The International Farm Crisis

Writing in 1927, Sir Alfred Mond set out the terms on which agriculture could make a recovery from prolonged depression:

Knowledge is power, and knowledge is just as much power in the pursuit of agriculture as in the pursuit of any other human (activity) … in other countries scientific research, the breeding of the best kind of plants to use on the land, improvements in stock, research in a hundred directions, has been the best business investment governments have made … Governments cannot go on treating agriculture as a kind of stepchild. You must build on the fundamental basis of tenure by the means of credit, better methods and marketing and when you have combined these you will see in this country more prosperous and flourishing agriculture, and as it is more flourishing industries will benefit, because farmers and the soil are the basis of prosperity of all countries (Mond, 1927: pp. 293, 303)

Mond was writing at a time when the farm crisis gripping Europe and North America, was one of falling prices, repossession of farms and unemployment. But his words proved prophetic, and the alliance between industry, government and farmers which he sought was the basis of sustained recovery some two decades later.

From the mid-1960s, the development of agricultural trade between the North and South led to a decisive collapse of the traditional colonial models of the division of labour. The increasing complexity of trade patterns has destroyed the old systems of ‘imperial preference’: what F. Braudel termed ‘les Economies-monde’, have been incorporated into the world economy. The traditional role of the South — low-cost provision of agricultural raw materials to the industrialized nations — is no longer of decisive importance to trade flows and to the world economic system. Indeed, we have witnessed a significant reversal in these flows. Today the countries of the South are increasingly the major customers for the surplus agricultural products, both processed and unprocessed, exported by the advanced economies. According to a recent study by the OECD, the developed nations now account for more than 65 per cent of world agricultural exports.

The US farm crisis — or ‘farm financial stress’, as it is often referred to euphemistically in America — is actually an ensemble of many crises of national and international political economy. Its most immediate and salient components, as experienced directly by farmers, are heavy debt loads (and hence onerous debt service obligations), rapid declines in the value of farm land and other agricultural assets, low prices for many of the most important US farm commodities (especially soybeans, wheat, and corn), and a somewhat heightened pace of voluntary and involuntary liquidation of assets since 1981. More structurally, the US farm crisis is closely rooted in extraordinarily high real interest rates that have prevailed due to Reagan Administration fiscal and monetary policy, which have had a dramatic effect on the capital-intensive — and hence interest-rate-sensitive — agricultural sector. The farm crisis also reflects the contradictions of continued increases in US (and world) productive capacity in the basic grains and oilseeds due to technological change. The capacity to produce has relentlessly increased even as the means for purchasing and valorising this expanded production have stagnated. The US farm crisis is also a policy crisis — a protracted struggle among many contending forces that makes it virtually impossible to arrive at a political solution to problems of the agricultural economy without (and, in some respects, despite) massive state intervention and subsidy programmes.

Like the policies introduced by the leading industrial nations between the 1930s and the post-war restructuring, the primary aim of French agricultural policy is to prevent the market instability that is inherent in the competitive character of a sector made up of many different producers. Although the conditions of these policies may vary in different States, the underlying principle is the same and rests on the old law of economics that emerges from the observations made by King on the price of wheat in eighteenth-century England: slight overproduction can bring about a marked fall in market prices, just as conversely, a slight shortage can lead to a strong increase in prices. It is necessary and sufficient, therefore, to withdraw excess production from the market by either destroying or stockpiling any surpluses or, a better solution since it can also be profitable, by exporting them in order to reestablish the normal price level. Conversely, stocks should be run down and supplies imported when there is a shortage and market prices have risen excessively. These operations are the essence of the activities of the Commodity Credit Corporation created in 1934 in the United States, of the French FORMA of 1953, and the European FEOGA since 1962.

In some ways it seems misplaced to talk of a farm crisis in Britain. Agriculture continues to hold a privileged position in the national polity and culture. Through the EEC’s Common Agricultural Policy it enjoys a high degree of protection from the full rigours of world market forces and, even during eight years of Conservative monetarist policies, agriculture has received fairly mild treatment at the hands of a government intent on curbing public expenditure. Moreover few of the more extreme signs of agricultural depression, such as Britain experienced at the end of the last century and between the wars, are yet in evidence. Despite constant speculation about acreages thought surplus to requirements little land has fallen out of production: on the contrary, reclamation continues at an alarming rate. Recent survey work by the Countryside Commission and the Department of the Environment, for example, shows that the annual rate of hedgerow removal in England and Wales accelerated between 1980 and 1985 to 4000 miles a year compared with 2900 miles a year between 1969 and 1980 (Countryside Commission, 1986).

