Farm Bills and Farmers: The effects of subsidies over time
An analysis of over 60 years of agriculture legislation
Edward Lotterman - Agricultural Economist
Published December 1, 1996 | December 1996 issue
In April, when President Clinton signed the Federal Agricultural Improvement and Reform Act (FAIR), also known less euphemistically as the 1995 farm bill, he almost closed the book on a chapter of U.S. history that President Franklin Roosevelt had opened 63 years earlier when he signed the Agricultural Adjustment Act (AAA) of 1933. The qualifier "almost" is necessary, since at the last moment in conference committee, Congress deleted provisions that would have repealed all prior farm legislation, including the AAA and its amendments. The failure to repeal all prior legislation, some argue, makes it procedurally and politically easier for Congress to revive, at some future date, programs that were ended by FAIR.
Nevertheless, the 1995 farm bill promises a sharp break from a general set of policies that have influenced farming and food production for six decades. Thus it is an appropriate time to step back and review these policies to see where they succeeded and where they failed, and why they met, or failed to meet, their objectives.
More broadly, this experience with agricultural legislation can serve as an instructive case study, especially regarding the formulation of policy and how such policies perpetuate themselves, of unintended outcomes, technology shocks and the relationships between policy and market forces.
The New Deal, an exercise in eclectic pragmatism
The AAA of 1933, an early component of Franklin Roosevelt's New Deal, remains controversial in U.S. history: Some regard it as the salvation of the nation and even the market system, while others view it as the flawed beginning of a disastrous legacy of misguided intervention in economic activity. But two things are evident: Many people in the United States were in dire economic and social straits by 1933, and the new administration's policy initiatives were largely ad hoc, eclectic and pragmatic responses to a perceived crisis, not the result of any coherent philosophy or economic theory.
There is an exhaustive literature describing the Great Depression, including Studs Terkel's very readable Hard Times: An Oral History of the Great Depression. As Terkel and others make clear, further deterioration of the economy in early 1933, after four years of recession, produced a crisis of confidence at many levels of U.S. society. There was yet another wave of bank failures, and widespread unemployment and hunger in urban and rural areas. In Arkansas and Oklahoma, where adverse weather had combined with low prices to make the situation particularly severe, poor farmers sacked food stores.
Roosevelt, who had campaigned on a platform of fiscal austerity and a balanced budget, responded by loosing a cohort of bright young advisers to come up with responses. Their initiatives were admittedly palliatives; some, such as the Works Progress Administration were make-work schemes, others, such as the National Recovery Administration and the AAA, sought to prop up falling prices.
The Agricultural Adjustment Act
The AAA authorized direct payments to producers who curtailed output of crops and livestock. These payments were to be funded by a special excise tax on the commodities concerned, a tax that supposedly would be borne by the consumer. In practice, much of the funding came from the general treasury. The act was hurriedly passed and implemented in spring 1933, with an eye to providing some relief in the South, where rural economic conditions were particularly severe.
Supply curtailment involved plowing up acres of cotton and other crops that had already been planted, and the killing of large numbers of baby pigs in the Midwest. This destruction of food and fiber at a time when the president himself had described much of the populace as "ill fed, ill clothed and ill housed," caused much criticism, but did boost depressed prices, at least in the short term.
In the medium term, the Supreme Court found the act's commodity tax provision unconstitutional in early 1936. Congress passed a revised act in 1938, deleting the taxes and nominally emphasizing soil conservation objectives rather than farm income enhancement. The act included acreage allotments and marketing quotas as supply restraint devices, and crop storage loans as an income stabilization device. While the act was amended repeatedly and extensively, most notably in 1948, it remained in force for nearly 60 years. Given the 1996 conference committee's decision to drop its repeal from FAIR, the statute remains on the books today, though few of its provisions are implemented.
While the AAA may have helped raise farm prices and income to some degree, prosperity did not return to rural areas until the outbreak of World War II. Germany's invasion of Poland in the summer of 1939 signaled a sharp rise in commodity prices and a six-year period of strong farm income.
