The Economics of American Agriculture

In 2008, The Economics of American Agriculture: Evolution and Global Development was published, with those groups as its audience. It reported much of the empirical data that described the economic trends to partially answer the question “What is happening?”. It also summarized much historical research.

A summary of some key results in those books follows:

• Average profits in a perfectly competitive industry equal zero.
• American agriculture is competitive in most regions and commodity markets.
• Profits approach zero in the Midwest and other regions of the country where climate limits production alternatives to a few commodities, thus limiting industrial organizational structures for agriculture.
• That market failure leads to agricultural job and income security issues to be dealt with by the American government; it is a micro, not only a macro, problem.
• Government interventions and reporting methods have muddied empirical data on profits, thus obscuring agricultural analysts’ ability to recognize the industrial structure problem of American agriculture. Structural issues distract from the fact that all decisions are investment choices made at the firm level.
• Government programs tend to be aimed at specific commodity markets, where prices and/or production costs can be more easily managed in those programs, rather than on structural issues that often cross market boundaries.
• Government’s emphasis on reporting of aggregate data on the profits of the agricultural sector obscures the fact that, on average, about two-thirds of individual farmers and ranchers lose money on their production each year.
• Solutions are limited by the unwillingness of many policy makers to accept a diagnosis for American agriculture that calls for structural changes that reduce competition between firms.
• The diagnosis differs by region and by farm size.
• The diagnosis calls for consolidation and industrialization that counter Americans’ natural preferences for competition.
• Solutions for existing market failures are expensive and extensive government interventions that will test the United States’ assessment of American agriculture’s value to our country and the global economy.
• However, the success of government interventions would be increased greatly if they focused on facilitating collaboration between agricultural firms that could benefit from market integration.