Download Lecture 1 The Structure of US Agriculture

Structure of the US farm
economy
EconS350
Fall Semester, 2010
Top-down and bottom-up forces
Global
trends in trade, production,
demand
National
Regional
Farm
*Our focus in this course will be on how decisions are made at the farm level
*Agricultural markets are assumed to be “purely competitive”, SO no individual
farmer can directly change things going up.
Factor
payments
Income
Factor
markets
Labor
Production
inputs
Firms
Gov’t
Goods,
services
Households
Goods,
services
Product
markets
Sales
Flow of $
Flow of quantities
Consumer
spending
Factors of production: Land
• Little change in land in farms for US in aggregate in
recent decades
• However, this hides significant changes regionally
• Agricultural land use categories
– Cropland
– Pasture
– Forest land grazed
• Total US land area for lower 48: about 2 billion acres
Factors of production: land
(1,000 acres)
Cropland
Pasture
Forest
1945
2002
1945
2002
1945
2002
Northeast
25,027
13,700
10,126
3,025
61,788
65,484
Lake States
46,184
42,102
10,066
5,393
54,460
49,039
Corn Belt
92,224
95,728
26,326
13,078
28,954
31,304
Northern Plains
95,470
101,978
82,295
71,036
4,095
4,340
Appalachian
35,040
26,011
13,631
6,253
63,669
71,539
Southeast
26,973
14,824
8,686
8,282
72,994
73,661
Delta States
22,192
21,046
7,215
6,246
51,404
50,667
Southern Plains
51,823
55,670
105,086
115,750
46,318
18,007
Mountain
32,356
46,265
339,243
302,823
121,489
116,799
Pacific
23,404
23,949
56,824
52,338
96,546
78,296
450,693
441,550
659,498
586,521
601,717
651,163
US Total
All of Washington is 42,000,000 acres
Factors of production: Land
Major Uses of Land in the United States, 2002/EIB-14
Economic Research Service/USDA
Factors of production: Labor
• Number of large farms is growing
• U.S. agriculture in the year 1910 v. 2005
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–
–
–
–
Total employment in agriculture: 11 v. 1 million
% of all employment in agriculture: 32 v. 2%
Non-agricultural employment: 21 v. 140 million
Number of farms: 6.2 v. 2.1 million
Agricultural GDP as share of total GDP: 7.5% v. 0.7%
• What happened?
– Economic recovery following the Great Depression
– Beginning of long-run growth in farm productivity
Factors of production: Capital
• All farm equipment, buildings, irrigation
infrastructure, fencing, etc.
• Massive substitution of capital for labor in U.S.
agriculture in the last 100 years.
• Measuring capital inputs is more complicated
than land due to things like depreciation.
Government payments
• Cannot understand farm management decisions without knowing
the role of government payments.
• Direct or ‘fixed’ payments
– Payments based on historical cropping patterns but not current
operator decisions.
• Price based payments
– Payments that depend on current market prices
– Often called ‘countercyclical’ payments
• Conservation program payments
– Conservation Reserve Program
– Environmental Quality Incentives Program
– Conservation Security Program
• Various forms of disaster or relief payments
Government Payments
Government Payments
Government Payments
Farm Structure
• Definition: Farm structure
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–
–
–
Efficiency and competitiveness of the farm sector
Well-being of farm households
Design of public policies
The nature of rural areas
• Percent of U.S. farms that are family farms?
– 98%
• Large-scale family farms and non-family farms are:
– 10% of farms
– Account for 70% of the value of production
Farm Income
• We will go into detail about different ways to measure the financial
performance of a farm.
• Profitability is strongly and positively associated with farm size.
• In 2004,
– Average net farm income: $25,000
– Percent of farms with positive net farm income: 70%
• Major lending sources
– Commercial banks: 49%
– Farm Credit System: 25%
– Farm Service Agency: 3%
Farm Income
Management Decisions
• What should I grow?
• How should I grow it?
• What is the best investment I can make in the long run?
• Should I lease in or lease out land?
• What is the best way to sell my production?
• Primary Goal of this Course!!
– Understand how to maximize long-term profitability of farm or ranch
operation.
– In addition to maximize financial potential, how to meet other non-financial
objects.
Very important economic concepts!!
• Discounting
• Opportunity Cost
• Economies of Scale