SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS JULY, 1979

A LOOK AT MAJOR EVENTS IMPACTING PRODUCTIVITY AND
UNCERTAINTY IN SOUTHERN AGRICULTURE DURING THE
1970'S

Robert W. Rudd

In view of the breadth of the topic, coverage The climate shift issue achieved a significant
is limited to identifying the events and cor- degree of public awareness in the wake of two
menting on the types of impacts on agriculture phenomenally cold winters, 1977 and 1978.
rather than stating specific empirical esti- The subject of the controversy was the projec-
mates of impacts. Numerous researchers in tion of long-run dramatic changes in climatic
agricultural economics have examined the conditions on a global scale. Though climatolo-
quantitative dimensions of impact from parti- gical experts disagree on both cause and direc-
cular scenarios of future courses of some of the tion of the temperature change, all agree that a
events identified here. few degrees' change in average temperatures

With only one or two notable exceptions, the worldwide in either direction would portend
current commodity output mix of southern total calamity. It is encouraging that a majori-
agriculture is similar to that for U.S. agricul- ty of the climatologists recently questioned on
ture as a whole. Ranking the top eight farm en- this point by the National Defense University
terprises of the south in dollar value (1976) foresaw only a slight warming trend-not to
shows tobacco in the southern region replacing exceed /2 degree Celsius by the end of the cen-
wheat in the national ranking; dairy, corn, and tury [9]. The absence of a clear consensus for
hogs are more important nationally and broil- radical change in climate leads to the conclu-
ers and eggs are more important in the south- sion that the net effect of the climate issue on
ern complex. Therefore, if those dimensions of agriculture is a slight increase in uncertainty
agriculture associated with geographic loca- for the normal farm planning cycles.
tion, such as population, climate, or transport Among the events of the 1970s which affect
net, are excluded, the major events affecting agriculture, four major changes in the econom-
southern agriculture in the 1970s can be dis- ic environment of agriculture are worthy of
cussed in terms of U.S. agriculture. comment: (1) the growth of interdependency in

international trade and associated develop-
TRANSITORY EVENTS: FOOD CRISIS ments, (2) domestic inflation and its conse-

AND CLIMATE SHIFTS quences, (3) the energy crisis, and (4) environ-
mental regulation.

Two events during the 1970s, the food crisis
and the climate shift issue, seemed at the time
of their occurrence to be major events in terms
of their potential impacts on agriculture. The INTERDEPENDENCY IN
later turned out to be transitory. INTERNATIONAL TRADE

The significance of the food crisis of the early
1970s, with record high prices for U.S. farmers, The shift to a substantially greater involve-
ranked substantially higher in middecade than ment and interdependency of agriculture in in-
it does today. A similar comment could be ternational trade during the 1970s is perhaps
made about the earlier sensing of potential the most far-reaching event of the decade. At
world food shortage to be found in Administra- the turn of the 1970s, U.S. agricultural exports
tion pronouncements of the 1966-67 period. were valued at about $6.7 billion annually, and
The food crisis of 1973-74 was not an event had not changed significantly in value since
which in itself had lasting effects on producti- the mid-1960s. Imports of farm products at
vity, although it may have changed some ele- $5.6 billion left agriculture's net contribution
ments of uncertainty through shifts in price to the balance of payments at just over $1
and/or income expectations of producers, and billion, well below the peak contribution for the
heightened public awareness of the possibili- 1960s of $2.3 billion in 1967. Dramatic growth
ties of recurrence. has occurred during the 1970s in volume and
Robert W. Rudd is Professor and Chairman, Department of Agricultural Economics, University of Kentucky.

Journal Paper No. 79-1-82, Kentucky Agricultural Experiment Station. The author acknowledges the helpful suggestions and comments of Kurt Anschel, Angelos
Pagoulatos, Eldon Smith, Alan Randall, and Larry Jones. Errors and omissions remaining are those of the author.

