Thursday, April 4, 2013

U.S. Agricultural Sector

The 2013 Economic Report of the President, published recently by the President's Council of Economic Advisers, devotes a chapter to bringing readers up to speed on"The Challenges and Opportunities of U.S. Agriculture." Here are some of the main points that jumped out at me:

Over much of the 20th century, the number of farms was falling, the size of farms was growing, rhe rural share of the population was falling, and the share of GDP from farming was falling--although all of these trends have leveled off in the last decade or so.

When it comes understanding farm incomes, the key point is to recognize that there are different types of farmers, like whether the main income come from farming or from outside activities. The report explains:

"Fifty years ago, average household income for the farm population was approximately half that of the general population. Today, however, farm households tend to be better off than other American households; in 2011, median income for farm households was about 13 percent higher than the U.S. median household income ... The difference in income between farm households and the nonfarm households is due in part to the broad Department of Agriculture (USDA) definition of what constitutes a farm, which includes farms where the principal operator is retired or has a main occupation other than farming (“residence farms”). Households operating rural residence farms earn more than the U.S. median household income even though their net cash income from farming is negative. Households operating intermediate farms (farms where the principal operator is not retired and reports farming as his or her main occupation) have on average positive net cash income from their farming operations, but most household income comes from sources other than farming. The sources of income for farm households are increasingly diversified, which means that many of them are less vulnerable to the fluctuations of farm income. In 2011, households operating commercial farms had median household incomes two and a half times the overall U.S. median household income, with most of their income from farming. ...  By 2000, 93 percent of farm households had income from off-farm sources, including off-farm wages, salaries, business income, investments, and Social Security. Off-farm work has played a key role in raising farm household income. In 2011, only 46 percent of principal operators of farms reported that farming was their main occupation."

Farming remains one of the most useful industries for generating vivid and understandable classroom examples of technological change. Again, some examples from the report:

"While farm household incomes have become more diversified, farm operations have become increasingly specialized: In 1900, a farm produced an average of about five commodities; by 2000, the average had fallen to just over one. This change reflects not only the production and marketing efficiencies gained by concentration on fewer commodities, but also the effects of farm price and
income policies that have reduced the risk of depending on returns from only one crop or just a few crops....

"In 1950, the average dairy cow produced about 5,300 pounds of milk. Today the average cow produces about 22,000 pounds of milk, thanks to improvements in cow genetics, feed formula, and management practices. Over that time period, the number of dairy cows in America has fallen by more than half, yet U.S. milk production has nearly doubled. ...

"Livestock operations have undergone dramatic changes in the last 30 years. Farmers now use information technology to adjust feed mixes and climate controls automatically to meet the precise needs of animals in confined feeding operations. Integrated hog operations, for example, sharply reduced the amount of feed, capital, and labor needed to produce hogs as new technologies and organizational forms swept the industry. As a result, live hog prices were nearly a third lower than they would have been without the productivity growth that occurred between 1992 and 2004, and retail pork prices were 9 percent lower. ..."

"From 1948 to 2009, farm productivity nearly tripled, growing at a rate of 1.6 percent a year. In the early part of that period, increased productivity, measured as output per unit of combined inputs, combined with increased use of equipment and chemical inputs to drive the growth in agricultural output. Between 1980 and 2009, equipment stocks fell along with continued declines in labor and land inputs; chemical use continued to rise, but at a much slower rate. Despite reduced input use, agricultural output grew by 1.5 percent a year in 1980–2009, with increasing productivity accounting for almost all of the growth." 
Americans continue to spend more on food.

Finally,the average age of farmers has been rising; for example, farmers under age 35 contribute only 6% of the total value of agricultural production. Clearly, this  raises some issues about who the farmers of the future are likely to be (citations omitted):

"The average age of U.S. farmers and ranchers has been increasing over time. In 1978, 16.4 percent of principal farm operators were over age 65. By 2007, 30 percent of all farms were operated by producers over 65. In comparison, only 8 percent of self-employed workers in nonagricultural industries in 2007 were that old. One reason the farming sector is relatively older is that farmers are living longer and often reside on their farms. Many established farmers never retire. Additionally, one-third of beginning farmers are over age 55, indicating that many farmers move into agriculture only after retiring from a different career. More than 20 percent of farm operators report that they are retired. Another 32 percent of all farms are operated by farmers aged 55 to 64 years. Farmers aged 55 and older account for more than half of the total value of production. Farmers under 35 contribute only 6 percent of the total value of production. This demographic transition has implications for the future of the U.S. agricultural sector.