Online NewsHour: Farm Crisis-- August 10, 1998

FARMING CRISIS

August 10, 1998

The NewsHour with Jim Lehrer Transcript

Farmers across the northern plains have been hit by hard times. Depressed prices, increasing costs and years of severe weather have resulted in a decrease in the number of farms across the region. Following a report by NewsHour correspondent Fred de Sam Lazaro, Phil Ponce and two agricultural economists discuss the farm crisis.

A RealAudio version of this segment is available.
NEWSHOUR LINKS:
August 10, 1998:
A background report on the farming crisis.
January 31, 1996:
A discussion on the Freedom to Farm Act.
Browse the NewsHour's coverage of the economy.

ELIZABETH FARNSWORTH: Phil Ponce has more.
PHIL PONCE: Agricultural economists help widen our look at farmers. Bruce Gardner is a professor at the University of Maryland and Neil Harl is a professor at Iowa State University. Welcome, gentlemen. Professor Harl, we just took a look at one part of the country. Other trouble spots in the nation?
Farming troubles across the nation.
NEIL HARL, Iowa State University: There are, indeed. Certainly one of the most severe is the Red River Valley area of Northwest Minnesota and Eastern North Dakota, but there are other areas that have also suffered both because of disease, which is one of the problems in that area, as well as too much rain. But across the South and Southwest, there's been very severe drought, so that starting with Texas, Oklahoma, cross into Louisiana and elsewhere across the South and Southeast, there are areas that have suffered a great deal because of drought. That's one of the problems that we face. The second problem is that the market is sending us signals, and we're in a time now when the market calls the shots. The market is saying you're producing too much, and when the market says that, it starts squeezing, and it's squeezing out, and it squeezes everyone until at the periphery people change their land use patterns. They stop producing the crops that are low in price and shift to something else. Unfortunately, as was noted, the prices for most of the crops are down, so it doesn't pose a very good picture for those individuals who are being squeezed because there in high cost of production areas, with the thinner soil, steeper slopes, the higher cost per bushel or per unit of output. So that's the other part that is affecting everyone across the country. Even the best of soils and the best of situations are suffering from that effect.
PHIL PONCE: Professor Gardner, how about that? Is the market squeezing out people at the margins?
BRUCE GARDNER, University of Maryland: Well, it's putting the squeeze on producers this year, all right, but we have to remember that the last two years have had quite good prices. In fact, it's the response to that, even more abroad than in the U.S., that's caused prices to be low this year.
PHIL PONCE: Expand on why prices are low, just generally.
BRUCE GARDNER: Well, the main factor is more production this year than we've had in the last couple of years. The weak Asian market because of the financial crisis there and the high value of the dollar has made a difference, but that hasn't shown up so much in the export market to date. It may be more important in the future. I think that's affected the climate of opinion, a sort of bearish climate on commodities, but the production side is the more important part.
PHIL PONCE: And Professor Gardner, when you say production, do you just mean domestic production, or do you mean production worldwide?
BRUCE GARDNER: No. I mean, the U.S. and worldwide, yes. And, in part, despite the problems we've had with drought and other production problems, this is a yield issue more than acreage, actually wheat acreage in the U.S. had not expanded this year. It's more overall good growing conditions in the U.S. and even more so abroad.
PHIL PONCE: So you're saying it's not just the amount of acres that are committed to a particular crop; it's the amount of production in the acres that are being in—that are in use?
BRUCE GARDNER: Yes.
PHIL PONCE: Professor Harl, looking at one of the things that came up in the tape piece, is the whole question of farmers that are planting crops and spending money on planting crops, when they know they won't get that money out at the end, is that—does that happen to a lot of farmers?
The role of the Asian economic crisis on farm exports.
NEIL HARL: Well, it does in the sense that when they're confronted with low prices, if they don't have another good choice and grazing is a choice that represents a significant decline in income for them in many cases, they will continue to produce as long as they can cover their variable costs, as long as they can cover their fertilizer, chemicals, and so on, and, in general, they think they can, or they would probably stop producing, and let the land lay idle, so that they have that aspect plus the hope that somehow maybe bad weather will hit some place else, and their prices will improve or exports will pick up. Certainly exports are a big part of this. In corn, for example, we're roughly 30 percent under the last—the average of the last three years—and partly it's because of increased exports from Argentina and exports from China, so that the Pacific Rim, as Mr. Gardner said, really has had a very modest effect so far. But, overall, agricultural exports are off about 6 percent, and that has a very, very pronounced effect. In the case of corn it's an even greater decline.
