Philip M. Raup

Corporate Farming in the United States

Corporate farming is not new in the United States. The companies of “gentlemen adventurers†setting out in the seventeenth century to establish settlements in the New World were not corporations in a modern sense, but in organizational form and motivation they bear a striking resemblance to corporation farming ventures of recent decades. The twin lures of short-run profits and long-run capital gains have been major forces in shaping land use patterns and institutional structures throughout Americas history. For over 300 years repeated efforts were made to use large scale organizational forms to reap these rewards in agriculture. Up to 1950 the record was one of almost consistent failure.

Some Questions of Value and Scale in American Agriculture

A most revealing characteristic of an economic system is the value it places on land. The modes by which that value is expressed and the methods of its reckoning are identity criteria of fundamental significance. In a market economy, the linkage between this value structure and the income flows that support it provide a trend indicator that is akin to body temperature in the human anatomy. Using this parallel, we must conclude that the American agricultural economy is feverish. For the forty-eight contiguous states, agricultural land values tripled since 1967, with over 80% of that increase occurring since 1972. The increase has not been uniform among states, with the greatest increases centered in states of the Corn Belt, and in North Dakota, Montana, Pennsylvania, and West Virginia. The smallest increase occurred in California, and increases were below the national average in Arizona, New Mexico, the southern Great Plains and Mississippi Delta states, and all states of the Southeast except Georgia, South Carolina, and Virginia (U.S. Department of Agriculture 1977a, p. 22). In broad terms, cash-grain crop producers have benefited most from recent land value changes, while producers of cotton, fruits and vegetables, other specialty crops, and animal products have lagged behind. Farm expansion buyers have been the dominant force in this recent upsurge of land values, accounting for 63% of all purchases for the year ending 31 March 1977. In Corn Belt counties (for example, in southwestern Minnesota) this figure approaches 80% (Christianson, Nelson, Raup, p. 19). With some exceptions in areas adjacent to large urban centers, these high farm land prices are not the result of an invasion of the farm land market by nonfarm buyers. The principal strength in the current land market is provided by farmer demand for tracts of land to add to their holdings. This is a reflection of the financial capacity created for existing farmers by the windfall gains of land price inflation. If a farm is debt free or burdened with only a small mortgage, an established farmer can spread the cost of additional land over his entire acreage and bid this advantage into a higher price offer for any land that comes onto the market. A recent study of Illinois farms shows that, if the farmgate price of corn is

Economies and Diseconomies of Large-Scale Agriculture

2 per bushel, it would have required the income-producing capacity of approximately three acres to finance the purchase of one additional acre, at 1976 production costs and land prices (Scott). This provides a rough measure of the extent to which land prices have been inflated by the demand from farm expansion buyers. A farmer who is not in the top segment of farm income receivers, and who does not own a substantial acreage of debt-free land, is virtually priced out of the current land market. The danger in this situation lies in the threat f land market instability. For two years we have experienced the phenomenon of falling farm product prices and rising land values. One interpretation of the current land market is that it exhibits many of the characteristics of a inflationary boom that is nearing its bursting point. To assess this possibility we need data that we do not have on the nature of the total demand structure for farm land. The component of that structure for which we have the most copious data is the demand for the products of land. In a recent discussion, Gardner has suggested that perhaps the demand curve facing American producers of farm commodities has become much more Philip M. Raup is a professor in the Department of Agricultural and Applied Economics, University of Minnesota. Paper 1694 of the Miscellaneous Journal Series, Agricultural Experiment Station, University of Minnesota. This paper is an expansion of testimony presented at a Hearing on Obstacles to Strengthening the Family Farm System: Competition for Land, conducted by the Subcommittee on Family Farms, Rural Development and Special Studies, Committee on Agriculture, U.S. House of Representatives, at Marshall, Minnesota, on 15 October 1977.

Urban Threats to Rural Lands: Background and Beginnings

THE American literature on economies and diseconomies of large-scale firms in agriculture is a curious mixture of riches and poverty. There are numerous empirical studies of size economies in agriculture, supplemented in the past decade by a growing volume of synthesized data, using simulation models and engineering-economic approaches [4]. But there are virtually no studies that explore in breadth and detail the problems that would arise if we had truly large-scale firms. The deficiency is easily explained though less easily excused. With a handful of exceptions, there are no truly large-scale firms in American agriculture. The few that exist are sensitive to investigation or study and remain generally inaccessible to economists and researchers if not always to Fortune reporters [3, 6]. There are no valid data on input-output relations, management problems, or marketing structures to use in synthesizing a 100,000-acre corn and oil-seed farm for Iowa, a 5,000-cow dairy farm under Minnesota conditions, or a 50,000-acre irrigated cotton farm in the Imperial Valley of California. Yet producing units (it is misleading to say farms) of these sizes and types exist in the Soviet Union, India, in the Sudan, and elsewhere. It is not madness to suggest that they could develop in the United States, and some Florida, Texas, and California farms seem well on the way. The intent of this paper is to speculate (it cannot be more than that) on some of the probable consequences if they should.

The Contribution of Land Reforms to Agricultural Development: An Analytical Framework

Abstract Although rich in land resources, the United States is vulnerable to increasing losses of agricultural land through uncontrolled urban expansion, and distorting influences of urban demands in rural land markets. Excessive use of space has been promoted through highway and housing finance, tax policies affecting capital gains, accelerated depreciation, deductibility of property taxes and mortgage interest, tax-exemption for municipal bonds, public utility pricing policies, and local government structures that resemble mining claims. Anticipated land value appreciation becomes a dominant force in shaping both our urban and rural structure, with results that threaten to become intolerably distorting in view of growing demands for energy conservation.

Use of Equity Capital in Financing Future Agricultural Production: Discussion

In the past 15 years we have seen this interest in land reforms expand to cover the world stage. The aftermaths of wars have typically included demands for drastic revisions in economic institutions, particularly land tenure systems. So the recent flood-tide of interest is not exceptional. What is exceptional is the fact that in many countries the energizing influences of land reform are being given primary attention while the egalitarian motive slips into second place. 1

Structural Change in Agriculture in the United States

In the first of the three papers discussed here, Fiske, Batte, and Lee sketch briefly the history of capital accumulation in agriculture, noting the lack of efficient equity markets for agricultural assets. This they attribute to legal restraints, high transactions costs, and the peculiar organizational structure of farm businesses. While theory holds that capital should flow to the sector yielding the highest rate of return, this provides little guidance in explaining actual capital flows in agriculture. This they attribute to market imperfections, of which the most important are technical externalities, defective factor markets, and tax laws.

Economic Development and Competition for Land Use in the United States

Agriculture in the United States is experiencing a period of structural readjustment that ranks with the most profound changes that have occurred since the formation of the union. As one of the most ancient forms of economic activity, it might be expected that agricultural tradition, inertia, and unwillingness to change might be the root causes of the current drastic restructuring.

Reinterpreting Structural Change in U.S. Agriculture

IN THE following discussion I propose to examine the ways in which current developments in the American economy are altering the pattern of competition for agricultural land. In so doing I intend to draw upon the experiences of other developed economies, notably those of western Europe, where the process of competition for land has gone on longer and reached levels more intense than those experienced in the New World. The conclusion will contain some frankly speculative observations on the role of land in the future of American agricultural enterprise.

Discussion: Land Values and Agricultural Income: A Paradox?

The structure of U.S. agriculture has been profoundly changed by the growth in specialized production units in animal agriculture, by monoculture and duoculture in field crops, and by increased dependence on export markets. Land use choices are increasingly internationalized, with emphasis shifting from domestic to global markets.