Academic journal article Chicago Fed Letter

Globalization and Rural America

Academic journal article Chicago Fed Letter

Globalization and Rural America

Article excerpt

Globalization has been a great benefit to rural America in that it has opened overseas markets for its agriculture. Yet, there is growing concern that U.S. rural communities will lose not only their share of agricultural trade but also nonfarm jobs to global competition. This article examines how they can remain competitive relative to low-income countries.

Many parts of rural America have benefited significantly from globalization. American agriculture sells the production of one acre out of three overseas; this generates one-quarter of U.S. farm sales revenue. Without this outlet for its enormous productivity, American agriculture would be much less profitable, and land values, which make up a significant part of many rural communities' tax base, would be lower. Globalization has also reduced die cost of many things that rural people buy while substantially increasing the variety of goods available for purchase locally.

Nevertheless, globalization also gives rise to concerns in rural areas about U.S. jobs being shifted overseas. And the once large balance of agricultural trade has shrunk to close to zero as agricultural imports have grown. Midwestern fanners have watched Brazil capture most of the growth in the world market for their products. Despite the rapid rates of productivity growth in American agriculture, which have been the envy of the world, most U.S. farm families now earn most of their incomes from nonfarm sources.

Rural nonfarm jobs in the manufacturing and service sectors within commuting distance of farms have played a major role in increasing farm families' incomes and reducing poverty in those communities. The communities have also benefited from having a more diverse economy, with less dependence exclusively on farming, a sector whose economic wellbeing gyrates with volatile commodity prices and crop yields. Rural community leaders fear that the nonfarm employment opportunities they have worked so hard to create will be lost to lower-wage workers in low-income countries.

Dynamic change is the norm in agriculture

Out-migration of significant numbers of people from farming is a normal and essential component of economic development A universal feature of economic development is that, as per capita income rises, the number of people employed in farming declines. As this happens, both the people who leave agriculture and those who stay behind (and can increase the size of their farms) enjoy higher family incomes. This phenomenon is driven by forces of both demand and supply.

Contrary to the predictions of Thomas Malthus, over the last two centuries, production of agricultural commodities in the world has grown faster than population. What Malthus did not foresee was the power of agricultural research to develop new, much higher-productivity technologies. In fact, during the twentieth century, productivity grew in American agriculture at a substantially faster rate than in the rest of the U.S. economy. According to calculations from the U.S. Department of Agriculture's Economic Research Service, between 1948 and 2002, U.S. agricultural output grew 2.6 fold, while total inputs into agricultural production declined.

Because global agriculuiral production has grown faster than consumption, there has been a slight downward trend in the real price (after adjusting for inflation) of grains over the past 150 years, albeit with significant variability around that trend from year to year. Whether this downward trend continues in the twenty-first century will depend on whether enough is invested in agricultural research to keep agricultural productivity growing faster than global demand, which is projected to double in the first half of the twenty-first century.

On the demand side, people with very low incomes spend most of any increments to their incomes on upgrading the quality of their diets. However, after a certain point, further increments get spent on processing, convenience, packaging, and luxury forms of what people eat, but not on more total food consumption. …

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