One potential answer to the question of “how are current conditions similar to the 1980s” is to consider net farm income. The USDA has measured and reported these data for decades, which allows for meaningful comparisons over time. This week’s post reviews net farm income during the Farm Financial Crisis of the 1980s.
Net Farm Income- The Boom
Figure 1 shows the USDA’s estimate of real, or inflation-adjusted, net farm income since 1929 (2020 dollars). We frequently use this chart to provide context for current conditions, but this week, we flip the script to use current conditions as a context for history. Figure 1 also plots, in orange, the average for these data ($85.5 billion) and one standard deviation above and below the means (in black, one standard deviation = $26.8).
After nearly two decades of fairly stable farm incomes, which were also slightly below the long-run average, farm income soared to $155 billion in 1973. There were several contributing factors to the boom, but soaring grain prices due to the Great Grain Robbery of 1972 standout. Farm incomes in 1973 are significant because it is the highest inflation-adjusted observation in more than 90 years of data. Sector-level incomes exceeded $150 billion twice in the 1940s ($154.9b in 1946 and $154.4b in 1948) post-World War 2. Most recently, farm incomes fell short of those levels, topping out at $137.6 billion in 2013.
Another consideration to note with the boom in 1973 was the short duration. While farm incomes set historic heights, strong incomes did not last long. Only twice during that decade (1973 and 1974) did farm income exceed the upper black line. For comparison, farm incomes were high for more than a decade after WWII, and most recently, there were about four years of strong incomes.
Figure 1. Real Net Farm Income, 1929-2020 (2020=100). Average: $85.5 billion (in orange). Data Source: USDA ERS.
Net Farm Income – The Bust
Figure 1 also highlights another record set during the 1980s era: farm income fell to a record low of $31.6 billion in 1983. Inflation-adjust farm incomes have slipped below $50 billion (2020 dollars) only six times in the data; twice during the 1980s and four times during the Great Depression. This is to say that conditions during the early 1980s were very bleak. Furthermore, farm incomes remained stubbornly low for the entire decade. It wasn’t until 1989 that net farm income would exceed $85 billion, or the long-run average.
A significant difference between the 1970s/1980s and today is inflation. We’ll cover this in an upcoming post, but consider the effects when measuring net farm income. While inflation-adjusted income fell from $155 billion to $31 billion from 1972 to 1983, an 80% decline in 2020 dollars, the adjustment in nominal terms was less staggering. Nominal net farm income peaked at $34.4 billion in 1973 before falling to $14.3 billion in 1983, a 58% decline (figure 2). By the end of the 1980s, nominal farm income was well-above even the 1973 peaks. What gives? Inflation.
In addition to a struggling farm economy, this period also faced massive inflation, which eroded the purchasing power of the limited income generated. While the farm sector was generating more dollars of income in the late 1980s than the peak of 1973 (nominal terms, figure 2), the sector struggled mightily to recovery from the income and inflationary challenges (real terms, figure 1).
Figure 2. Nominal Net Farm Income, 1965-1990. Data Source: USDA ERS.
Another farm income consideration is geographic variations. As we’ve noted about recent conditions, the national-level data can mask the state-wide variations (mostly due to commodity-level effects).
Figure 3 shows the change in state-level net farm income (real dollars), comparing the average of 1972-1975 with the average of 1969-1971. The farm income boom was strongest in the Northern Great Plains. Furthermore, not every state observed large upticks, especially in the Northeast and Southeast.
Figure 4 shows the farm economy contraction. The Northern Plains and Corn Belt were the hardest hit. Several states observed net farm income – averaged over multiple years – fall by more than 80% (earlier post available here).
Again, while the national data are helpful, it can also understate the challenges some faced – those hardest hit – and isn’t reflective of every producer and region.
Figure 3. Change in State-Level Net Farm Income, Average of 1969-1971 to Average of 1972-1975. Data Source: USDA NASS.
Figure 4. Change in State-Level Net Farm Income, Average of 1972-1975 to Average of 1982-1984. Data Source: USDA NASS.
Wrapping it Up
In our seven-episode podcast series Escaping 1980, we explore the causes, influences, and lasting effects of one of the most infamous events in American agriculture history, the 1980s farm crisis. The income boom followed by the devasting collapse is a major part of the story. Farm incomes not only reached 90-year highs during this period, but they would also set record lows within ten-years. The boom quickly subsided, but the lows were stubborn and lasted nearly a decade.
Foreshadowed in this week’s post is that factors outside of the farm economy – such as inflation – also played a significant role during this timeframe. Inflation meant the fewer dollars of income generated had less purchasing power.
In 2016, the farm economy sputtered as farm income hit a low of $66.7 billion (2020 dollars). Farm income improved in recent years, but significant concerns and struggles have lingered. However, it is worth noting that farm incomes during the 1980s were considerably lower. Specifically, farm incomes were below 2016-lows for seven consecutive years during the 1980s (1980-1987). This isn’t to make light of recent challenges, but to highlight how severe and persistent the struggles in the 1980s were.
As additional episodes of Escaping 1980 released each week, we’ll share blog post and charts for those that want to dig deeper.
A Few More Details
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Photo Source: Flickr, Johnny Klemme.