What is in this article?:
- Over the long-run will supply out-pace demand in the years ahead?
- Crop agriculture may once again face long periods of low prices.
- Times of excess production could result in low price problems.
In the absence of two critical issues, farm bill commodity programs would make little sense. Issue one: crop production can change considerably from year to year due to weather and disease, and issue two: over the long-haul supply increases faster than demand.
Governments as far back as second millennium BC Egypt and late first millennium B.C.-early first millennium AD China have recognized that crop failures can have a negative impact on their citizens in terms of food availability and prices and disruption to the economy. China also recognized that times of excess production could result in low price problems for its farmers.
With the opening up of the Western Hemisphere to European markets, the problem of supply increasing at a faster rate than demand began to rear its head in the U.S. and elsewhere in the New World. At first, the rate of increase of new agricultural land being brought into production was the cause of this rate differential. By the twentieth century, investment in agricultural research, education, and extension—much of it by governments—became significant factors allowing supply to increase faster than demand and leaving farmers to face long periods of low prices.
The recent drought has reminded us that issue one is still in play. But what about issue two? Over the long-run will supply out-pace demand in the years ahead, as it has typically done for centuries? In recent columns, we have described developments that suggest that despite this year’s massive drought in the U.S. and maybe as a consequence of the resulting high prices, crop agriculture may once again face long periods of low prices. But some other analysts see the future differently.
In a paper delivered at a Farm Science Review on September 18, 2012, in Ohio, one of our ag econ colleagues, Luther Tweeten, argued that “the era of falling real prices of food is over.” Tweeten wrote, “two ‘megatrends’ are underway, one on the food supply side and another on the food demand side.”
Tweeten begins by looking at food supply, writing that “U.S. excess production capacity totaled 6 percent in 1962 and averaged near that proportion throughout the 1960s. In sharp contrast, excess production capacity in U.S. agriculture today is near zero.” While seeing the 2012 drought as “transitory,” he says if global warming is underway, we may see “unusual weather events such as storms and drought.”