The AAA had established "support" prices for six basic commoditiesgrains, cotton and tobaccorelative to the "parity," or the price of the commodity relative to the general price level in the 1910-1914 period. During the war, legislation was passed extending such mandatory price support to 14 more commodities ranging from turkeys to sweet potatoes, such support to last through 1948. Since wartime market prices were above this level, the legislation was moot in regard to costs to the U.S. treasury. But it laid a time bomb for subsequent Congresses and administrations.
The number of deaths, degree of economic devastation and displacement of populations in Europe and Asia during World War II were unprecedented and retarded postwar recovery of food supply systems in those areas. Agricultural prices remained relatively high through 1950, and U.S. agriculture avoided the slump that had characterized all prior postwar periods. The Korean War gave another two-year boost to prices and introduced a few more policy features, including a price support program for wool, ostensibly to ensure that enough would be produced to clothe soldiers fighting in frigid climes.
Surpluses and humanitarian aid
But by the mid-1950s, U.S. agriculture was once again beset by a period in which product prices were not high enough to pay prevailing prices for land and still provide a living for many farm families equal to that enjoyed by urbanites. Europe and Asia were well on the way back to feeding themselves, and a new wave of technological innovation in the form of hybrid seed, chemical pesticides and synthetic fertilizers was expanding both output per person and per acre.
Republicans in Congress had rejected a plan proposed by President Truman's Agriculture Secretary Charles Brannan that would have streamlined price support programs, put a limit on benefits to any individual producer and made any subsidies more explicit or visible. When the Republican administration of Dwight Eisenhower took office, Agriculture Secretary Ezra Taft Benson was strongly opposed to the program of price supports enshrined in existing legislation. But his efforts to persuade Congress to dismantle the system or even lower support levels failed. Therefore, little policy change took place during the Eisenhower administrations, except for implementation of a paid land retirement program called the Soil Bank and the passage of Public Law 480, better known as the Food for Peace program.
Ostensibly a humanitarian aid program, the chief advantage of P.L. 480 resided in its program of surplus disposal. Under the existing legislation, farmers could take out loans on commodities stored after harvest. But if the market price of the commodity remained below the loan rate, or price per unit advanced on the stored crop, the farmer could simply forfeit the crop to the government in full payment of the loan. This nonrecourse loan provision, so called because the government had no legal recourse other than the forfeiture of the stored commodity, was a thinly disguised measure by which the government fixed a minimum price, in effect standing ready to purchase any quantity of output at the loan rate.
Of course, if this loan rate were substantially above the market-clearing price, farmers would have an incentive to produce more than markets would absorb. That is precisely what happenedwith a vengeanceduring the Eisenhower years. Bin sites, fields of round grain bins or Quonset huts filled with government-owned grain, sprang up on the outskirts of nearly every farm town. "Humanitarian" donations or sales of commodities at concessionary prices were a way to dump these surpluses outside the country behind the fig leaf of helping the poor and downtrodden. But the sprightly addition of tobacco and cotton to the list of P.L. 480 commodities demonstrated both the power of Southern congressmen and farmers, revealing surplus disposal as the most important, if not the only, objective of the act.
By now more than 20 years old, the perceived farm problem had undergone a metamorphosis from one of rural poverty to "surplus production." The new Kennedy administration focused on this symptom by emphasizing supply controls. Farmers were given direct payments to not produce on specified proportions of their acreages. The nonrecourse loan provisions remained in force, but annual set-aside acreage reductions restricted supply to a point where the government had to buy little, if any, of most major commodities. The direct payments required healthy appropriations from the U.S. treasury, and consumers paid in the form of higher food prices than they would have experienced otherwise. But in an era of a growing economy, relative prosperity and a balanced budget, there were few loud objections.
As the 1960s wended into the 1970s, U.S. agriculture was relatively stable. Price support floors also acted as price ceilings, and there was little variation in commodity prices other than that reflecting the seasonal cost of storage or transportation differentials between regions. Farm land prices increased along with the general price level. The number of farms declined and the average size of farms increased, but this was a trend that had persisted since the 1920 census.
