Freedom to Farm - the miracle of 'free markets - intended to make agriculture an export powerhouse - so prosperous that subsidies would disappear and set aside acreage would be - set aside.

However, grain, soybean and cotton farmers are more dependent on government payments today than before Freedom to Farm was passed. More money - over $25 billion more - has been spent in the past four years on farm programs than the $43.6 billion that was budgeted for the full seven years of the 1996 legislation. In the fiscal year ending September 30, 2000, direct government payments to farmers will be the largest in the history of agriculture - $32.3 billion - which includes $5.4 billion for the crop to be harvested this fall (payments overlapping crop years).
 

The drought in the Southeast U.S. has taken its' toll on Southern farms during the past three years. Crop output has been reduced. Irrigation is responsible for much of what has been produced, resulting in higher production costs.

On a national scale we are producing more grains, oilseeds and cotton than can be sold at profitable prices. U.S. agriculture is operating at full capacity. The aggregate of farmers don't have the capacity of a large corporation to reduce output -- leaving some of it's productive capacity idle. They can't collectively reduce output to meet demand at a profitable price. A single farmer doesn't have the ability to produce enough of a commodity to affect price. Any individual changes in output affects only that farm.

Prior to the 1996 farm bill, government provisions were in place that allowed the Secretary of Agriculture to restrict and moderate industry output and marketings. This secretarial function under previous legislation has been likened to being the CEO of agriculture - who could do for agriculture what agriculture could not do for itself. Current legislation stripped the Secretary of Agriculture of programs to influence crop output and marketings.

The inability to moderate output is only one of the factors that explains why agriculture did not perform as it was supposed to under Freedom to Farm. Some factors outside our borders help explain why the expected export explosion did not occur.
 

Why do not lower commodity prices cause demand to expand (domestic and foreign) and production to contract enough so that the low price problem self-corrects?

Most of any increase in demand for commodities is outside the U.S. because domestic increase is affected only by population increase. We are a well fed nation. And we must keep in mind that exports are affected not just by a nation's needs, but by that nation's ability to pay for an item. Further, many nations want to be food-self-sufficient. Any increase in production elsewhere competes in the world market with U.S. production.

Freedom to Farm has loan prices for many commodities - and Loan Deficiency Payments. While these payments may be less than total production costs, the do provide some amount of income. As crop growers don't have an alternative for these crops, they continue to grow traditional crops and accept a limited amount of payment. Then government outlays are increased by loss of market payments.
 

Aggregate figures show government payments are letting growers pay their bills in the midst of low crop prices, weak demand from abroad and excess supplies,. Projections for 2000 suggest total U.S. farm income will rise to near $46 billion - about $860 million above the 1990-1999 average of nearly $45 billion. Cash income is likely to increase by $1.6 billion from '99.

Freedom to Farm is set to expire in 2002. Congress has already made changes in the current law. This year it revamped USDA's crop insurance program. Both presidential candidates say the law doesn't do enough to protect farmers from low prices. Nearly all associated with farming advocate a safety net for farmers - government programs when prices fall below a certain level - an idea with broad support.

Another focal point in congressional debate will be loan deficiency payments (LDP's). Marketing loan gains will be collected this year on nearly all the nation's program crop production. Thus the CCC loan program resembles the target price system of previous farm legislation. But under previous farm bills, deficiency payments were allocated on the basis of "normal" production when prices were low. With the current system, producers with good yields and large crops get large LDP checks. Those affected by drought harvest few bushels or bales and collect smaller checks than those with large crops. Changes are likely to be made to make LDP's more equitable.

There is pressure from some groups for supply control to prop up prices. But congress will most likely leave the market orientated policies of Freedom to Farm in place. In the process there will be a push to expand global markets for U.S. farm goods. There is general agreement the U.S. should seek an end to tariffs and subsidies in global trade talks.

Supply control sounds good, especially at a time like this, but in a world market we might find ourselves importing cheaper food.

Supply control can be accomplished only by output restrictions -- acreage or marketing quotas. Supply is reduced to drive up the price. The most recent supply control programs saw producers selling the commodity at the world price with a deficiency payment to the grower if the selling price was less than the predetermined target price. In instances when the domestic price is above the world price, industries that use these commodities will find ways to use less expensive raw commodities from off shore.

