E3B-Lancast«r Farming, Saturday, August 16,1986
Agriculture’s Adjustment Paves Way For Modest Gains
“The farm sector is making the
necessary adjustments to position
itself for modest gains in the late
1980’s and beyond. ’ ’
This is one of the conclusions
presented in a recent briefing for
top USTOA officials, which was
summarized in a recent issue of
the Agriculture Department’s
FARMLINE magazine. The
briefing, prepared by several
economists of USDA’s Economic
Research Service, delved into the
origins and the likely outcomes of
the current farm financial
situation.
It is the view of these economists
that the strong market signals of
the 1970’s— signals that en
couraged rapid expansion in
production, the excessive bidding
up of land values, the ac
cumulation of large debts, and
increasingly intensive use of
productivity boosting inputs-had a
limited life span. Agriculture’s
response to those transitory
signals, they say, left many far
mers highly vulnerable to what
was probably an inevitable return
to more sustainable conditions.
It has been the pain of adjusting
to the dramatically different
financial and economic en
vironment of the 1980’s that has
come to be called the “farm
crisis.”
The consensus of the economists
is that something similar to these
new, slower growth conditions-
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rather than those of the 1970’5-is
likely to prevail through the
remainder of this decade and into
the 1990’5.
What’s Ahead
What does this imply for
agriculture in the months and
years ahead? The analysts
recognize that the consequences of
agriculture’s financial stress are
not over-that some farmers who
held on through the last few years
will be squeezed out in the next
few, and that depressed rural
communities cannot expect a
quick recovery.
On a more positive note,
however, they agree that a major
portion of the underlying ad
justments seem to have already
been made. These include lower
production costs and land values, a
reduction in the sector’s debt
burden, more favorable dollar
exchange rates on world markets,
and the implementation of policies
designed to improve the com
petitiveness of U.S. export com
modities.
Although the repercussions will
continue, many of the economic
adjustments still occurring are
going to be less severe than those
already experienced, says Ron
Meekhof, the USDA economist who
directed the briefing.
Here is Meekhof’s summary of
what he and the other analysts had
to say about prospects for the
future:
• Adjustments are well un
derway in the farm sector to a
lower asset and cost structure that
is consistent with the general
economic and world agricultural
setting of the 1980’s. This year will
mark the first time since the early
1930’s that farmers’ cash expenses
have dropped for two consecutive
years.
• These adjustments should
leave the sector in considerably
better financial condition and
poised for modest growth by the
end of the decade. Farm policy, as
reflected in the 1985 farm bill, will
play an important role in providing
income support for the sector
throughout this period. As
agriculture makes the transition
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from the 1970’s environment of
rapid demand growth, high in
flation, and low real interest rates
to the slow demand growth, low
inflation, and higher real interest
rates of the 1980’s, the aggregate
measures of the sector’s per
formance will improve.
• Nevertheless, the gains from
this transition are not expected to
materialize fully until late in this
decade. In the next two or three
years, some farmers are likely to
be forced from the sector by
economic circumstances; farm
financial institutions will continue
to suffer financial stress; the real
wealth of the sector may decline
further; and farm communities
dependent on agriculture will be
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hard pressed to share in national
economic growth. Financial
problems will continue until the
production capacity of the sector is
lowered to levels that are con
sistent with demand or until
production costs and debt have
fallen to levels that can be sup
ported by income.
Reducing Excess
Capacity
Agriculture’s excess capacity
and the outlook for demand growth
are critical factors affecting the
economic outlook for the sector.
Meekhof continues:
• The current situation of excess
capacity in the farm sector should
soon begin to ease. The growth in
the use of inputs, especially fer-
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