This apparent stability came to an abrupt end in 1972-1973. The most visible cause was the decision by the government of the Soviet Union to purchase large quantities of wheat and corn in international markets in an attempt to improve the diets of Soviet citizens. Their initial purchases, spread among a number of trading firms, were large enough to raise market prices. But the Russians conducted their business with great secrecy and caught the grain trade flatfooted. Some of these firms might have experienced substantial losses as they had to buy grain to cover their Russian commitments in a rising market. However, the U. S. government had also adopted an export subsidy program that covered the difference between the companies' domestic acquisition costs and international sales proceeds. This open-ended subsidy covered trading firms' losses and meant that taxpayers ended up bearing much of the cost. The resulting public uproar about this public funding obscured the more important fact that the Soviet Union had become a large importer of grain and would remain one for nearly 20 years.
Boom and bust
The importance of grain sales to the Soviet Union became fixed in the public mind for two reasons: the subsidy of the large initial sale described above, and the suspension of sales by the Carter administration in 1979 in response to the Soviet invasion of Afghanistan. While sales to the Soviets were an important factor in raising real grain prices in the 1970s, the effects of changes in international financial relations following the demise of the post World War II Bretton Woods arrangements were felt at about the same time.
Under this system, the exchange rates of other major currencies relative to the dollar were fixed, at least in the short and medium term, and the U.S. dollar was tied to gold at the rate of $35 per ounce. The United States stood ready to redeem dollars held by foreigners for gold, if required. In the 1960s, the United States ran persistent balance of payments deficits and its gold holding shrank. When the United States withdrew from these arrangements in two steps, over 1971 and 1973, the U.S. dollar declined in value relative to many other currencies. This initially made U.S. agricultural commodities more attractively priced to foreign buyers, and exports boomed.
This expansion of agricultural exports raised real commodity prices and, with increasing general inflation, the OPEC oil embargo and a great popular flurry about declining natural resource supplies, contributed to an upward spiral in real land prices and sparked the most intense period of investment in machinery, farm buildings and rural housing in 60 years. In many areas farm land prices increased at about twice the general price level from 1972 to 1979.
While devaluation of the dollar was a one-time shot in the arm to ag exports, it did not put them on an escalator. Furthermore, widespread inflation and energy price shocks, combined with the growing apparent futility of Keynesian demand management, led to the phenomenon known as "stagflation" in many industrialized countries. By the end of the decade, increases in agricultural prices were largely spent. In the 1980s, the dollar began to appreciate against other currencies, cutting into U.S. exports. Furthermore, some developing countries that had increasingly imported food from the United States in the 1970s cut their purchases in the 1980s as they were affected by debt service problems.
Signs of slowing in the upward trend for ag prices had been increasingly apparent by the late 1970s. Unfortunately, these signals that the market had accommodated the shocks from earlier in the decade were muted by the 1978 farm bill. This bill retained most of the features of existing legislation, adding the fillip of a target price and deficiency payment to the existing loan rate and annual acreage set-aside. A target price was announced prior to each season. A deficiency payment would be made if the average market price fell below the target price, the payment being equal to the amount of the shortfall. Since the nonrecourse loan was still in effect, it acted as a floor and the deficiency payment would thus never be greater than the difference between the target price and the loan rate.
A farmer-owned reserve was instituted in which farmers contracted and were paid to store grain they had produced. A price was also specified at which farmers would be released from their contractual obligation to store for a given period, and at a still higher price, farmers would have to repay their loan, and thus have a greater incentive to sell. These provisions were intended to dampen upswings in prices.
As matters transpired, market prices were such that upside stabilization never was required. Grain prices dropped as many importing countries went into recession or debt-induced austerity in the early 1980s and as the value of the dollar once again rose. Many farmers who had bid for land in the 1970s anticipating that inflation and grain prices would remain high began to default on their debts.
By mid-decade, many farm businesses were in liquidation, land prices had fallen by 30 percent to 50 percent from their peak, and dozens of agricultural banks were failing. As exports and market prices slumped, government outlays for deficiency payments increased sharply, and the government took title to hundreds of millions of bushels of wheat and corn forfeited through nonrecourse loans.
Political pressure to relieve farmers' financial problems mounted as the 1985 farm bill eased. Rep. Richard Gephardt of Missouri and Sen. Tom Harkin of Iowa drafted a bill calling for a supply control system, in which farmers would be allotted quotas for production or sales, and only that amount would legally be eligible for sale. Some commodity producers' groups supported this approach, which would have reduced costs to the treasury but increased food prices to consumers. The practical mechanics of implementing a strict supply control system for commodities that were exported in large quantities made most economists as well as many farmers and congressmen wary of the scheme.