And the concept of parity keeps raising its' head. Parity refers to the buying power of a unit of a commodity as compared to the buying power during 1910-14. It doesn't take into account farm efficiency. Cost of production per unit is far below that of sixty years ago. But it's always interesting to look at what parity prices would be today (shown on the last page) and figure what percentage of parity price we need to realize a profit.
 

Fifty years ago (1950), one-fourth of the state's farm income was from cotton - 13% from peanuts - 65% of the total, ($528 million), was from crops. Broilers generated 8% of this amount. Fifteen years earlier, cotton produced ½ the farm income and broilers were virtually unknown.

Today, about one-half of Georgia's $6+ billion farm income is from poultry (primarily broilers) - all grown under contract. On farm cash income for broiler growers is a small percentage of this.

Eleven primary row crops have generated about $1.5 billion income (23% of total income) during the past few years, but occupy about 4-million acres (37% of total) of the 10.7 million acres of the state's farmland (and nearly 100% of the harvested cropland).

Peanuts, tobacco, cotton and vegetables are generally considered to be among the state's most profitable crops. The state's climate favors these commodities. Georgia is well adapted for peanut and tobacco production. However, these commodities do not have a national scope as do grains and oilseeds. Consequently, these two commodities have traditionally been produced without a lot of fanfare in the legislative arena. But, this attention focus is changing. The attack on tobacco has gone beyond reason and has gotten politicized.

At the other extreme, most of the grains and oilseeds are best grown in other parts of the U.S. Consequently, the large portion of government payments go to locations of major grain and oilseed production. Georgia farmers can produce high corn yields, but is often done with high irrigation costs.

Georgia is well suited for cotton production. The 1.5 million cotton acres attests these growers have a comparative advantage for cotton production. The crop now is the highest single source of crop income in the state. But cotton is relatively expensive to produce and requires harvest equipment that cannot be used for other enterprises.

Higher market prices for corn and soybeans can offer promise - as was shown about twenty years ago when the state's farmers grew over 2-million acres of soybeans and 1.5-million of corn. And over one-half the soybeans were double cropped with wheat. However, these crops are subject to wide price fluctuations and any expanded production in Georgia is usually short-term.

Georgia's future in row crop farming is uncertain. Any farm bill legislation will include support for cotton, which will be helpful. But one-crop specialization is highly risky. Peanuts has traditionally been a "bill payer", but competition from other parts of the country plus other countries cloud it's outlook. Future production may have to be done with a lower support price.

Vegetables can be profitable - but they are both capital and labor intensive - and have markets that can quickly be filled.
 

The current farm income dilemma is probably the worst we can recall. At least it seems like it even though farm expenses are partially being paid with funds from Washington.

The world market concept and expanded trade has created problems for several U.S. industries - agriculture one of them. The idea that production can be reduced or stopped - and then started again may work for some industries. But the aggregate farm production system is a conglomeration of many individual growers - that cannot be controlled like an industrial complex.

The idea of a total market orientated farm sector is a new ball game, although most animal, fruit and vegetable production have been in this market a long time. But let's don't forget that animal growers benefit from low cost grain - a result of traditional farm programs.

As mentioned earlier, the farm program outlook is to keep some form of Freedom to Farm, with some type of income safety net. As a colleague recently remarked, the agricultural free market genie has been let out of the bottle - and it's going to be near impossible to put it back in"

If this be the case, then we are challenged to find ways to live with it - even if this means depending on money from Washington -- if we are to remain in farming.

References:
Agricultural Prices, ERS-USDA
Doanes Agricultural Report, 8/14/00
Ray, Daryll, "A Funny Thing Happened on the Way to the Market", the University of Tennessee, Knoxville.
The Kiplinger Report, 8/ll/2000
 

U.S Parity Prices and Average Prices Received as a Percent of Parity, (June, 2000 data)
Basic Commodity	Unit	Parity Price	Prices as % of Parity
Wheat	Bu.	$9.73	26%
Corn	Bu.	6.71	27%
Upland Cotton	Lb.	1.79	27%
Flue Cured Tobacco	Lb.	4.04	na
Non-Basic Commodity
All Milk	Cwt.	31.80	40%
Soybeans	Bu.	14.00	35%
Beef Cattle	Cwt.	156.00	44%
Hogs	Cwt.	103.00	47%
Eggs	Doz.	1.52	45%

na = not available

William Givan, Editor
Extension Economist

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