Agriculture Reference
In-Depth Information
systems in use currently have lower yields than
the industrial systems they are replacing (Blank
and Thompson, 2004) and, thus, cannot sustain
the world's population at current levels of
demand for food. As a result, 'organic' agricul-
ture is viewed by many production scientists as
an interim stage between 'industrial' and 'sus-
tainable' production systems in wealthy nations
only. The arrow in Fig. 12.1 points upward to
the ultimate goal of achieving a sustainable
agriculture.
In this brief sketch of agriculture's evolu-
tion, it is clear that the productive capacity of
each system is the key concern causing society
(including farmers, natural and social scientists,
and policy makers) to search for alternative sys-
tems. Traditional agriculture is sustainable with
regards to its effects on the environment and it is
still practised in many less-developed parts of
the world. It is being abandoned by those devel-
oping countries as soon as they can afford to
shift to industrial production systems because
additional volumes of food are needed for their
growing populations. Thus, one reason develop-
ing countries move from traditional to industrial
agricultural systems is in response to short-run
needs for food. This is the first step up the simple
development ladder depicted in Fig. 12.1.
Conversely, wealthy countries are moving up,
slowly leaving some industrial systems for
organic production methods, because of con-
cerns for the long-run effects of industrial pro-
duction on the environment and the health of
their populations. Ultimately, both concerns
must be faced by all countries and, it is being
argued by increasing numbers of advocates, the
final solution to both problems must combine
the productivity of industrial systems and the
environmental neutrality of organic systems to
create a truly sustainable agriculture.
industry as a whole is far from sustainable
(Hoppe and Banker, 2010).
In a detailed analysis of the many questions
related to US agriculture's current level of profit-
ability and its struggle for long-term sustainabil-
ity, Blank (2008) presents three general results
that illustrate the challenges facing the industry.
First, he notes that economic theory clearly
shows that perfectly competitive commodity
markets average zero profits over time, thus agri-
cultural producers are always struggling to find
more profitable niches as competition squeezes
agricultural investment returns below the levels
offered by alternatives. Second, the 'technologi-
cal treadmill' (Cochrane, 1958) keeps US agri-
culture in the increasingly global markets for
commodities by creating new technology that
lowers unit costs, but the treadmill is not truly
sustainable because it views nature as a com-
petitor to be overcome. And the third general
result is that government agricultural poli-
cies try to help US producers, but most policies
currently focus on subsidizing market profits -
especially for Midwestern grains - rather than
making those crops more competitive so as to
solve
the underlying problem.
The first of Blank's (2008) results can be
summarized by saying that there is a profit
squeeze on agricultural producers. Output has
outpaced demand for most commodities over
the past century, thus leading to falling real
prices for the outputs of most producers. On the
other hand, the prices of inputs used by agri-
cultural producers have increased dramati-
cally, especially in recent decades. The result is
that profit margins are falling, making com-
modity production less profitable over time
and, therefore, a less attractive investment for
family farm owner-operators. The decline in
profit margins over time is evident in Fig. 12.2.
The gross profit margin of US agriculture
was about 50% from the beginning of the 20th
century through the Second World War (the
margin is the share of 'total sales' represented
by 'net income', shown in Fig. 12.2), but it
gradually declined to about 10% by 2002.
Additionally, Blank (2001) shows that average
net returns on equity in US agriculture declined
from 2.5% in 1960 to 1.5% in 2000.
Blank's (2008) second result is a natural
response to the first result: farmers constantly
strive to improve their incomes by adopting new
The Economics of US Agriculture
The current state of profitability in US agricul-
ture is very mixed. Many producers across the
country are quite profitable, so much so that the
summary data published by the US Department
of Agriculture appear to indicate that produc-
tion agriculture is a viable industry. However, a
closer look finds that a majority of farmers and
ranchers are not truly profitable and that the