The upshot was once again some minor modification of the existing system, plus the addition of a long-term land retirement program tied to soil and water conservation and the Export Enhancement Program, a new export subsidy to help sell U.S. grain abroad when domestic prices were above prevailing prices in international trade. Massive treasury outlays, some $26 billion in 1986, and an easing of the slump in exports halted the downward slide in farm incomes and farmland values by the late 1980s. From that time to 1995, there were no major changes in policy, but there were a number of measures taken by Congress or by the Secretary of Agriculture to reduce the budgetary cost of the program and to introduce greater responsiveness to market forces.
In this same decade, 1985-1995, congressional and public concern over federal budget deficits grew to a point where the substantial outlays for farm price support became a major target. Still, well into the 1995 farm bill process, most farm policy analysts expected the existing legislation to be extended again, with minor modification. But initiatives from two Republican moderates, Sen. Richard Lugar of Indiana and Rep. Pat Roberts of Kansas, together with the anti-regulatory mood of conservatives elected to Congress in 1994, swung the terms of the debate. The process dragged out well into 1996, but the upshot was FAIR, an end to most grain support programs, cushioned by cash payments unrelated to prevailing prices or production, winding down for seven years.
What effects did 60 years of farm bills have?
The apparent end of a 60-year period of government action in the agricultural sector invites some appraisal of the effects of such action. Assessing any government policy is fraught with risk since one can never be sure of what would have happened in the absence of that policy. Any assessment necessarily involves some degree of speculation. Furthermore, one must be careful to take a broad view temporally, what happened not just immediately but also in the medium and in the long term, and spatially, how society as a whole was affected rather than just the groups targeted by specific agricultural policies.
Farm programs met some objectives
In terms of meeting stated objectives, the AAA certainly met with some success. Output restrictions from 1933 through 1937 probably raised farm incomes above what they would have been in the absence of any action, albeit at the cost of higher prices to consumers at a time when many households were strapped to make ends meet. The direct payments and nonrecourse loans also put cash into farm families' purses at some cost to taxpayers. However, some historians argue that this cost was lower than the government would have had to face if the rural to urban displacement portrayed so vividly in Steinbeck's The Grapes of Wrath had become even more widespread. In policy wonk terminology, the AAA arguably was a cost-efficient way to transfer income to low-income families.
From the 1950s on, "saving the family farm" was the avowed rationale for many agricultural programs. How well that goal was met depends on which indicator one focuses on. If one looks at the proportion of farm output produced by "family farms," farms where the bulk of management, labor and equity is supplied by household members, then the large majority of agricultural production still takes place on family farms. And family farms still constitute the vast majority of all farms and control the majority of land and other productive assets.
But if one looks at another indicator, that of the number of farms, 60 years of federal programs apparently did little to slow the reduction in farm numbers. Millions of farm operations went out of business between 1933 and 1996. While this decline in the absolute number of family farms, if not in their relative importance, is often cited as a social tragedy, it is not without parallel in other sectors or other countries. Indeed, for general living standards to rise, productivity must increase. The fact that 2 percent of the population can now feed the country vs. some 30 percent 60 years ago indicates dramatic increases in productivity. Moreover, other sectors, especially retailing, went through similar patterns.
A broader view shows mixed results
Making a broader assessment of the results of 60 years of legislation requires some framework for assessment. Economists typically use criteria of efficiency: What happened to outputs relative to inputs used? Or equity: How were the costs and benefits distributed between different groups in society? Many agricultural economists have evaluated government ag policies in different periods and generally come to similar conclusions. Government policies most often resulted in some loss in efficiency, that is, some resources were wasted that might not have been in the absence of the government action. And these policies generally resulted in a transfer of income from taxpayers or consumers to farmers. In the early years of federal farm policies, such transfers generally increased equality of income distribution-taxpayers as a group had higher incomes than farmers, consumers somewhat less so. But in the last three decades, the equity results are indistinct. Farmers as a class no longer were substantially poorer than taxpayers as a class and were little different from consumers.
