values are stabilized. Failure to do any of these will surely bring ad-
ditional liquidations, foreclosures, and bankruptcies.
There are many dimensions to any analysis of farm income pros-
pects. To make it manageable, I’ve selected three factors that are likely
to be key determinants of farm income for the foreseeable future: 1)
conditions in the macroeconomy; 2) prospects in the export market;
and 3) the outlook for commodity price and income supports. These
key factors often intermingle with each other, but each is still worth
considering independently.
Macroeconomy. The single most important consideration in the ma-
croeconomy is the continuing federal budget deficit. As long as the
deficit remains in the $200 billion range, the Board of Governors of
the Federal Reserve System apparently will feel obliged to keep real
interest rates higher than the historic norm of about 3 percent. Lower
interest rates would have many benefits: reduce farm operating costs;
put downward pressure on the dollar; and make inventory holding
more desirable, including land ownership.
I am not optimistic about a significant budget deficit reduction for
several reasons, the most important of which are political. Many cit-
izens support the concept of reductions in federal government expend-
itures or tax reform until they determine how such changes will affect
them adversely. Then, more often than not, they undertake vigorous
lobbying against proposed changes.
Exports. Increased exports would seem to be an essential part of any
improvement in the financial status of the family farm sector. Do-
mestic demand is not sufficiently large now, nor is it projected to be
in the future, to absorb the production potential of American farms at
desirable price levels.
Without question, the most positive factor is that worldwide popu-
lation continues to increase at the rate of 75 million per year. However,
this population growth does not translate directly into food demand
(in an economic sense) because most of this increase is occurring in
less developed countries. Opportunities for new commercial sales on
the basis of population growth will be fairly limited.
In addition, it must be acknowledged that the United States is facing
new competition nearly everywhere we turn. Some examples are Ar-
gentina selling to the Soviet Union, the European Community selling
to countries in northern Africa and the Middle East, and China selling
to Japan. It will be difficult to regain market share in these cases
unless it is accomplished on the basis of lower prices or other favorable
trade terms. There are three reasons for more price competition: (1)
the relatively high value of the dollar; (2) large export subsidies, such
as in the European Community; and (3) increased use of relatively
cheap labor in countries such as Argentina. In short, there seems to
be no alternative but to be a tougher competitor.
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