The Eighties Club
The Politics and Pop Culture of the 1980s
The Midwest Farm Crisis of the 1980s
Jason Manning
In Hills, Iowa, a farmer kills his banker, his neighbor, his wife, and then himself. Near Ruthton, Minnesota, a farmer and his son murder two bank officials. In South Dakota's Union County, a Farmers Home Administration (FmHA) administrator kills his wife, daughter, son, and dog before committing suicide. In the note he leaves behind he claims the pressures of his job became too much for him to bear. [FN1]
These tragic circumstances were the byproducts of a crisis that struck the American farm in the 1980s, a crisis that had tremendous human costs. Surveys revealed that cases of child abuse and neglect rose 10% in a nine-county rural area in southern Iowa during this period. Studies also showed an alarming rise in divorce rates and alcohol abuse in farm families. [FN2] Some individuals broke under the strain of an economic disaster in America's rural heartland; many more who depended on American agriculture for their livelihood faced financial ruin.
Why did it happen?
In the early 1970s, lowered trade barriers coupled with record Soviet purchases of American grain resulted in a sharp increase in agricultural exports. Farm incomes and commodity prices soared. [FN3] The removal of restrictions on Federal Land Bank lending, coupled with increased lending by other entities for farmland purchases in the Seventies, led to rising land values. Conveniently low interest rates persuaded many farmers -- and would-be farmers -- to go deeply into debt on the assumption that commodity prices and land values would continue to rise. [FN4] Farm household income had been below the national average in the 1960s; in the next decade it was higher than the national average for every year except one. But it would return to the 1960s levels in the Eighties. The agricultural "boom" didn't last long. [FN5]
This essay will explore how the American farm community, the Reagan administration, and the American public responded to the crisis. We will briefly examine the history of federal farm policy since the New Deal and determine the ways in which it contributed to the disaster of the 1980s. We will see how the political ramifications of the Reagan "market-oriented" approach to the farm problem resulted in a confused administration policy that remained largely unchanged from those of previous administrations, and how that policy affected the future of American farmers as well as consumers and taxpayers.
By the early 1980s, tight money and high interest rates had burst agriculture's speculative bubble. The federal government estimated that farmland value dropped by nearly 60% in some parts of the Midwest between 1981 and 1985. Many farm operators found it impossible to retire their debts as fast as their asset values declined. [FN6] Record harvests led to overproduction which in turn resulted in a glut of farm commodities, forcing prices down. In addition, the decision by President Jimmy Carter to enforce a grain embargo as a means of punishing the Soviet Union for its invasion of Afghanistan cost the American farmer a crucial overseas market. Subsequently, the Soviets diversified their agricultural suppliers in order to limit the effects of a future embargo. And though prices fell, American farm products were still costlier than those of competitors on the international market; federal price supports kept prices artifically high enough so that farmers in Argentina, Australia, Canada and Europe were able to seize more of the market than ever before. [FN7] The strong dollar of the Eighties combined with the economic stagnation and financial straits of purchasing nations also hurt American agricultural exports, which declined by more than 20% between 1981 and 1983, while real commodity prices plummeted 21% during the same period. [FN8]
In the high times of the 1970s, the number of "middle level" farmers -- those whose income ranged from $40,000 to $500,000 a year -- had increased by an astonishing 250%. Numbering 675,000 by 1985, they were the hardest hit by the debt crisis. [FN9] The small farmers (grossing under $40,000 a year and deriving much of their income from non-farm employment) had not incurred large debts, while the large farmers (those who grossed in excess of $500,000 a year) were financially able to weather hard times. [FN10] As he watched profits decline by 36% between 1980 and 1988, the middle level farmer who had aggressively indebted himself in the Seventies faced grave financial peril during the next decade. [FN11] By early 1984, in the depths of the crisis, farm indebtedness had risen to $215 billion, double what it had been in 1978, and fifteen times the 1950 level. According to Emmanuel Melicher, Federal Reserve senior economist, more than one-third of America's commercial farmers were in serious trouble. For the first time in history, the total of interest payments on farm loans exceeded total net farm income. [FN12] Farm foreclosures rose dramatically, and the crisis had a ripple effect, negatively impacting the manufacture and sale of farm machinery, seed and fertilizer. Rural banks went into receivership. Rural communities suffered in other ways; as more and more farmers were forced out of business, small town enterprises saw their profits plummet. In 1986, the Minnesota Agriculture Department calculated that every farm loss wiped out three non-farm jobs. [FN13] Many described the farm crisis of the Eighties as the worst since the Great Depression.
American farmers were among those most affected by the Great Depression, and agricultural recovery was one of the primary goals of the New Dealers. The average price received by farmers for their products declined 50% between 1929 and 1932. The purpose behind the Farm Relief and Inflation Act -- better known as the Agricultural Adjustment Act -- was to raise farm incomes through price supports and production adjustments, the theory being that by encouraging farmers to reduce the acreage under cultivation, farm commodity prices would rise. [FN14] Farmers were paid not to plant with funds acquired through a "processing tax," which had the unfortunate result of raising consumer prices, hardly a beneficial turn of events during a severe depression when so many could not afford to buy enough to eat.
