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labor. It includes Government payments, the value of home produced food and fuel, the rental value of farm dwellings, and changes in crop and livestock inventories. Thus, although the State ranks low in personal income per capita, the farm sector has a lower per capita income than the nonfarm sector, even when factors other than net cash farm receipts are included.

THE PRICE-COST SQUEEZE

The net incomes of many farmers have declined in recent years. This has been due to the price-cost squeeze. The prices that farmers receive have been somewhat lower than the postwar peaks. On the other hand, prices farmers pay for production and consumption goods have risen. Due to the effectiveness of the tobacco program and to the heavy influence of this crop in North Carolina agriculture, the ratio of prices received to prices paid is somewhat more favorable in North Carolina than in the United States as a whole.

Falling farm prices are due to the supply-demand situation. The supply of farm production has outstripped demand. Declining exports are responsible for part of the decrease in demand. The characteristics of the demand for farm products is such that an oversupply results in sharp price dips.

The decline in farm prices has been aggravated by a low-price elasticity of demand for farm commodities. When the supply of farm commodities increases, the percentage decrease in price is greater than the percentage increase in quantity purchased. This varies widely from one farm commodity to another and suggests the difficulty of handling all commodities by the same formula. Prices of farm commodities are further depressed by a low-income elasticity of demand for farm commodities. As real incomes of consumers increase, they spend a smaller proportion of their incomes for farm commodities. The capacity of individuals to consume food and clothing does not increase proportionately to increases in income. Hence, as consumers' real incomes increase, a larger proportion is spent for nonfarm commodities.

An additional factor contributing to the decline in incomes in agriculture has been the decline in purchases of farm products by foreign countries. The dollar shortage and high prices have restricted foreign sales of United States farm products. The export market is an important outlet for farm commodities grown in North Carolina. In 1954, receipts from tobacco and cotton, which are important export commodities, made up 62 percent of the receipts from the sale of farm products by North Carolina farmers.

PRODUCTION

In 1954, about three-fourths of the cash receipts from farming in North Carolina came from crops and one-fourth from livestock and livestock products. Receipts from tobacco made up more than one-half (53.5 percent) of total cash receipts. Cotton accounted for about 8.3 percent and peanuts 3.5 percent of total cash receipts.

The production of crops and livestock in North Carolina have varied over the past several years with weather conditions and other factors. To minimize weather effects, data for the 5-year period, 1925–29, are compared with similar figures for 1950–1954. The data show some rather significant changes over this 30-year period.

Tobacco production has more than doubled and cotton production has decreased 56 percent. Peanut production has increased 32 percent. Production of corn and wheat increased by 64 and 107 percent, respectively, with only small increases in acreage. Expansion has occurred in the acreage and production of soybeans, grain sorghum, oats, hay, lespedeza seed, and improved pasture. Over this period, milk production has increased 50 percent and egg production has more than doubled. Broiler production has risen by nearly 400 percent. The number of cows has increased by 60 percent, and the number of hogs by 29 percent, while the number of sheep decreased 45 percent.

More recent changes in the production of basic commodities in North Carolina are shown in tables 4, 5, and 6. In summary, here is what has been taking place.

Tobacco.—The yield of flue-cured tobacco increased about one-third from 1940 to 1955. With an acreage in 1955 about 32 percent above 1940, production was almost doubled. Production and yield in 1955 were at record levels. The record yield in 1955 has been due to increases in technology and extremely favorable weather.

Cotton.-The acreage of cotton harvested in 1955 is about 56 percent of the 1940 acreage. There has been no consistent trend in cotton yields. Total pro duction in 1955 was the lowest on record, except for the extremely poor cotton year of 1950.

Peanuts.—The acreage of peanuts increased substantially during World War II and has been cut back drastically since the peak of 1945. Yields of peanuts have shown an increase in the past 5 years, due to improved varieties and better fertilization and cultural practices. The production of peanuts in 1955 was about 22 percent below the high of 1944. Right now, it looks like the production in 1955 will be below estimates. Quality and size of kernels are poor due to unfavorable weather.

TABLE 4.-Changes in acreage, yield, and total production for basic commodities

in North Carolina, 1940–55

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Corn.-Corn acreage has shown a steady decline over the past 15 years, while yield has almost doubled. With an acreage about 16 percent below 1940, production 1955 is expected to be about 55 percent above 1940.