1



value of U.S. exports of agricultural products ter food prices from external influence may
to an estimated $27.3 billion in 1978, with a net modify these conclusions somewhat, the insta-
contribution of about $14 billion to the balance bility suggested may well be a continuing eco-
of payments. This growth has exceeded the nomic risk factor for southern as well as U.S.
rate of growth of U.S. production of farm pro- agriculture, causing greater price variability in
ducts. The share of dependence of U.S. agricul- farm products.
ture on international markets has grown from Carter and Johnston [1] identified another
about 13 percent to more than 22 percent last feature of the interdependence of U.S. agricul-
year. ture in the world economy which bears upon

All recognize the important benefits of this agriculture's price stability. They observed
gain in agricultural trade for the U.S. economy that many of the United States' international
because of the substantial and growing nation- trading partners place greater reliance than
al dependence on petroleum imports. However, this nation does on some form of government
this foreign trade also increases the vulnerabil- intervention or participation in a trading bloc.
ity of domestic markets for farm products to Thus, U.S. efforts at nondiscriminatory reduc-
the variability in international markets. U.S. tion of trade barriers, which are important to
market price experience with wheat, corn, and U.S. agriculture, are viewed differently
soybeans earlier in the 1970s adequately illu- depending on the individual country's or trad-
strates this risk. ing bloc's economic and political goals. As a

The impressive growth of U.S. agriculture's consequence, the U.S. may be less successful in
export markets occurred during a period when negotiating reductions in trade barriers, the ef-
the United States made a change in monetary fects of which are conceded to be destabilizing.
policy which carried significant consequences Hence, the interdependence which has brought
for international trade. After years of retaining the positive benefits of greater trade in farm
the policy of fixed exchange rates with the dol- products internationally carries the potential
lar tied to gold, the United States moved early for greater price and income instability.
in the 1970s to a system of floating exchange
rates with other currencies. Schuh [11]
analyzed the consequences of this changed role INFLATION
of foreign exchange rates and the increased in-
ternational mobility of capital. He finds that The domestic economic environment for agri-
these two features cause the consequences of culture during the 1970s featured one easily
changes in government fiscal and monetary agreed-upon "major event" - inflation. After
policy to be channelled primarily into export the decades of the 1950s and 1960s during
sectors, such as agriculture. which inflation averaged less than 2.25 percent

The application of Schuh's analysis shows annually, as measured by the CPI, the rate of
agriculture in the early 1970s to have been in increase in the general level of prices climbed
an economic squeeze; the over-valued currency to nearly 9 percent in 1973 and just over 12
served as an implicit export tax and the gov- percent for 1974. Food prices, with a similar
ernment resorted to monetary and fiscal poli- history of very modest increases in the 1950s
cies to stem gold outflow and raise interest and 1960s, rose an astonishing 20 percent in
rates. More recently, the precipitous decline in 1973 and equaled the CPI climb for 1974. After
the value of the dollar has undoubtedly worked declining to less than 6 percent in 1976, the
to U.S. agriculture's short-run advantage in in- rate of inflation resumed its upward climb and
ternational trade. Today many view the dollar approximates 9 percent as measured by the
as undervalued, and consequently functioning CPI for 1978. Food prices have followed direc-
as an implicit export subsidy, giving rise to tionally and seem likely to have increased by
extra strength in agricultural export markets. nearly 11 percent in 1978. Record farm prices
However, when the dollar recovers its equilibri- achieved during 1973-74, though associated
um, a substantial adjustment will be forced with reduced agricultural production abroad
upon U.S. agriculture, due to a number of climatic aberrations world-

Schuh concludes that, "in the future we can wide as well as an upheaval in international
expect to have an unstable demand for agricul- currency exchanges, created a lasting
tural output in marked contrast to the past, impression in the minds of many people in
with the source of that instability coming from farming. In effect, a new level of price expecta-
the foreign sector, even though those fluctua- tions was established, a level which, regardless
tions of foreign demand are an indirect conse- of its original cause, may have played some
quence of domestic monetary and fiscal part in the agricultural activism and resur-
policy" [11, p. 76]. gence of the parity concept in the thinking of

