Question

There are a few possible explanations given for the “farm problem” (falling farm prices and income). Pasour and Rucker discuss some possible sources in their book. Provide a brief description of two (2) possible explanations. Which explanation do you find most persuasive? Why?

Answer 1

Due to improved technology, which brought mechanization, improved seeds, pesticides, herbicides, which all lead to change towards more capital than labor, increased the supply of farm products. But the population demand didn't rise as much; this has led to lower farm product prices.

U.S. exports of farm products have been adversely affected by increasing agricultural productivity in other countries. Farm productivity is rising rapidly throughout much of the world, not only in the United States and Western Europe but also in developing countries.

The most persuasive would be expanding farm production worldwide, which adversely affected the U.S. U.S. farm programs have contributed to increased farm output in other countries. The price support loan rates in U.S. commodity programs that effectively set price floors frequently have provided artificial production incentives to farmers in other countries who could produce less than the U.S. loan rate. As U.S. farm programs tried to reduce farm output after 1981, the rest of the world significantly increased production of wheat, soybeans, cotton, and other products so that U.S. farm exports plummeted.

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