By Milton C. Hallberg, Pennsylvania State University

Agriculture almost everywhere is characterized by relatively small, family operations that profit maximizes having imperfect information and who, for the most part, face a highly inelastic demand for their output. It is possible for the individual farmer to increase capital expenditures on new technologies and in this way increase farm output. Overtime, however, as other farmers find that their neighbors’ profit levels rise, they too adopt the new technology and the market adjust to the greater aggregate quantity marketed, market price of farm output falls. Buyers of farm output are unwilling to purchase, at past high prices, the increased quantity of farm output now being placed on the market. In this paper, the author review briefly the types of adjustments farmers make as well as some of the obstacles to more rapid farmer expansion or contraction.

Real prices received by farmers have declined significantly and for all farm commodities. Real prices of farm inputs, however, have changed very little. Farmers have been able to survive this cost-price squeeze through the adoption of new technology and through greater use of machinery, fertilizers, other chemical inputs, and by increasingly seeking off-farm employment with which to supplement income derived from the farm. The latter has been the most significant adjustment made by farm families particularly on smaller operations.

There have also been significant changes in the industries that purchase and process farm output that have significant impacts on the farming sector. While a case can be made that the performance of these industries has been enhanced, the decline in number of establishments means that there are fewer handlers to which farmers can sell their produce. Further, these industries are increasingly interested in entering into contractual relations with farmers’ that limit farmers’ control over their operations.

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