Furthermore, many studies argued that because of the structure of price support programs, larger farmers, with incomes above the national average, received larger benefits than smaller farmers with below-average incomes. But except for a few periods such as 1933-1939 and 1982-1987, both the equity and efficiency effects were small relative to the overall farm sector, small relative to the effects of other exogenous shocks such as new technology or nonagricultural policies, and extremely small relative to the national economy. In other words, in many of the last 60 years, agricultural policies may not have been particularly important.
Political scientists might analyze the history of ag policy in a power framework: Who gained, who lost and who decided. [See Cui Bono] Their conclusions generally support that of economistsfarmers gained at the expense of taxpayers and consumers, but the gains were not sufficient to offset a long-term decline in the number of farmers. Furthermore, some find, as time went on, larger, politically better-connected farmers were able to capture larger fractions of the policy benefits at the expense of smaller or lower-income farmers.
Beyond the somewhat ambiguous conclusions of policy analysis, can we learn anything from six decades of government actions? Yes, there are general lessons to be learned, which, while not necessarily authoritative for all future cases, certainly provide useful insights.
Nonpolicy forces can overwhelm policy
Over 60 years, one stated or unstated objective of federal farm policies was to raise farm prices and thus, indirectly, farm incomes through a variety of measures. But at the same time, factors such as new technology counteracted and in many cases overwhelmed the effects of farm legislation. The United States already was a fertile bed for new agricultural technology early in the 19th century. Farmers and nonfarm inventors produced a stream of new machines to apply animal and fossil fuel energy as a replacement for human effort. Such labor-replacing innovation continued in the present century and was bolstered by advances in biology and chemistry that boosted output per acre through hybrid and genetically engineered seed, synthetic fertilizers and pesticides. The effect of such innovation was to increase productivity so rapidly that federal programs to restrict output were frequently overwhelmed. New technology also allowed the same acreage to be cultivated by many fewer people, and the decline in farm populations and increase in the size of farms that had begun by 1920 continued largely unabated by policy interventions up to the present.
Nor was government completely divorced from the innovation process. From the time of the Morrill Act in 1862 establishing land-grant colleges, the federal government actively promoted agricultural research and extension efforts that strongly encouraged the production and dissemination of new labor-saving and land-augmenting technology. While government-funded research and extension was not the only, or perhaps even the primary, impetus to increases in productivity, it certainly played a major role and its effects ran directly counter to farm bill measures to limit output and raise prices.
Nonagricultural policies can overwhelm agricultural policies
Especially in the last 40 years, saving the family farm is frequently cited as a motivation for farm policies. But while farm bills were written with at least some attention given to favoring smaller producers over larger ones, other legislation has had offsetting effects. Federal tax policies from the 1950s into the 1980s are an example.
The increasing size of farms was one symptom of the disappearing family farm that successive farm bills were intended to slow. But high marginal tax rates combined with liberal depreciation rules for purchased machinery made the after-tax cost of new machinery or facilities considerably lower for higher-income large farmers than for lower-income small farmers. This was particularly true during the 22 years that the investment tax credit was in effect following the Kennedy tax bill of 1964. Some studies showed that the after-tax costs of new machinery were 40 percent lower for high-income farmers than for those with low incomes. Such subsidies to capital intensity implicit in the tax code produced greater movement to large farms than would have occurred if tax rules had been scale-neutral, and ran directly contrary to the implicit and explicit objectives of successive farm bills.
Short-term, long-term objectives may conflict
In Leo Rosten's wonderfully tragicomic novel, Captain Newman, MD, a young military psychologist is trained to classify all mental disorders either "chronic" or "acute." Problems in U.S. agriculture are often chronic, for example, the long-term price declines caused by the extension of areas cultivated after the Civil War or new agronomic technology in the 1950s.
But policy solutions intended to deal with acute short-term problems, such as near-starving rural populations in spring 1933 or a wave of farm and farm bank failures in 1984-85, are seldom effective in easing longer-term questions such as the social costs of structural change induced by technological innovation.
When the AAA was enacted in 1933, the immediate objective of raising incomes of distressed farmers and quelling incipient rural unrest were clear. But from 1936 through the Korean War, goals were much less clear. Through 1939, farm incomes remained low, but not to the point of crisis, and it was increasingly clear that AAA measures were doing little to raise incomes over the longer term.