Wheat.-The acreage of wheat decreased about 25 percent from 1940 to 1955, while total production was slightly higher. Wheat yields have increased about one-third over the 15-year period.

Dairy.The average number of cows milked in North Carolina was 333,000 in 1940. This increased to 384,000 in 1944, then declined slightly, but was back up to 377,000 in 1954. Milk production per cow increased from 3,930 pounds in 1940 to 4,520 in 1954. Total milk production in 1954 was 1.7 billion pounds. Of this amount, 754 million was used on farms, 120 million retailed directly from farms, and 830 million sold to dealers.

TABLE 5.--Changes in acreage, yield, and total production for basic commodities

in North Carolina, 1940–55

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TABLE 6.-Changes in acreage, yield, and total production for basic commodities

in North Carolina, 1940–55

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During the past 5 years farmers' sales of grade A milk have increased slightly more than 50 percent (426 million pounds in 1950; 665 million pounds in 1954). Milk for manufacturing purposes has declined as sales of grade A have increased and amounted to only 149 million pounds in 1954.

The 1953 North Carolina General Assembly established the North Carolina Milk Commission which fixes prices paid by dealers for grade A milk. Blend prices under this arrangement averaged $6.08 per hundredweight in 1953 and $5.79 in 1954.

Livestock.--Livestock and poultry production has increased rapidly in the State during the last 15 years. Cattle and calves (beef and dairy) on farms January 1, 1940, amounted to 595,000 head. By 1955 this number was 933,000 head. Hog numbers changed very little during this same period. From 1940 to 1954 egg production doubled, turkey production quadrupled, and broiler production increased about 12 times.

Total cash receipts for livestock in North Carolina in 1940 amounted to about $34 million; in 1954, $222 million. This represents an increase of about 554 percent in cash receipts from livestock.

The major problem facing North Carolina farmers is low net incomes. As indicated earlier, the price-cost squeeze has tended to reduce net incomes in recent years. Our ratio of prices received to prices paid as shown in the statistics is much better than it would have been had the tobacco program been unable to stabilize prices. We must remember that we had income problems before the current situation developed, and keep in mind both the immediate and longrange goals. This suggests that several courses of action may deserve our careful study. 1. Increasing the price of farm products through price supports and production

adjustments Possibilities of increasing farm incomes through pricing programs vary from commodity to commodity.

In the case of a commodity with a low elasticity of demand (i. e., the amount used does not change in proportion to the change in price) an increase in price does increase net income of farmers. Tobacco consumed domestically is a classic example of a commodity with a inelastic demand. If the price to farmers was reduced sharply it is doubtful whether any significant increase in consumption would result. As pointed out earlier, the tobacco program has meant much to North Carolina farmers.

In the case of a commodity with a high elasticity of demand, raising prices may decrease net income, as the quantity consumed tends to decrease more than prices increase. The demand of no agricultural commodity is very elastic, but beef and poultry are examples of commodities which enjoy increased consumption when prices are reduced. Thus an increase in the prices of these commodities would not have the same effect on net income as is the case for tobacco. Income is determined by volume of product, price, and cost.

While the price of tobacco has little effect on domestic consumption, the same is not true for exports. Within the last month I have received a communication from Australia advising of their efforts to expand tobacco production. Southern Rhodesia is growing more and more good-quality leaf and and apparently has the potential for greater production. The price is a very important factor in moving tobacco in foreign trade in competition with such countries.

Some years ago the demand for cotton was quite inelastic. The coming of substitutes plus an increase in quantity and quality of foreign-produced cotton have made cotton demand more responsive to price changes.

This leads to the general conclusion that price policy may be quite effective in improving net incomes to farmers on some commodities. With a commodity such as tobacco, which is storable and has a relatively inelastic demand, the results would be very different from what might be expected with a perishable commodity having a relatively elastic demand such as beef. There is clear evidence that production can be adjusted on a crop such as tobacco and that the pricing program has worked. 2. Adjustments on individual farms

Research has indicated that there are adjustments which can be made on individual farms which can substantially increase net incomes. While the ad. justments must be made by the individual farmer, public policy can be of help. Before discussing how public policy can help, let us identify the type of adjustments that are possible.

