops and particular methods and help farmers become better borrowers. The huge run-up in farm commodity prices in 1973-74 sowed the seeds of the farm collapse that was worst starting half a decade later. We can encourage farmers who are running smaller operations to move to organic farming or truck farming for markets by using Extension and loans. We can even give fixed, capped payments to marginal farmers to keep their entire farm fallow for a few year.
What we cannot do, without causing problems for others, is maintain price supports, sell our surplus products at a loss on the world market, block or tax imports of agricultural commodities that are grown more cheaply elsewhere or engage in other subsidy programs that try to make the supply/demand intersection move to a magical place that cannot exist.
Farming is tough, unintended consequences don't help.
Recommended References:
U.S. Agriculture in the Twentieth Century by Bruce Gardner.
Illinois Farmers Making More with Less by Selling Direct
Illinois Average Farm Price Received Database