The Economics of American Agriculture

Evolution and Global Development

Steven C. Blank

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317457336
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book answers the questions: What is happening to American agriculture, and why? Steven C. Blank uses portfolio theory to analyze both macro- and microeconomic data that paints a clear picture of the trends in agriculture, and explains why these trends are consistent with market evolution and global economic development. He clarifies agriculture's specific role in economic development with a focus on the current and future globalizing commodity markets.The book features empirical research that demonstrates the link between farm-level investment decisions and regional and national economic trends. It shows how the dynamic environment of industrialization and globalization of agriculture is part of a continuing development that is driven by technological innovation. This all points to a future with a very different agricultural production sector and some extremely important policy choices that will face the entire country.

PART I

AMERICAN AGRICULTURE AND GLOBALIZATION

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CHAPTER 1

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IS AMERICAN AGRICULTURE SHRINKING?

“Compared to what?”

—Winston Churchill, when once asked, “How’s your wife?”

Change is not only inevitable; it is necessary in a dynamic economy. Without change, progress is impossible. However, some changes are so dramatic that it is difficult to think of them as being necessary or progressive. For instance, think of all the American industries that once flourished and now are gone or virtually so. Just a few examples include copper mining in the southwest; gold mining in California, South Dakota, and Alaska; the timber industries of the East Coast; the fishing industries along many parts of both coasts; and the steel industry of the Great Lakes region. Each of these commodity-based industries once was the central force in some local or regional economy. Now each of them has vanished to some degree. All that is left of the copper mining that thrived in Arizona during the late 1800s is a scattering of ghost towns. Gold mining in California has left behind only a few hobbyists and numerous museums. The eastern timber industry has been gone for so long it is not mentioned in most history books. And the steel industry has mostly rusted into memory.

In their heyday, each of these industries caused inward migrations of workers to the regions, triggered large-scale investments in economic activities of many sorts, and fueled the economy of the surrounding region. Each was proud, productive, and profitable … in its prime.

Now think of American agriculture. Farms and ranches once numbered over 6 million in this country. Agriculture was the dominant industry in the nation for much of our history. It caused mass migrations and large-scale investments that created and supported the economies of entire regions. It remains proud and may be at its productive prime. But it is no longer very profitable, thus it is slowly disappearing.

Ghost towns are now appearing in parts of the Midwest where agriculture was the economic mainstay. There are a large number of counties that have lost more than 10 percent of their population in the last 20 years. Most of those counties lie in a swath stretching from Texas and New Mexico to Montana and North Dakota. Nationally, hobby farmers and agricultural museums are becoming more numerous. And with each generation, America’s rural roots are becoming a smaller part of the nation’s collective memory.

This is all part of a normal evolutionary process.

A dictionary provides several definitions of “evolution,” the first two of which are: “(1) a process of change in a particular direction, (2) one of a series of prescribed movements (as in a dance or military exercise).” Thus, the evolutionary changes occurring over time in American agriculture must be viewed as being part of a particular process, not a random series of unrelated events. That process is being “prescribed” by the economics of the markets for the commodities produced by American farmers and ranchers. Each movement in the dance toward the future has some rational explanation based on the investment decisions made by agricultural producers as they deal with the evolving markets facing them.

This book offers some insights into the economic explanation for the observed changes occurring in American agriculture. It also offers some possible explanations for what is likely to happen in the future if the current economic “series of prescribed movements” continues to carry the industry in the “particular direction” indicated by the current “process of change.”

INTRODUCTION TO THE BIG QUESTIONS

This book is an analysis of American agriculture’s profitability and how it is affected by economic and structural changes around the globe. The information here seeks to both describe and explain those changes with an eye on possible future developments. The focus is on profitability because, as the saying goes, “profits are the lifeblood of a firm” (or industry, or economic sector). Without profits, a commercial enterprise cannot survive for long. Some level of profit is needed after all costs of operations are covered to reward the firm’s owner-operators for the risks borne. For owners of any business, the incentive to accept some level of risk is the opportunity to earn rewards in the form of profits, which are the source of wealth. Wealth is an accumulation of retained profits. The level of wealth achieved by a family business directly determines the standard of living and, indirectly, the quality of life for the family. Thus, the financial analysis of American agriculture’s performance presented in this book is an assessment of the industry’s ability to support the owner-operators of the farms and ranches remaining across the country.

A number of big questions are raised in this assessment process. Some of those questions can be answered directly, some can be answered only indirectly, and some can only be speculated about. The process is complicated by the fact that American agriculture is not really one industry, it is a collection of commodity segments. Some of the segments have better prospects for sustainable profits and will survive; many other segments will not survive due to their inability to generate sufficient profits to support the people working in those markets. This book discusses agriculture as a whole and as pieces. Agriculture can be considered as a whole quite often because all of its commodity segments share some common economic circumstances. Most of the material in this book covers agriculture as a whole. In a few places the unique economic circumstances facing some commodity segments are noted. These differences between commodities and their markets are important only when they create significant differences in the potential for sustainable profits for the farmers and/or ranchers involved. In other words, the focus of this book is the profitability of American production agriculture (i.e., farm- and ranch-level producers). The agribusiness sector (i.e., the businesses that provide inputs to, and handle the outputs from, farms and ranches) is dealt with briefly, but only with reference to its role in influencing the profitability of producers.

One big question dealt with is the relationship between American agriculture, the remainder of the American econom...

Table of contents

• Cover
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Part 1 American Agriculture and Globalization
• Part 2 The Economics of Agriculture and Global Development
• Part 3 Global Agriculture’s Effect on Market Evolution
• Part 4 American Production Agriculture’s Response
• Part 5 American Agricultural Policy Questions
• Glossary of Variables and Mathematical Definitions
• Index