Though changes in international trade barri- the members of some agricultural groups, such
ers and other impediments to trade as well as as the American Agricultural Movement, in
changes in domestic agricultural policy to shel- the late 1970s.
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The consequences for agriculture of a period THE ENERGY CRISIS
of inflation depend on the specific circum-
stances. If farm prices keep up with the rate of The event which in some ways provided the
inflation, the price impact may be minimal, greatest shock to the U.S. economy in the
particularly if agricultural productivity 1970s was the energy crisis-the exposure to
growth offsets greater rates of gain in prices of the scarcity of a common consumer good. The
production items farmers must buy. The background of the energy crisis is well known:
evidence on this point is somewhat mixed. the decline in new discoveries of petroleum and
Tweeten and Griffen [14], in a study of price natural gas, the increased demand for energy,
experience in the years 1920-69, conclude that the regulation of air pollution practices, and
national inflation does have the effect of re- the OPEC embargo with its aftermath of rapid-
ducing real prices in the farming industry, and ly rising energy prices.
reduces the parity ratio. Gardner [5], examin- 
ing a more recent but shorter time span, 1967- In subte of thes developments, which por-
78, and using monthly data, found that both tend substantially reduced fuel availability in
farm product and farm input prices respond the future, the reaction in terms of changes in
quickly to changes in the general price level nput costs was rather modest through 1978. A
Gardner's analyses also suggest that, on the sharp cl in e mid in fertilizer costs
basis of 1948-77, both net income and farm as- occurard in te mid-1t 70s in association with
set values have grown in real terms during natl gas limitations, but these costs have
periods of inflation. Such conclusions do not re- since declined. Tougy fane fuel costs have
spond to the question of effects of inflation risen substantially since thebeginning of thespond to the question of effects of inflation 1970s, the increase in costs of fuels and energy
during a period of rising real farm costs due to 1970, the rise in costs of f a 
resource scarcities; these effects are likely to be e otr s n the ar r tn com-
unfavorable to agricultural producers. Further, e er e the farm production com-
the uncertainty over interest rates and the plex. Clearly, the federal government's
problems of intergenerational transfer of farm- controls on petroleum and natural gs prices

have held this cost increase in check. Fuel anding operations, as well as cash flow difficulties he he this ct rese in check. Fuel and
and risks with low equity land transfers in the energy costs, which represent about 8 percent
face of inflated asset values, are readily ap- of the total costs of farm production, will begin
parent. As Gardner concludes, the overall re- to rse more rapidly in the wake of such de-
sult of inflation is an extraordinary element of velopments as the recent OPEC decision to

raise oil prices and the governmental decision
risk for agricultural pr . to partially decontrol energy prices domestic-

ally.
One may speculate also on the effects of in- 

flation on productivity via the limitations The energy crisis has spawned a variety of
which its continuation may create. For studies examining the consequences of alter-
example, insofar as inflation continues to fuel nate scenarios with respect to energy avail-
the rise in the price of farmland (the perfect in- ability and pricing, ranging from reversion to
flation hedge), it may also severely limit the on-farm sources of power to the consequences
growth of the family farm size as usually con- of technological breakthrough by development
ceived. This point is difficult to deny because of plants as oil sources [10]. Van Arsdall and
average asset values per farm exceed a quarter Devlin [16] project an increase of 27 percent
million dollars today for more than one of the in real energy prices to farmers between 1975
states of the region. and 1985 with no energy legislation, and a 37

percent increase with the President's National
Carter and Johnston [1, p. 745], surveying Energy Plan (May 1977 version). An unpub-

