Current prosperity period differs greatly from the '70s

By Susanne Retka Schill | May 22, 2013

The current period of prosperity in U.S. agriculture is unfolding much differently than 30 years ago: planted acres are not expanding at the same rate, farm income is steadily improving rather than peaking and trailing off and farm debt is declining rather than rising. The series of comparisons is being made by Ohio State University economist Carl Zulauf who is analyzing economic data and other numbers from the ’70s and the past decade.

Planted acres in the U.S. have not expanded in the current period of agricultural prosperity as they did earlier, he explained. “The lack of expansion in planted acres in the U.S. implies that the often-referenced food vs. fuel debate is an inaccurate characterization of the situation confronting U.S. agriculture in the 21st Century,” he said, adding that principal crop acres during the current period of prosperity have yet to exceed the 334 million acres planted to principal crops in 1996.

A better characterization needs to include environmental services, Zulauf writes in a recent post to the FarmDocDaily titled “Current and 1970 Farm prosperity: Cash Farm Expenses.”  

“U.S. crop agriculture has become not only a provider of food and fuel but also a provider of environmental services, such as reduced water and wind erosion and improved wildlife habitats. In other words, 21st Century Agriculture is not just characterized by an expansion into the fuel market but also by an expansion into the environmental services market. Hence, it is not a food vs. fuel dilemma but a food vs. fuel vs. environmental services dilemma.”

“This observation is not a criticism of farm environmental programs,” he added. “Instead, it is pointing out a fundamental difference between the current and 1970 periods of farm prosperity—the willingness of contemporary American society to continue to support farm-based environmental services in a period of high farm commodity prices. To put this observation somewhat differently, are the events of the last seven years asking us to ponder this question: is U.S. society as whole choosing farm environmental services over profitability of the U.S. livestock sector?”

Zulauf has been comparing the period of prosperity in the beginning in 1972 with the current period beginning in 2005. While often known by the Russian grain deal in 1972, Zulauf said it is simplistic to attribute the period of prosperity to one thing. “It’s a confluence of events,” he said. “Periods of prosperity are not due to a single factor.” In the ’70s, the Soviet Union made a policy decision to import grain to make up for a short crop rather than expect reduced consumption. At the same time there was a period of increasing inflation, he said, “and a continuing series of production hiccups around the world.”

Similarly, while the current period of prosperity is often simplified to being the result of biofuel demand, there has also been a significant increase in global feed demand. While that often is simplified as China’s increased demand, which has primarily been for soybeans he added, it includes increased demand from a number of developing countries that are improving diets through increased livestock feeding. On top of that has been weather problems affecting crop production in different countries in different years. And while attributing one-third of the prosperity effect to each of the factors is a good starting point, he added, the interrelationships are far more complex.

In a series of posts to the FarmDocDaily, Zulauf has compared multiple factors such as net farm cash income, farm real estate values and the ratio of prices vs. inputs in the two periods of prosperity, adjusted for inflation. In most cases, during the ‘70s the trend lines show a rapid increase in value and then slowly taper off compared to the current period of prosperity which shows a steady climb. Farm debt steadily rose during the ‘70s, while in the current period farm debt is declining.

It is easier to draw conclusions about the events of 30 years ago, Zulauf added, because when one knows how it all turned out, it is easier to spot the most important factors at the beginning. Drawing similar conclusions about the current period is not as easy, because it is still unfolding. “In the current period, we kind of know the beginning and we may be in the middle, but we certainly don’t know the ending,” he said. “One conclusion you can draw is that it is distinctly possible that this period will be very different going forward than previous ones, give there’s been notable differences up to this point.”

Next on Zulauf’s plate is to analyze the global trends in production and demand during the same two periods.