FOREWORD The many inquiries that have come to the Agricultural Adjustment Administration from Members of Congress and the general public indicate a deep interest in the plight of agriculture and the steps taken toward relief. This report is intended to give full information in answer to those inquiries. It supplements the outline of general policies contained in Secretary Wallace's annual report with a complete and detailed description of what has been done toward effectuation of these policies and the purposes of the Agricultural Adjustment Act. The adjustment program moves forward rapidly. This report originally was planned to cover the period from the passage of the act on May 12, 1933, to December 1, 1933. Even during its preparation, however, important progress has been made. Therefore, so far as possible, factual material relating to the period between December 1 and February 15, 1934, has been added. During the greater part of the period covered by the report, George N. Peek was Administrator, and the report is to be considered as largely an account of accomplishments under his supervision. It was while he was Administrator that the groundwork of the program was laid, and the organization for carrying it out was built up. In the short time the act has been in operation, a partial measure of economic recovery has been brought to American agriculture. Total farm income from crops in 1933, including rental and benefit payments, is estimated to have been $3,271,000,000, as compared with $2,113,000,000 in 1932, an increase of nearly 55 percent. Part of this recovery was undoubtedly due to the adjustment program, just getting under way. With livestock and livestock products, the production of which for market covers a longer period, it is not possible to make adjustments so rapidly. It should be added that the full results of a number of important projects launched in 1933 have not yet been felt. It is expected they will become increasingly evident during 1934. The Administrator wishes to acknowledge the assistance of Department economists and others in providing source material for this report. Experts and economists of the Bureau of Agricultural Economics, of other bureaus of the Department, and commodity sections of the Agricultural Adjustment Administration contributed much time and effort in its preparation. Cedavis. Administrator, Agricultural Adjustment Act. ΧΙ AGRICULTURAL ADJUSTMENT CHAPTER 1 OBJECTIVES AND MECHANISMS In applying the Agricultural Adjustment Act to the farm commodities produced in the United States, a variety of programs has been formulated. These are described in detail in the pages of this report which follow. To understand the commodity programs, however, it is important to know why the act was passed, the objectives outlined in it, and the several mechanisms it authorizes to be used I. WHY THE ACT WAS PASSED The economic situation leading up to passage of the act had resulted in severe disparity between prices of farm products and other products. Even at the crest of the business cycle in 1929, farm products could be exchanged for only 91 percent as much of other products, on the average, as they could have been exchanged for in the period before the war. During the depression, the disparity was greatly increased. By February, 1933, the exchange value of farm products for industrial goods had fallen to 50 percent of the pre-war average. Their exchange value for taxes and credit was even less. The disparity was present in the price of every farm product. It was most severe in the export commodities, such as cotton, wheat, tobacco, and rice, where the disappearance or severe contraction of export demand had built up great excess stocks of the commodities. It was also marked in hogs and hog products, the reduced export outlets for which had forced increased quantities into domestic consumption. The immediate cause of this disparity was the pressure of surpluses of farm products on the markets. But what is a surplus? The term "surplus" is used loosely and there are various conceptions as to its definition. Plainly, a mere seasonal surplus differs from an exportable surplus. For example, the United States always has cotton for export, whether the crop is large or small. This is an exportable surplus, whereas the extra amount produced in favorable crop years is a seasonal surplus. Considered from another point of view, surplus is a quantity so abundant as to depress prices below a figure which will adequately reward the producer, whether or not it is below normal, or whether or not any portion is exported. A surplus always means a surplus at some particular price. At a lower price, the surplus is absorbed and so disappears. Sometimes this disappearance is brought about by the use of the goods in question for a lower, less remunerative purpose than usual. For instance, when a superabundant wheat crop is produced, an appreciable amount is fed to livestock. THE PARADOX OF THE SURPLUS Many persons have wondered why the Government should be concerned with eliminating or preventing surpluses of farm products when there are people who must stand in line for doles of food or turn to public support for adequate clothing. To some extent it is true that Chart 1.-World Stocks and Prices-Nine Foodstuffs and Raw Materials 40 130 160 190 1923 24 25 26 27 28 29 30 31 32 33 the problem of disposing of agricultural surpluses is tied closely with the problem of consumer purchasing power, and the prices of some farm products are directly dependent on payrolls. But, paradoxically enough, the very existence of the surpluses of farm products has been one of the causes of the lack of consumer purchasing power. The pressure of abnormal supplies on the market tends to upset the delicate balance of price and income relationships. When too much cotton and wheat and pork are forced into trade channels, prices received by farmers dwindle to levels so low that they themselves cannot buy the goods which city workers manufacture. The result is that factories close down and employees are thrown out of work. They in turn are unable to buy the products of other city workers, who also lose their jobs. Additional factors tending to slow up business activity enter in, and the whole vicious cycle of deflation, with unemployment, falling prices, bank failures, bankruptcies, hunger, and suffering, results. Millions of people, unable to support themselves, are compelled to depend on public support. The Nation's economic machine, gorged with an excess of farm and other products, breaks down just as surely as a human stomach gets acute indigestion if too much food is forced into it. Something like the foregoing is what has happened in the last few years. For a variety of reasons-among them the closing of a large portion of foreign markets the balance between supply and demand of farm products was upset. The production of certain commodities was far above the capacity of the consuming public, including the millions of people dependent upon direct relief, to absorb for ordinary purposes. MORE WHEAT THAN PEOPLE COULD EAT Take the case of wheat. If every person in the United States had all the wheat he could possibly eat, there would still have been a surplus as long as production continued at the same rate as in the last few years. With no one to buy this surplus and with foreign markets sharply limited, the supplies of wheat piled up in elevators and storehouses, and the carryover attained huge and unprecedented totals. Prices fell to the lowest levels in history. Consumers, who could or would eat only a certain amount of wheat, were but slightly helped by this surplus, in the form of lower prices for bread. Millers and bakers obtained their wheat at a much lower figure than before, but since flour is only a minor part of the cost of bread, the retail price was little affected. Over against this small temporary benefit felt by consumers was the serious injury done to them ultimately through the maladjustment of the whole price structure and the eventual breakdown of the whole system of exchange. And when prosperity returns, the amount of wheat which people eat will be no greater and may even be less than it has been during the depression. This is because, when people's purchasing power increases, they eat more of other food products which fall in the luxury class. Thus it will be seen that the surpluses of farm products, in a very real sense, have actually contributed to the length of the bread lines. It is because of the series of maladjustments brought about by the surplus of farm products that the Government has undertaken to control their production, bringing supplies into line with demand at a price which will afford the farmers a return commensurate with their income during the 5 pre-war years. |