the factors which have caused rapidly rising lished study for Resources for the Future [15]
land values in the 1970s, identified the rising used the NIRAP model to project energy use
commodity price expectations, persistent infla- and impacts on a national basis for the years
tion in the general economy, and the conse- 1985, 2000, and 2025.
quences of international market interdepen- Clearly, for at least the next decade or so the
dence as contributing factors. They also note energy situation will be cost-increasing for
increased difficulties of entry and the problem American agriculture and may affect capital
of intergenerational transfer. Their observa- outlay, production practices, and nonpetroleum
tions suggest the possibility of increasin risks input availability to the detriment of produc-
in farming as the pressures mount for greater tivity levels and with increasing risks. The
dependence on capital markets and larger direction of change, as real energy costs rise,
farms rather than the family farm as the typi- will be toward substitution of land, labor, and
cal unit, a unit which has shown greater capa- capital inputs for energy in the product mix of
cities to absorb and adapt to risk. farming.

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ENVIRONMENTAL RESTRICTIONS amounts and constituency of effluent dis-
charge. In agriculture, feedlots would be a pri-

Linked closely to the limitations on avail- mary target depending on the applicable
ability and use of energy in agriculture are definitions of size and scope. A second objec-
several regulatory restraints related to the en- tive of this act is to control agricultural non-
vironment that were enacted during the 1970s point sources of water pollution. The goal is
[7]. Each of these enactments embodies, in dif- elimination of pollution in navigable waters by
ferent aspects, a broad concern with which 1985. Such goals could affect agriculture in
everyone can agree, i.e., it is worthwhile to pre- terms of cultivation practices, nitrogen fertiliz-
serve and improve the environment and to pro- er restriction, and restrictions on uses of herbi-
tect people's health with necessary safety mea- cides. Hurt and Reinschmiedt [6] indicate a
sures. However, each of these pieces of legis- severe economic impact on southern agricul-
lation involves costs to achieve its ends and ture if nonpoint pollution goals are met. Under
the costs are not uniform in their impact. this act, the primary authority for manage-

The National Environmental Policy Act was ment lies with the states, but the EPA retains
passed into law January 1, 1970. It established authority to impose more stringent require-
the federal government's intent to protect the ments. The real question with this act is how
natural environment and to take positive extensive restrictions will be. Though it may
steps to improve it. It resulted in the creation not be an expression of EPA intent, a recent
of the Environmental Protection Agency, study under EPA sponsorship examined,
which consolidated into one agency all the among other things, of such possibilities as (1)
federal programs for air pollution, water pollu- a complete ban on the use of all insecticides, [2]
tion, solid waste disposal, pesticides regula- restriction of fertilizer application to 150
tion, and environmental radiation. pounds per acre, and (3) elimination of straight

Among the acts which the EPA administers row cultivation [13].
is the Federal Environmental Pesticides Con- The Clean Air Act Amendments of 1970 are
trol Act of 1972 [3, p. 183]. The Pesticide also of interest to agriculture. This act, too, is
Control Act basically strengthened the author- administered by EPA, and one of its concerns
ity of the Federal Insecticide, Fungicide, and is the prevention of crop damage due to high
Rodenticide Act of 1947, and moved from only levels of photo-oxidants in the atmosphere. An
regulating the labeling of such products to the indication of the importance of this develop-
authority for the restriction of use of the pro- ment is evident in the EPA estimates for 1973
ducts. The activities of EPA in the pesticide of crop losses nationally due to high oxidant
area resulted in bans on the use of DDT, aldrin, levels, which are as high as $3 billion [4, p. 346].
dieldrin, Mirex, and others [2, p. 4]. Though the Finally, the Occupational Safety and Health
constraints represented by restricting Act of 1970, known as OSHA, has been an irri-
pesticide use have undoubtedly created some tant to the commercial farming population.
hardships for agriculture, it is difficult to esti- The goal of the act is the elimination of hazards
mate the full effect of such withdrawals on to safety and health occurring in a work situa-
agricultural productivity. The pattern of build- tion. OSHA, the agency of the Department of
up of resistance in insects to these chemicals Labor established for the administration of
had already been observed and had occasioned this act, has levied numerous requirements,
shifts from chemical to chemical in an attempt ranging from requiring roll bars on tractors
to find a more effective means of insect control and sanitary facilities for workers to re-entry
in the face of growing immune reactions. standards for workers engaged in the applica-