Ag policies were largely moot during the war and in the immediate post-war period, but were maintained in a vague consensus that some government action was necessary to prevent agriculture from slipping back into depression. By the time of the Eisenhower administration, most advocates for farm programs argued in effect that government help was needed to ease excess labor out of agriculture. Farmers were producing too much, new technology meant that fewer farmers could meet the food needs of the nation, and that something had to be done to ease the financial pain of all concerned while this structural change took place. It was essentially an agrarian version of the contemporaneous debate about whether automation would lead to chronic unemployment of industrial workers. These sentiments persisted through the Kennedy, Johnson and Nixon administrations.
By the mid-1970s, ideas of overpopulation and resource scarcity loomed large, and highly publicized price swings for foods and fuels had created a mentality favoring the need for price stabilization. Hence, the release and call for price provisions in the 1978 act was intended to guard against price upswings as well as downswings.
But as prices crumbled in the 1980s, minimization of farm business liquidations and shoring up of farm land values quickly came to the fore. The need for coalition partners led farm lobby groups to ally with the environmental movement in the Conservation Reserve Program (CRP) and conservation cross-compliance provisions of the 1985 bill, much as the Roosevelt administration had recast the 1933 bill in a soil conservation mold in drafting the 1938 legislation. But the CRP and other conservation measures are quickly being jettisoned in the throes of 1996's higher prices.
Policies take on lives of their own
Conflicts between short-term and long-term objectives might not be as important, if policies did not seem to take root and resist change. But in practice they seem to, and economists Douglass North and Mancur Olson offer different, not necessarily conflicting, explanations for why they do.
North proposes an idea he calls "path dependence." Essentially he argues that at some initial point in time, there may be a number of valid policies or institutions that would cope equally well with a given challenge. But, he goes on, once one alternative is chosen it will tend to be rechosen again in the future for a variety of reasons.
Olson details some reasons why this may be true. Any given policy will create some winners who, though relatively small in number, benefit a great deal from that policy. Other persons in society bear the costs, but such costs are so diffused that few if any individuals are likely to argue for termination. The effort necessary to organize the highly motivated few who benefit is far lower than that necessary to muster the less motivated many who bear the cost. Thus the lobbying efforts of the vocal, organized, motivated few are likely to receive much more attention in congressional circles than the faint murmurings of the many who pay.
The fate of reforms proposed by Agriculture Secretary Brannan in 1948 seems to bear this out. His proposals probably could have achieved a comparable level of income enhancement for most farmers at a substantially lower level of cost to the treasury than the policies that prevailed. But they would have reduced payments made to a relatively small number of very large farmers. Moreover, they would have made the level of transfers to farmers much more apparent to the general public. Operators of smaller farms would have been no worse off, but not any better off with the proposed changes. Large farmers in the South swung key Democrats against the bill, those in the Midwest and West won over Republicans who might have been expected to favor lower outlays, and the measure died.
The political system of the United States, with elections for most members of Congress on a two-year cycle, has a bias toward the short term. The apparent inertia of short-term measures, whether the price support loans of the AAA or the "temporary" investment tax credit of 1964 may lead some to be skeptical about the wisdom of responses to perceived crises.
Higher prices for all is a bad way to raise incomes for some
In 1933, policy-makers could look to farm price support programs as a way of raising the incomes of many poor people. Farm families made up nearly a third of the population and their average incomes were substantially below those of urban households. But farmers as a proportion of the population shrank steadily over time, and average farm incomes rose so that after the 1970s they were as high or higher than nonfarm incomes.
A few caveats must be applied to farm/nonfarm income comparisons. Average farm incomes lower than those of all households were used for years as a reason for government intervention. But these lower average average farm incomes through the 1950s were dragged down by large numbers of semisubsistence sharecroppers in the South. At the same time, average incomes of farmers in the Corn Belt were as high as their urban relatives throughout most of this century. Yet the low "average" farm incomes were used in support of programs that largely benefited above-average Corn Belt and Wheat Belt farmers or large landowners in the south, and did little for the Southern sharecroppers whose poverty was responsible for the low average income.
