As most of the continental United States got settled toward the end of the 1800s, and land became more scarce and costly, yield-increasing innovations and practices became the major source of increased agricultural output. Cochrane suggests that the quest for higher yields led to the research and extension activities that resulted in the introduction and adoption of chemical fertilizers, pesticides, and improved varieties during the 20th century. The relative scarcity of labor has led to . the development of capital-intensive equipment and practices for the application of new inputs and the continuolls introduction of laborsaving tillage and harvesting technologies in the United States . . Technological change has been largely responsible for the continuous increase in agricultural supply, the increased capital intensity of agriculture, and the growing dependency on chemical inputs. As we approach the end of the 20th century, it seems that agricultural resources and environmental quality are getting more scarce. The increase in the value of these inputs suggests the development and adoption of innovations that will conserve water and reduce soil erosion and pesticide use. Scientific breakthroughs in genetics and biochemistry and a substantial reduction in the computing costs over the last 15 years suggest that many of the developments of the future will rely heavily on the use of biotechnology and computers. The direction of technological change in agriculture should also be affected by changes in macroeconomic conditions and tax laws. The increase in real interest in recent years and the tax reforms of the 1980s, in particular the move away from cash accounting and the treatment of capital gains as ordinary income, are likely to lead to the deemphasis of the development of capital-intensive technologies in agriculture. Nevertheless,cut flower transport bucket it seems likely that technological changes will continue to improve productivity and increase agricultural supply over time.
Agricultural products are basic commodities-essential products which command very high prices when scarce but very low prices as they become abundant. Table 1 presents farm-level demand and income elasticities for major food groups in the United States. It shows that the demand elasticities for major agricultural commodities are less than unitary and, in some cases , very close to zero. The cross-price elasticities of food items are positive, indicating that these commodities are substitutes. Income elasticities of nonmeat items are close to zero and may be even negative . The demand for meats is quite responsive to income, and the income elasticities of chicken and beef are slightly less than one. Wohlgenant’s estimates of income elasticities of the demand for beef and chicken seem to be higher than in other studies. The results of Haidacher et al. suggest that income elasticities of these products are closer to zero than one . Haidacher et al. also find that demand and income elasticity for food quality are quite high, and consumers are ready to pay substantially more for higher quality food. While overall demand elasticities for vegetables are quite low, these demand elastici ties vary throughout the year. Demand and income elasticities for fruits and vegetables are low during their season and become quite high during their off-season . Demand functions for agricultural products in many other developed nations have features similar to those in the United States . It seems that the growth potential of the markets for standard agricultural commodities in developed nations is quite limited, but product quality improvements may increase farmers’ revenues substantially. Mellor argues that developing countries have the potential to provide faster growing markets for agricultural commodities, since demands for these commodities grow in those nations faster than supplies. The rapidly growing nations of Asia provide especially good markets for feed grains and meat products because the food consumption patterns of these countries have not yet stabilized and the income elasticities of their meat demands are quite high. Agricultural systems are subject to much randomness and uncenainty. Much of the randomness results from natural phenomena.
The production of crops depends heavily on weather conditions, and yields vary as rainfall and climatic conditions change from year to year. Pest and disease problems are other contributors to the randomness in agricultural production_ Economic conditions are also contributors to the randomness faced by agriculture through their impacts on inputs’ prices, credit terms, and demand conditions. Prices of agricultural commodities are varying quite substantially over time in response to changes in demand and supply conditions around the globe. There has been much variability in real prices of agricultural inputs over the last 20 years. The prices of many agricultural inputs depend heavily on the price of oil, and the random variations in oil prices destabilized the prices of these inputs. Some inputs are imported, and their prices vary as exchange rates fluctuate. The real prices of credit for short- and long-term agricultural activities have varied in response to economic conditions and government policies. Actually. government activities have been major resources of randomness and uncertainty for the farm sector. Some of the government activities, besides monetary policy, which are likely contributors to randomness and uncertainty facing farmers include the agricultural commodity programs and marketing orders which terms have been varying frequently and sometimes drastically; immigration laws, the minimum wage, and workers’ health and safety regulations; pesticides and environmental quality regulations; and tax policies on both state and national levels. There is a growing body of evidence that farmers are risk averse and are ready to give up some of their average income in return for less variability of the economic conditions they face . The evidence suggests that smaller farmers are more likely to be more adverse to risk 1 than larger ones. Moreover, farmers are especially susceptible to downside risk, and their aim is to reduce it . Many agricultural inputs and activities and institutional regulations and activities aim at reducing randomness and u ncertai nty faced by farmers. Some government policy interventions are also designed to reduce randomness and instability facing producers and consumers. Redesign of such policies should recognize the impacts of public stabilization activities on private storage activities and provide coordination mechanisms for the control of different stocks .