European agriculture is finally encountering limits which have been anticipated for years, but inevitable for decades. The European Community’s Common Agricultural Policy (CAP) faces two separate but related crises, one budgetary, the other technological and economic. The first of these has long exercised the minds of policymakers, as farm spending has continued to outpace any expansion in the Community’s ‘Own Resources’. Yet this is merely a symptom of a deeper crisis, a crisis which has arisen because, in a fundamental sense, European agriculture is in long-term decline. The industry faces a level of consumer demand which is static or even declining for long term rather than cyclical reasons (Duchene et al., 1986). The fact is that despite an annual increase in output of up to 2 per cent since the early 1970s, internal consumer demand for most farm products has grown by a sluggish 0.5 per cent over the same period (EC, 1987). The CAP, by guaranteeing a market for everything farmers could produce, has effectively disguised this secular overcapacity beneath a dynamic of expansion. At considerable and mounting cost to consumers and taxpayers through intervention buying and export subsidies,it has artificially stretched the limits. Yet at the same time it has accelerated technological change in the industry by financing research and development, and furnishing a climate of security which has encouraged farmers to adopt highly productive farming techniques and new plant and machinery.

The word ‘crisis’ is frequently used in relation to Spanish agriculture; indeed, it has been used constantly to describe the situation since the end of the Civil War (1936–39). In the first place, because of the primary sector’s inability to achieve pre-Civil War levels of production, a situation which resulted in an insufficient supply of food and consequent rationing. Since the beginning of the 1950s, the term has referred to the problems accompanying the transformation of traditional agriculture into modern productive units. At the present time, the ‘crisis’ is felt in some subsectors of the food industry, in relation to Spanish membership of the EEC. In fact, Spanish agriculture has already survived more than fifty years of permanent ‘crisis’. Clearly, it is important to examine more precisely what is meant by the expression and the circumstances that surround each concrete manifestation of the ‘crisis’.

Farm crisis has taken different forms in the Federal Republic of Germany since the Second World War. Whatever the nature of the crisis, small, economically marginal farms have been of central importance. Small farms were to play a central role in overcoming food shortages in the years immediately following the war. Later, high rates of decline in the number of small farms were interpreted as a family farm crisis by the German Farmers Union (Deutscher Bauernverband, DBV). The stated policy objective of the DBV was to preserve the greatest number of farms possible.

Writing about the impact of the US farm crisis on Mexican agricultural policy¹ is a high-risk enterprise — for a political scientist doubly so. On the surface the US farm crisis is difficult to understand, thanks to the remarkable difference between scholarly treatments and popular renditions in the press and in the US Congress. Projecting the future relationship between the US farm system and Mexican agricultural policy is even more difficult, as both countries are wracked by major economic problems, policy reversals, poor policies that spawn more problems to be attacked by new policies, and so on. Most ominously, no one seems to have tried to relate the US farm crisis to the politics of Mexican agriculture, despite the topic’s obvious attractiveness as a research and political issue. But, despite these cautions, there is a need to put a political perspective on phenomena that are generally considered economic. This paper offers a first encounter.

The greater proportion of the income of most Australian farms is obtained from the sale of a combination of no more than two or three agricultural products. Wool, wheat and beef are three of the main commodities produced by the majority of Australia’s 174 000 commercial farmers in extensive dryland systems. Dairy products, sugar and rice are produced by specialist farmers in higher rainfall coastal regions or inland irrigated areas. These commodities have dominated Australian agricultural production in past decades and can be considered the main products upon which Australia relies for the generation of overseas agricultural earnings.

Until the end of the 1960s, Brazilian agricultural exports were essentially confined to traditional tropical commodities (coffee, sugar, and cocoa). However, major changes occurred from the early 1970s as Brazil rapidly expanded and diversified its exports. Thus it is now among the leading world exporters of soybean oil and soybean meal, chicken, beef, and orange juice. An important supplier to the EEC (mainly soybean meal and coffee), Brazil is today, with the United States, one of the EEC’s principal competitors in certain world agricultural markets.