Conversely, by the 1980s, incomes of farm families were above the national average. But they were so only because of the off-farm earnings of household members. The general lesson is that after World War II, raising farm incomes no longer necessarily implied improving the lot of the poor. And "average incomes" for all households in a sector as diverse as agriculture offers little useful guidance for policies directed at the entire sector.
Thus, as time went on, the number of poor people whose incomes might be raised by higher farm product prices diminished. And in any program that sought to raise incomes by raising prices, the most benefits would accrue to those who produced the most. Large producers were seldom those with low incomes.
The question of what proportion of farm program benefits were captured by large or wealthy operators is one that has dogged analysts for decades. Some radical historians argue that the vast bulk of benefits from the original AAA were captured by white Southern landlords and that the amounts received by sharecroppers or by farmers in other regions were mere pittances dribbled out to ensure political passage. Numerous attempts were made to limit the amount of direct payments to any individual. But such limitations could be evaded in part by legally breaking large farms into many smaller ones ostensibly owned or operated by spouses, parents, children and even employees of the original owner. Furthermore, any measures that increased all prices through supply controls would benefit all producers, whether subject to direct payment limitation or not.
Over time, there was good information available on the proportion of benefits received by farm operators in different categories of size as defined by value of sales. These generally showed that a relatively small number of large operators received a large proportion of all benefits, and that a large number of small operators received a small proportion. Other analysts noted that the correlation between farm size as indicated by sales and farm income was not strong. Some farmers with very high sales realized quite low net incomes and vice versa. Nevertheless, the bulk of evidence indicated that the groups of farmers least in danger of poverty captured much of the income transferred from taxpayers or consumers by federal farm legislation.
In retrospect, this seems to be an obvious outcome of the farm sector's insistence that farm programs did not constitute welfare, but rather government action to ensure a fair price. Farm groups of all types opposed any means test for participation in farm programs, and generally favored measures such as production restrictions or export subsidies that raised prices without direct payments. But such price-raising measures inevitably meant that the largest benefits would accrue to the largest producers.
Price policies are poor responses to structural problems
From the Eisenhower years on, the theme of the need to "preserve the family farm" or "farming as a way of life" was frequently sounded in public debate over agricultural legislation. The idea of family farming as a socially desirable and morally superior mode of production is deeply rooted in American culture and can be traced back to Thomas Jefferson and other 18th century writers.
Well into the second half of this century, many urbanites had farm roots, being children or grandchildren of active farmers, and frequently had great sympathy for them. The logic often seemed inescapable, if most farms were family farms, and if many farmers encountered financial conditions that made them consider leaving the business, then such economic conditions were destroying the family farm.
In reality, two separate issues were at play. One is the size and number of farm operations, the other is the form of ownership and business organization. Millions of family farmers have gone out of business since 1920, and the number of family farms continues to decline steadily. But the proportion of farms and of agricultural output that is produced by family farms has not changed significantly over time. Most of today's family farms are much larger and less diverse than those in previous eras, but they are still owned and operated by families. In livestock production, many family farms now have contractual links with input suppliers or processors that permit them much less autonomy in decision making than their parents enjoyed. But these contracts also protect them from risk, minimize capital investments and afford them steadier income than they might have otherwise.
Retrospective evaluations of farm programs reveal few, if any, ways in which they favored family over nonfamily farms. Many nonfamily farms are involved in the production of fruit, vegetable or tree crops that were not covered by price supports. Limitations on the amount of direct payments to any single farm did favor smaller units somewhat, but supply restriction measures under the AAA, Soil Bank, annual acreage reductions from 1961 on, or the CRP, if they raised prices at all, raised them for all producers, regardless of size or form of ownership.
U.S. agriculture is a long-term success
A narrow focus on the adjustment costs that the agricultural sector has absorbed in this century and on the effectiveness or ineffectiveness of specific policies can obscure the fact that U.S. agriculture is a marvelous success in terms of producing large quantities of food and fiber at low cost to consumers. Indeed, the average U.S. household now spends less than one-eighth of its income on food, a proportion that is unprecedentedly low both in terms of recorded history and in comparison to other high-income countries. The fact that U.S. food supplies have been abundant, with real food expenditures dropping over time for most households, is probably a major reason why subsidies to agriculture encountered little political opposition over the last 50 years.