On the positive side, these EPA efforts at tion of agricultural chemicals.
regulation have resulted in the development of Most of the provisions of environmental leg-
a program known as Integrated Pest Manage- islation are of concern to agriculture because
ment [3, p. 186] which maximizes the natural of the potential for restrictive regulations [12].
control of pest populations through knowledge The environmental legislation affecting agri-
of each pest, its environment, and its natural culture involves, to an important degree,
enemies. Indications are that this approach giving a public agency the responsibility of
often provides better pest control at a lower preparing specific guidelines for the accomp-
cost and with fewer environmental problems lishment of overall worthwhile objectives.
than reliance on chemical pesticides alone. Many of the improvements that are possible

The Federal Water Control Act amendment under these acts will be limited very clearly by
of 1972 aims at strengthening the clean water the tradeoffs between environmental ends and
program by regulating both point and non- the competing end of energy use conservation
point water pollution [3, pp. 168-171]. The Act [7]. In summary, these environmental acts
is administered by EPA and involves the regu- represent sources of irritation and potential for
lation of point source discharge of effluents by reduction in efficiency in agriculture as well as
requiring permits which specify the allowable some elements of uncertainty as to whether

4



specific practices will be acceptable. They will and has expanded the land base adaptable to
add to the feeling of producers in agriculture row crops (for indications of productivity im-
that they are over-regulated and over- pacts of some emerging agricultural technolo-
constrained in ways that are less than appro- gy, see [8] ).
priate for the ends sought.

CONCLUSIONS
OTHER EVENTS

The major economic events delineated here
Other events of the 1970s that are signifi- seem to have impact on uncertainty in agricul-

cant to agriculture in terms of potential effects ture than on productivity. Further, they tend
on productivity and uncertainty are the re- to support the conclusion that agriculture's in-
sumption of diplomatic and trade relations be- creased uncertainty is predominantly in the
tween the U.S. and the People's Republic of marketplace, as international developments
China, the changed patterns of migration to ru- become ever more important in determining
ral nonfarm areas, the modifications of inheri- price for an increasing share of U.S. agricul-
tance tax laws affecting family farms, and the tural output. Developments and decisions
wave of consumer activism which appeared in among the OPEC nations combined with legis-
the 1970s. lative and administrative judgments at home

Though most estimates of overall productivi- increasingly jeopardize that part of the tech-
ty change for agriculture indicate a slowing in nological progress of agriculture which is
the rate of growth of productivity [8], one must based on cheap fossil fuel. Inflation threatens
not overlook the specific developments in the to disrupt agriculture's structure as well as in-
1970s in the physical and biological sciences af- crease the uncertainty of its cost and price en-
fecting agriculture. Some examples follow.' vironment. And environmental legislation, on
Agricultural engineers cite the commercial balance, has tended to increase the uncertainty
development of a pasture renovator for inter- of the cost complex of agriculture and the con-
seeding legumes into grass with a single ma- tinuance of some production practices which
chine operation that will permit the efficient may be barred by environmental restrictions
management and utilization of approximately at some future date.
one-half of the U.S. farmland which should or These events challenge agricultural
must remain in grass. This machine will allow economists to provide useful insights upon
an increase in productivity of that land by a which producers can base decisions in this in-
factor estimated to be about 4. Animal scien- creasingly uncertain economic environment.
tists have identified selenium as an essential With sophisticated analytical methods facili-
element in animal nutrition and it has marked- tated by computers, agricultural economists
ly reduced disease losses in cattle, hogs, sheep, can simulate potential outcomes from regional
turkeys, and poultry. The success of the hog and national models under a range of different
cholera eradication program nationally has re- scenarios. As always, success in this effort will
duced the cost of pork production significantly depend upon the relevance of the alternatives
through reduced death losses and costs of vac- identified and the effectiveness of the informa-
cination. Agronomists point out that the popu- tion delivery systems.
larization in the 1970s of minimum tillage Finally, even with the help of agricultural
practices originating in the 1960s has material- economists, designers of public policy must
ly improved agriculture's ability to cope with call forth their best efforts to solve the prob-
reduced fuel availability in the years ahead, lems generated by the events of the 1970s.

