The Long View: Essays on the history of business The High Price of Farm Productivity

Barron's - USA

By JOHN STEELE GORDON

Aid for American agriculture -- whether or not it's needed.

FOOD PRICES HAVE BEEN RISING SHARPLY. Corn, wheat, and soybeans have all more than doubled in the past year. The United Nations Food and Agriculture Organization's food price index rose 40% in 2007.

There are a number of causes for this spike. One is the rising price of oil, a significant input in both farming operations and fertilizer manufacture. A severe drought in Australia has also sharply reduced crop production by that major agricultural exporter. In the U.S., a congressional mandate to produce ethanol has diverted some of the nation's corn crop to nonfood uses. And perhaps most important, rising prosperity in the developing world has affected both supply and demand.

Subsistence farming, which dooms its practitioners to an endless cycle of poverty, is declining rapidly. For the first time in millennia, farming is not the leading occupation of human labor. In 2006, only 36% of the world's workers were farmers, while 42% were in services and 22% in industry. As people enter the cash economy and get better-paying jobs, they can move up the economic ladder and, with disposable income, up the food chain as well.

WHILE THE MARKET SURELY WILL REDUCE CURRENT food prices, it will be a long time, if ever, that we see them as low -- relative to average per-capita income -- as they were in the 20th century.

Two major developments in that century caused a jump in the food supply, relative to demand.

One, the "Green Revolution," increased yields of various crops. From 1965 through 1970, thanks to the work of Nobel Prize winner Norman Borlaug and others, Pakistan and India doubled their wheat harvests. Other countries benefited similarly. While Borlaug, still going strong at the age of 94, is world famous for his work, the other major contributor to lower food prices in the 20th century is famous for something else entirely. His name: Henry Ford.

It's hard to imagine today the extent to which the horse permeated human life in the 19th century. Every farmer, whether a landowner running a large operation that used modern agricultural equipment or a sharecropper eking out a living on someone else's fields, needed the power of horses and mules to plant and harvest the crops.

That began to change at the dawn of the 20th century. In 1900, when about 12 million horses and mules were working on American farms, virtually every wheeled vehicle bigger than a pushcart was pulled by one or more horses. After Ford introduced the Model-T, in 1908, horses began to disappear from city and suburban streets. Ford then set out to free the American farmer from the horse, as well.

WITH THE OUTBREAK OF WORLD WAR I, AMERICAN farmers enjoyed a brief golden age: European grain production suffered as workers left for the military, and Russia, the world's largest grain exporter in 1913, was knocked out of the global market by a German blockade.

American farm prices rose smartly as the U.S. helped take up the slack. And the price of horses also rose markedly, as the allies needed them to haul supplies from the railheads to the front lines. Three million, like soldiers, were slaughtered in the war.

Library of Congress

With wealth from grain and horses, farmers began investing in newfangled tractors. In 1915, Ford announced that he would produce a tractor called the Fordson. Like the Model-T, it would be simple to operate and repair -- and cheap to buy. By 1922, a Fordson tractor could be bought for $395, less than a team of good horses. Horses had largely disappeared from American farms by 1930.

The result was an economic disaster. In 1900, one-third of the cropland in the United States had been devoted to fodder crops, such as hay and oats. By 1930, most of that land had been shifted over to producing human food, increasing the supply far faster than demand.

With the recovery of European agriculture after the war, American farm prices began to plummet. Rural banks began to fail in the 1920s, dragging down local economies with them.

TO HELP FARMERS, HERBERT HOOVER, CAMPAIGNING for president, promised to give them tariff protection from foreign competition. Congress, turning Hoover's pledge into a special-interest feeding frenzy, passed the Smoot-Hawley Tariff in 1930, which helped bring about the collapse of world trade and exacerbated the developing depression.

By 1933, mortgage foreclosures on American farms were averaging 20,000 a month, in part because food prices had gone so low that many crops couldn't be grown at a profit. Both the U.S. and Europe would have to deal with massive food surpluses for most of the next 60 years, until rising demand at last caught up with supply.

The New Deal began agricultural price-support programs. Such programs, of course, develop a life of their own, independent of the need for them. That's why -- although American farmers are today enjoying a prosperity they haven't seen in nearly 100 years -- Congress this year passed the biggest agricultural price-support bill in history.

The markets have a lot of work to do.