#484. 2014 Trends That Excite Agracel – Trend 4: The American Agricultural Juggernaut

This week, we look at American agriculture and how it has evolved over the years. Productivity is the key.

Trend 4:  The American Agricultural Juggernaut—Similarities to American Manufacturing

There are a number of commentators who bemoan the decline in manufacturing jobs, which fell from a high of 19.4 million in 1979 to a low of 11.5 million in 2010 before rebounding to 12.0 million in 2013. While solely focused upon the number of jobs, they lose sight of the fact that the USA continues to set new records in manufacturing production, continuing to produce more with fewer people. It is a story that has played out before, with the best example being American agriculture. And, we think that just as American agriculture has moved to being the best-of-the-best worldwide, American manufacturing is on the same trajectory.

In 1900, 41 percent of America’s workforce was employed in agriculture. The work was very labor intensive, taking place on a number of small, diversified farms, assisted by 22 million work animals. Agricultural GDP was about 25% of total GDP. The largest industrial industry was the flour milling industry which transformed wheat from American farms into flour.

By 1945, only 16 percent worked on farms and agricultural GDP had fallen to 6.8 percent of America’s total GDP. The percent of farmers who earned off farm income had risen to 27 percent. Farm mechanization was in full swing as the number of work animals had fallen in half to 11.6 million, with the addition of 2.4 million tractors.

Following WWII, technological innovations occurred at an extraordinarily rapid pace. Advances in mechanization, chemical inputs, and plant breeding all combined to increase agricultural production even as the number of farm workers fell dramatically. Over the next 55 years, to 2011, agricultural productivity averaged 1.7% annually. Manufacturing, by comparison, averaged only 1.3% during that same period.

Today, the workforce has shrunk to 1.5 percent of the labor force but food production is at an all-time high, with agricultural GDP down to 0.9 percent of total GDP. The horses and mules are largely gone (except on Amish farms) as 5 million tractors are now in use. After 1960 the USDA stopped even counting horses and mules used as work animals on farms.

The big change in post-WWII agriculture was its globalization. From 1900 to the 1960s, agricultural exports were virtually unchanged, with the exception of the “golden age” of American agriculture from 1910 to 1920 when exports jumped dramatically, only to be hurt by increased tariff protection in the 20s culminating in the passage of Smoot-Hawley tariffs in 1930, which collapsed global trade and was one of the main causes of the Great Depression.

Starting in the early 1970s agricultural exports soared as adjustments to the exchange rate with the dollar freed from the gold standard and by the Soviet Union’s growing appetite for imported grains and oilseeds, led to a new golden age for American agriculture. Exports jumped by a factor of 6X by 1980, and other

than a decline in the mid-1980s, have continued to grow through 2012 by another 3.5 times. Billions of world consumers have moved from worrying about where their next meal was coming from into middle class status.

American agriculture today is the gold standard that other countries aspire to emulate. Farmer’s balance sheets are strong and the industry continues to innovate and find new ways to produce and export products all over the world. Stay tuned for how American manufacturing follows the example of American agriculture in this century.