Last week’s post highlighted the burdensome ending stocks situation the farm economy faced during the 1980s. Ending stocks put significant pressure on commodity prices and, in turn, policymakers. This week’s post considers the massive acreage reduction efforts that took place during the 1980s.
Figure 1 shows the scale of U.S. farmland enrolled in various programs that idled acreage. In 1983, the USDA rolled out the Payment-In-Kind (PIK) program to idle more than 78 million acres that year. While the USDA backed off supply management efforts in the subsequent years, primarily due to a drought in 1983, idled acreage exceeded 75 million acres again in 1987 and 1988.
The 1985 Farm Bill introduced the Conservation Reserve Program (CRP) to leverage environmental benefits and idle acreage on a more strategic basis. CRP enrollment jumped to more than 32m acres by 1990. CRP acreage fell after the 1996 Farm Bill but again expanded to nearly 37m acres in 2007. In recent years, CRP acreage has trended lower to slip below 22 million in 2020.
Figure 1. Acres Enrolled in Government Programs to Reduce Crop Acreage, 1978-2020.
More on PIK
The most famous/infamous supply control program in modern history was the Payment-In-Kind program (PIK) of the 1980s. This program had a lot of elements but essentially paid producers not to raise a crop. There were other voluntary set-aside programs at the time, but PIK came to the rescue in 1983 as sort of an emergency program.
After the dust settled, the General Accounting Office wrote a report in 1985 (here) that provided a review of the program. A few interesting points:
- PIK was launched for the 1983 production year and covered corn, grain sorghum, wheat, rice, and cotton.
- After a widespread drought in 1983, the program only included wheat in 1984.
- After 1984, the program was not renewed.
- In total, the program cost an estimated $10 billion in 1985 dollars ($23 billion in 2019 dollars).
- The program objectives were straightforward (from the report’s page 6):
“Reduce production; Reduce ending commodity stock levels; Ease storage problems; Ensure adequate supplies of commodities at all times; Increase net cash farm income; and Over the long term, minimize government farm program outlays.”
- The CCC program was the mechanism for funding the PIK program.
- It’s worth noting that a significant difference between the 1980s and today is that the government-held claims on grain inventories – either as farmer-owned commodities held as collateral against a loan or by inventory owned by CCC.
- A conclusion from the report, which has potential relevance in today’s environment, was: “GAO believes that, in the future, the Congress may want to consider specific congressional approval for multibillion-dollar programs like PIK.” (page ii)
The 1985 Farm Bill authorized the USDA to issue “negotiable commodity certificates” to producers instead of cash payments. These commodity certificates were for “government price and income support programs for wheat, feed grain, rice, and cotton.” This took place between April 1986 and 1988.
The 1985 Farm Bill continued a program allowing the USDA to implement the Acreage Reduction Program (or ARP) if “total supplies will be excessive.” The ARP program had been used in early farm bills, but the new twist in 1985 was to use commodity certificates to pay for this program. The use of commodity certificates was very similar to how the 1983 PIK program worked but was a different program. The commodity certificates became a logistical nightmare to administer. By the late 1980s, the now-infamous “PIK and Roll” scheme had become a blackeye on farm policy (more here and here).
Wrapping it Up
It can be challenging to summarize the challenges facing the farm economy during the 1980s, but one consideration was the scale of efforts used to tackle the burdensome grain stock situation. At the height, the U.S. idled more than 70 million acres of production on three occasions. Beyond the 1980s, the CRP program remains on the books even today.
Every policy decision comes with a set of tradeoffs. While policies that idle production are clearly market-distorting, that was, after all, precisely what policymakers were trying to accomplish. Burdensome ending stocks put significant downward pressure on commodity prices and farm incomes. Too much production – relative to usage – was the problem.
Recently, policy programs such as ARC, PLC, MFP, and CFAP have focused on supporting income, which comes with their own advantages and shortcomings.
A Few More Details
- More details available at www.aei.ag/escaping1980.
- Listen to “Escaping 1980” wherever you listen to podcasts: iTunes, Spotify, Podcast Addict, or Podcast Index.
- Sponsors: AEI PremiumAEI Premium subscribers made this production possible. Learn more here and here, or start your free 14-day trial. #CultivateYourThinking.
- A special thanks to everyone who has made “Escaping 1980” possible. First, Sarah Mock, the series co-host and producer. Second, the entire AEI team. It takes a village to pull all this off, and we’re thankful for everyone.
- More question? Learn more here, or check out our media page.
Click here to subscribe to AEI’s Weekly Insights email and receive our free, in-depth articles in your inbox every Monday morning.
Looking for more? AEI Premium provides even more insights and content. It is also where you can challenge your thinking with the Ag Forecast Network (AFN) tool. Start your risk-free trial here.
AEI Premium Sneak Peek.