When production adjustments were deemed insufficient to restore prosperity to the American farmer, New Dealers provided government price supports for crops grown, and credit assistance so that struggling farmers could refinance their mortgages at reduced interest rates. [FN15] They failed to understand that these programs offset the acreage reduction program. Credit assistance enhanced supply by increasing resources. High price supports led to higher food prices which encouraged greater production. Farmers proved innovative in finding ways around acreage restrictions; they took their least fertile acres out of production and improved the yield of cultivated acreage with intensified capital imput. So, for instance, while the total amount of corn acreage was reduced, corn production actually increased. In addition, some farmers reduced their corn acreage, pocketed a government check, and grew uncontrolled crops like rice or soybeans on the acreage previously used for corn. In this way, and others, farmers took advantage of the failure of the government to effectively monitor or enforce acreage reduction. [FN16]
Guaranteed price supports were consistently higher than market prices, and government surpluses were greatly expanded in the Thirties. To a large degree this surplus was liquidated during World War II. In the Eisenhower years, price supports for major crops were initially reduced. The Food for Peace program -- exporting price-supported commodities to developing nations -- and the school-lunch milk program also reduced government surpluses. But as these surpluses were reduced, price supports had to be raised again, which in turn encouraged greater production, causing new surpluses. Farm program costs tripled during the 1950s. To make matters worse, technological improvements also brought about production increases. [FN17]
The 1973 Agricultural and Consumer Protection Act focused on maintaining farm incomes at acceptable levels by targeting direct payments and eschewing market manipulation. Domestic food costs were lowered, and American farm products became more competitive on the world market -- at least for a time. But the law capped direct payments at $50,000, and this reduced the incentive to comply with acreage reduction mandates; hence, production expanded once more and the difference between market and support prices became greater. The government was in a box. Too many farmers had come to depend on direct payments; in 1970, direct payments accounted for nearly one-third of net farm income. And as production increased, government-held surpluses also grew. [FN18]
One politically popular way to reduce these surpluses was through the expansion of the food stamp program. Eligibility for that program was liberalized during the Nixon years and the program's cost soared predictably -- from $65 million in 1966 to $10 billion by 1981. [FN19] By 1977 the program was out of control, and despite earnest attempts by Congress and Jimmy Carter to restrict eligibility, 10% of the population were recipients in 1980. Ironically, the program had little impact on the farm economy; new food purchases as a result of the program accounted for less than 1% of the total farm commodity sales. Taxpayers, however, got to pay twice -- once for acquiring the commodity surpluses and again for dispensing it through the food stamp program.
When the Farm Credit System was established during the New Deal, the Federal Farm Loan Act of 1916 had already established Federal Land Banks, and the Agricultural Credit Act of 1921 had authorized indirect loans to farmers for emergency relief. These "disaster loans" increased substantially in number during the Great Depression. But the expansion of farm credit programs continued long after the Great Depression was over. A 1961 amendment to the 1954 Water Facilities Act offered FmHA loans to non-farm rural residents, while the 1964 Economic Opportunity Act expanded FmHA lending to low-income rural people. Rural housing loans revamped by the Housing Act of 1968 offered interest rates as low as 1%. Needless to say, the number of farmers partaking of farm credit loans rose dramatically, from 7.2% in 1965 to more than 50% by 1980. Farm emergency program borrowing rose 700% between 1970 and 1983. By then, farm credit had long ceased to be for emergency relief or a last resort for farmers who could not get loans elsewhere. Federal farm loans were available not just for struggling small farmers but operators of all sizes. As Clifton Luttrell put it, "subsidized credit had been an important factor in changing many farming operations over to extremely expensive land-, chemical-, and credit-gobbling operations." Easy credit encouraged the disastrous over-speculation of middle level farm operators in the Seventies. It led to a greater number of inefficient farmers remaining in agriculture than would have otherwise been the case. And, as Luttrell pointed out, "credit subsidies lower farm commodity prices and raise the cost of farm resources, especially land, thereby reducing net farm incomes," with the consequence that federal policy with respect to farm credit actually contributed to, rather than alleviated, farm poverty. [FN20]
By 1980, American agriculture was so productive that a small number of farmers could feed the American people with only three-fifths of their output, leaving the rest available for export, or bound for federal storehouses. [FN21] Exports, however, accounted for only one-fourth of total output. Hence, the Reagan administration sought to increase exports as a means to improve farm income and reduce the burden on taxpayers of federal farm support policies. Unfortunately, since 60% of farm income depended on the domestic market, the well-being of American consumers was the ultimate determinant of farmers' prosperity. And in the early '80s the consumer suffered through severe recession brought about by the tight-money policies of the Federal Reserve, which were intended to bring down a crushing inflation rate that had risen to 21%. The consumers' difficulties rippled through the economy's largest sector, the food and  fiber chain, which accounted for over 26% of GNP and employed 22 million workers. [FN22]
The Reagan philosophy was to let the marketplace operate according to its nature. A correspondent for the magazine America, writing in 1985, perfectly described the administration's point-of-view. "The primary function of the Government should be to insure small and moderate-size farmers against natural disasters and price fluctuations that have threatened them since the beginning of time....But the Government cannot protect farmers either from themselves or from inevitable changes in technology and the marketplace." [FN23] The latter was precisely what the government had been trying to do since the days of the New Deal. As Susan DeMarco put it, the "most devastating force at work in the farm belt is America's disastrous agriculture policy" which she described as a "dizzying array of ad-hoc, often conflicting programs devised over decades to serve special interests." [FN24] Stuart Hardy, manager of food and agricultural policy for the U.S. Chamber of Commerce, claimed that "price support programs and import quotas add several billion dollars annually to retail food prices." [FN25]
By 1980, the largest portion of federal farm spending was going to large operators, not the small family farm. Seventeen percent of farmers received 60% of all agriculture subsidies. [FN26] By 1986, the farm subsidy program was costing American taxpayers over $25 billion. [FN27] The farm credit system was burdened to the breaking point through