Much labor on North Carolina farms is not fully employed. Much of the labor that is used yields a low return. There is nothing inherently wrong with our labor. The labor simply needs to be associated with larger amounts of capital. We have often attributed the low return to labor to the small amount of land per person. This has a bearing on the problem, but research at our institution shows that incomes cannot be increased greatly by increasing the amount of land per worker unless the amount of capital is increased sufficiently to make effective use of the land.

In many instances it is profitable to greatly increase the investment. This increase in investment would make it possible to change the kinds of commodities produced and the production methods. For example, on a typical small southern Piedmont farm, it would pay farmers to increase their investment threefold if capital could be obtained at 5 percent. Based on recommended production practices and expected farm prices, it is estimated that an additional investment of $4,500 would yield an annual increase of 52 cents per dollar of additional investment if farms were organized in an optimum manner. In the range of $7,500 to $8,400 increase in investment above current levels, the increase in annual income per additional dollar of investment would be 24 cents.

The Government can help bring about the adjustments that will increase labor productivity in several ways. One way is to encourage lending institutions to make more capital available at reasonable interest rates for farmers having the managerial ability to handle modern technology and carry on the business of modern farming. Creating a favorable atmosphere through stabilizing prices will also encourage investment of additional capital by farmers. Expanding domestic and foreign markets will also be of material assistance in encouraging farmers to invest capital and adjust their farm business and in encouraging lending agencies to make capital available. 3. Marketing-domestic and foreign

No more serious problem faces farmers than the large surpluses. These depress prices and present a barrier for many farmers making adjustments which will increase net income.

Increased attention should be given to expanding markets for agricultural commodities. Some of the more promising avenues for consideration include further shifts to the consumption of fruits, vegetables, milk, eggs, and meats. Shifts in this direction would improve diets and would use more agricultural resources.

New uses for agricultural commodities should receive additional attention. The expansion of use of farm products in secondary uses deserves more consideration. Stable prices and constant supply are necessary for farm products to compete for many secondary uses.

Continued attention and study should be given to ways and means of expanding exports of American farm products. The incomes of North Carolina farmers are particularly vulnerable to changes in exports due to the fact that a large percentage of gross receipts come from export commodities, especially tobacco and cotton.

While marketing is a very fruitful field, we must recognize that improvements are likely to come slowly. New uses will be developed only through laborious research and promotion. Consumption patterns must be changed, and this is a slow process. Building permanent foreign markets is also a lengthy process with many problems. These comments are given for one purpose. We do not want to lead ourselves into believing that the promising field of marketing is likely to immediately dispose of the surpluses and make it possible for farmers to produce as much as they like of any and every commodity. In the short run, and particularly for some commodities, production must be controlled. Getting production in line with demand is a real problem that the farm people and the Congress must decide. The problem is particularly difficult in view of the need for increasing net incomes. 4. Reducing costs per unit through research and education

All are aware of the contribution of research and education in increasing production and incomes of farm people. Research and education have also made great contributions in the areas of marketing and reducing the costs of production. An industry faced with a price-cost squeeze and serious competition turns to research to develop new products, improve quality, and reduce costs. Agriculture should follow the same pattern. In the case of agriculture, educational efforts must go with the research, because the people who use research findings are not those who do the research. Education is necessary to get the research findings to all the farmers in an understandable way and to encourage the rapid adoption of the technology.

The research and educational programs have been adjusted to place less emphasis on increasing production and more emphasis on reducing costs, particularly unit cost of production, and on marketin". We should not, however, let short-run problems completely dominate our thinking. The projected doubling of the world's population in the next 30 or 40 years provides a real challenge to those engaged in research and educational work to expand the productive potential of agriculture in order to insure that the supply of food and fiber will be adequate to meet our future needs. 5. Promoting industry in agricultural areas

In the final analysis, it appears that the low-income problem of many farmers can best be solved by either moving into industry on a full-time basis or by combining farming with nonfarm employment. It appears to us that a rather desirable pattern has been developing in Piedmont and western North Carolina. Industry has moved into these areas, often locating in a rural area. This has given the farm people an opportunity to continue to live on their farms and yet enjoy the income from industrial work. They enjoy the advantages of rural living and

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