REFERENCES

[1] Carter, Harold O. and Warren E. Johnston. "Some Forces Affecting the Changing Structure,
Organization and Control of American Agricluture," American Journal of Agricultural
Economics, Volume 60, December 1978, pp. 738-747.

[2] Council on Environmental Quality. Environmental Quality, Second Annual Report of the
Council on Environmental Quality, September 1971.

[3] Council on Environmental Quality. Environmental Quality, Fourth Annual Report of the
Council on Environmental Quality, September 1973.

[4] Council on Environmental Quality. Environmental Quality, Sixth Annual Report of the Coun-
cil on Environmental Quality, December 1975.

'The author is indebted to John Walker, Chairman, Department of Agricultural Engineering, Virgil Hays, Chairman, Department of Animal Sciences, and A. J.
Hiatt, Chairman, Department of Agronomy, University of Kentucky for these examples.

5



[5] Gardner, Bruce, "Inflation and Agriculture," statement presented at National Outlook Con-
ference, Washington, D. C., November 16, 1978.

[6] Hurt, Verner and Lynn L. Reinschmiedt. "Non-Point Source of Pollution Abatement-Po-
tential Impact and Research Needs," draft of paper to be presented at Southern Agricul-
tural Economics Association meetings, New Orleans, February 6, 1979.

[7] Irwin, George D. and J. B. Penn. "Energy, Government Policies and the Structure of the
Food and Fiber System," American Journal of Agricultural Economics, Volume 57, De-
cember 1975, pp. 829-835.

[8] Lu, Yao-Chi, Leroy Quance, and Chun-lan Liu. "Projecting Agricultural Productivity and Its
Economic Impact," American Journal of Agricultural Economics, Volume 60, December
1978, pp. 977-980.

[9] National Defense University. "Climate Change to the Year 2000," Ft. Leslie J. McNair,
Washington, D. C., p. xvii-xix.

[10] Pagoulatos, Angelos and John Timmons. "Alternative Scenarios of Energy Use in U. S. Crop
Production," Southern Journal of Agricultural Economics, Volume 9, December 1977,
pp. 11-13.

[11] Schuh, G. Edward. "Income and Stability Implications of Monetary, Fiscal, Trade and Eco-
nomic Control Policies," Farm and Food Policy Symposium, Great Plains Agricultural
Council Publication No. 84, pp. 69-94.

[12] Skold, Melvin D. and J. B. Penn. "Production Potentials in U. S. Agriculture in Looking For-
ward: Research Issues Facing Agriculture and Rural America," ERS, USDA, September
1977, p. 82.

[13] Taylor, C. Robert and Klaus K. Frohberg. "The Welfare Effects of Erosion Controls, Banning
Pesticides, and Limiting Fertilizer Application in the Corn Belt," American Journal of
Agricultural Economics, Volume 59, February 1977, pp. 25-36.

[14] Tweeten, Luther and Steve Griffen. "General Inflation and the Farming Economy," Research
Report, Oklahoma Agricultural Experiment Station, March 1976, p. 732.

[15] U. S. Department of Agriculture. Food and Agriculture, draft report, ERS, February 1977.
[16] Van Arsdall, Thomas and Patricia J. Devlin. "Energy Policies: Price Impacts on the U. S.

Food System," Agricultural Economics Report No. 407, ESCS, USDA.

6