Glenn Johnson coined the term “asset fixity,” and its interpretation has been the subject of much controversy. According to Tweeten , it was originally used to denote situations when gaps between purchase and resale prices of agricultural assets result in fixed asset-use levels under a wide range of prices and in inelastic supply responses. It was also used to denote what Williamson defined as asset specificity, namely, the tendency of many agricultural assets and forms of capital to be specialized and not easily convertible to uses outside the agricultural sector. This rigidity is not restricted to physical assets such as the tomato harvesters or milking barns, etc.; it also applies to different forms of human. capital. Hence, the transition of workers and assets in and out of the agricultural sector is not smooth. Changes in economic conditions-in particular, periods of down scaling and reduction of demand for agriculturally related skills-are likely to result in severe human adjustment problems. The specificity of many agricultural assets and skills cause their value to vary substantially with prices and conditions of agricultural commodities. In spite of the dramatic changes in technology and substantial increases in the sizes of farm operation, the agricultural sector has, on the whole, a competitive structure . Family farms are still probably the dominant form of operation, even though many of them have become businesses grossing several million dollars annually. Structure and behavior seem to be competitive in the production of major field crops, livestock, and dairy products. There is much vertical integration and centralization in the production of poultry and eggs, and there is a substantial amount of venical interaction in the production of some fruits and vegetables. In spite of these cases,procona flower transport containers the competitive model is very useful as a basis for analysis in the farm sector. Competitive behavior has been assllmed in empirical analyses of price determination along the food marketing chain . Rausser, Perloff, and Zusman question this assumption and suggest that contract theory and models of noncompetitive behavior are more appropriate for modeling the input markets to the assembly, processing, and distribution components of the food marketing chain. The nature of the products and the prevalence of long-term contracts in these markets led to rather fixed prices for processing and handling components of food items. This rigidity of response to change in economic conditions is in contrast to the flexibility of farm products which are produced by competitive markets. Agriculture, like many other sectors of the economy, frequently faces imperfect credit markets. In particular, bankers use other signals besides interest rates to allocate credit, so that not all the demand for funds at a given interest rate is met, and some of the better investment projects may not be financed. It has been argued that credit market imperfections are the results of lack of perfect information on behalf of the lenders. Banks may not flawlessly discriminate between loan requests, and they have developed several mechanisms to assist them in screening applications and insuring repayments although these devices have their faults.
Collateral financing has been used in many agricultural investments that might have caused discrimination against individuals with small landholdings with worthwhile worthy projects. Moreover, instability of prices and income has affected the ability of farmers to borrow and invest. Credit is likely to be more easily available in periods of agricultural prosperity than agricultural recession, thereby hampering the ability of the farm sector to withstand hostile environments. The growing reliance on debt-service financing in the agricultural sector in the middle 1980s may reduce some of the inequities and inefficiencies that are associated with collateral inactivity. But even with debt-service financing, credit markets are far from perfect. Credit availability constraints are likely to limit farmers’ ability to adapt to and survive stricter policy regulations. Agricultural production is the outcome of an interaction between human activities and natural resources and the physical environment. Such activities involve the deployment of resources that are exhaustible or have a slow renewal rate. Topsoil, groundwater, and water quality are obvious examples of such agricultural resources. Hueth and Regev argue that pest vulnerability to pesticides is / another exhaustible resource that has to be preserved. The argumentation as to the ,likelihood of the greenhouse effect suggests that some view even temperate weather as an exhaustible resource. In any case, heavy dependence on the use of chemical inputs, groundwater, and soil-eroding practices is causing depletion of exhaustible agricultural resources and is likely to reduce the productive capacity of the agricultural sector in the long run . Agricultural activities are also the causes of environmental externality problems. Agricultural runoff and seepage of agricultural chemicals contaminate bodies of water, reducing their value as sources of drinking water as well as fishing and recreation sites. Straw burning and intensive tillage practices pollute air resources and reduce air quality. These externality problems must be taken into account in the designing of policies that affect the agricultural sector. The externalities, and particularly the resource exhaustibility problems associated with agricultural production systems, are becoming increasingly severe over time. For example, the intensive use of center-pivot irrigation of the last 20 years has led to substantial depletion of the OjalIala aquifer, leading to curtailment of irrigation activities in some parts of Texas, the High Plains, and Oklahoma . In the literature on exhaustible resources , it is argued that, unless rates of technological change are extremely high, the efficiency prices of exhaustible resources tend to increase over time. Moreover, free market prices of exhaustible resources may diverge substantially from their efficiency prices, and government intervention may be needed to assure efficient utilization of these resources. Social management of natural systems involving exhaustible and slow-to-renew resources such as forests and fish populations requires resource dynamic considerations to be incorporated explicitly into policy making frameworks. It seems that such considerations will call increasing weight in the management of agriculture in the future. There are many differences in environmental conditions, economic situations, and productivities between regions in the United States. The qualities of natural resources such as water and soil are the subject of much heterogeneity. human capital, wealth, and preference vary substantially among farmers.