The Economic Climate for the Farm Bill Debate

The 1996 Farm Bill was debated and passed during one of the best of times in U.S. agriculture and has presided over one of the worst of times in terms of crop prices, market incomes, and government payments. While it is not fair to lay all of crop agriculture’s price and income problems at the feet the 1996 legislation, it is fair to assign it much of the blame. Expectations were that the passage of the 1996 Farm Bill marked the dawn of a new era for U.S. agriculture where expanding export markets would fuel agricultural prices and incomes without restraint. Of course these expectations did not materialize. While many suggest a long list of short-run aberrations to blame—the Asian Crisis, exchange rates, trade sanctions, loan rates, emergency payments, etc.—closer examination reveals the fallacy of the supposition that the very nature of crop agriculture had changed. Basic characteristics of crop agricultural markets remain unchanged: the rate of supply growth exceeds demand growth, crop supply is price inelastic, and crop demand is price inelastic. This paper describes the performance of agricultural markets since passage of the 1996 legislation. It also describes and illustrates the basic characteristics of crop agriculture that must be understood to evaluate the policies set forth in 1996. Finally, it summarizes the recent report of the 21 Century Commission and looks at their recommendations in the context of the nature of crop agriculture.