PHIL PONCE: Prof. Gardner, following up on what Prof. Harl said, one of the points made in the piece was that there is—every year it seems there's a decreasing number of farmers. Is that a trend that you expect to see?
BRUCE GARDNER: That's a trend that will continue, especially in commercial farmers. Actually, the overall number of farmers has not declined as fast as people had anticipated it would, if you go back ten or fifteen years ago. In the beginning of the 80's we had slightly over 2 million farms, and we still have somewhat in the neighborhood of 2 million farms. What's happened, though, is that the smaller farms have gotten more and more involved in the non-farm economy. At the same time, they maintain a modest farming operation.
PHIL PONCE: What do you mean, gotten involved in a non-farm economy?
BRUCE GARDNER: Getting a non-farm job for the farmer or family members beside the farm operator, and sometimes they have side business enterprises working in other places part-time.
PHIL PONCE: Prof. Harl, the Freedom to Farm Act, do you think it provides enough of a safety net for some of these farms that are struggling?
NEIL HARL: I'm very concerned. Of course, any safety net put in place, while I think justifiable on the grounds of the economic and social cost of adjusting and maybe adjusting out of a crop into say grazing, nonetheless, any safety net will have the effect of slowing down the adjustment process and possibly spurring more production. So it has to be handled, if done, very, very carefully. And I think the question is: Is the Congress willing to look at the social costs, the economic costs of adjustment, and put in place something that hopefully would not make the problem worse, would not induce an even greater supply? We have had times in the last several years when our loan levels, our price supports were high enough that it, indeed, had the perverse effect of inducing more production just when the markets were telling us you have too much.
PHIL PONCE: Prof. Harl, what's your assessment as to what the social costs are now? Are they higher, do you think, than Congress expected?
The social costs of the crisis.
NEIL HARL: I think that the prices are much lower than anyone—almost anyone—and Congress would have thought--certainly back when the legislation was passed in the spring of 1996, many thought that exports would continue to climb. We were over $60 billion and growing. There was a strong belief that that would continue upward and that we wouldn't suffer the kind of adjustment by pain that is now being suffered across the entire producing regions, not just at the periphery but everyone is suffering it. I don't think that the Congress really anticipated that this would happen and certainly not happen so soon.
PHIL PONCE: Prof. Gardner, how about it, enough of a safety net in the Freedom to Farm Act?
BRUCE GARDNER: Well, I think there is really, because you can think that you could have some ideal situation where you might set up a safety net that would not affect production or affect farmers' decisions, but with today's commercial producers, especially, they respond very quickly and in ways that can undo the good possible effects of any kind of safety net you try to install. And I believe myself that Congress did the right thing in 1996. And I would say too about the prices being low, that what we've had in the last two months has been a substantial decline from already low prices before that. But the general tenor of low prices in this third year after two years of high prices was not unexpected. And when Congress passed the bill, they had budget projections that fit fairly well with what has actually been unfolding.
PHIL PONCE: Prof. Gardner, just to follow up, there's one example in the piece of a farmer that tried to diversify and therefore be prepared for whatever the market might throw at him, and yet prices are down for—in all those crops, it seems. He was doing the right thing, yet, it doesn't seem to be working.
BRUCE GARDNER: Yes. That's a problem for people who are in that situation. I think, though, that this is a temporary situation. If we were going to have these low prices every year in a widespread set of commodities, that would be a big problem. But you have to remember too that he enumerated some commodities that were never covered by price support protections. And there are farmers who grow fruits, vegetables, and other commodities and have been doing this for years in a very widely fluctuating set of markets and have learned to adapt to that. There are also—I should say too there are also financial tools that farmers can use to insure themselves against low prices, and one of the thoughts in the 1996 farm bill was that farmers would use more of those tools, like forward sales and futures contracts and option contracts and these sorts of things.
PHIL PONCE: Gentlemen, I'm afraid that's all the time we have. I thank you both very much.
BRUCE GARDNER: Thank you.


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