Wednesday, May 18, 2011

THE 1930’s NEW DEAL FARM PROGRAMS AND VERMONT AGRICULTURE

History is full of federal actions that addressed problems and opportunities in rural America even prior to the New Deal period.  It was not until the late 1920’s, however, that the federal government took direct action relative to production controls in attempts to increase farm prices.  Passage of the New Deal Programs was considered to be a major change in the farm policy agenda.  “For 70 years, after passage of the Morrill Act which set up the Land Grant Colleges, the farm policy agenda had been agricultural development; the components of that policy were research, classroom teaching, on-farm education, and improvement of agricultural resources.”(See Paarlberg paper).

The 1920’s were a period of severe financial conditions in the farm sector.  After WW1 farm production increased but demand decreased as export markets declined.  This resulted in a sharp drop in farm prices( 56% decline from 1929-1932 in index of farm prices).  It is said that widespread government intervention in the farm economy began in 1929 when President Herbert Hoover created the Federal Farm Board as part of the Agricultural Marketing Act.  This Act helped to lay the groundwork for many of the later New Deal programs that dealt with crop production controls as a way to increase farm prices. 

THE VERMONT DAIRY INDUSTRY IN THE LATE 1920’s and EARLY 1930’s

Attempts were made in the 1920’s in New England to create one central marketing agency among the dairy farmer cooperatives as a way to better bargain with milk buyers for fair pricing (see last blog posting).  Congress had given farmer cooperatives explicit limited exemption from anti-trust with the passage of the Capper-Volstead Act in 1922.  This Act clarified the legal status of farmer cooperative marketing associations that had been challenged for anti-trust behavior before passage of this Act. Also, even though the Boston milk market had implemented a classified pricing system as early as the 1890’s(farmers receive a price based upon how the milk is used by handlers), no legal way existed for them or their cooperatives to audit to assure accuracy of use; no enforcement provisions required all handlers to abide by such a system; and there was no way to extend the system to non-farmer cooperative members.  Without a central marketing agency, pricing was inconsistent with inequity of bargaining power between buyers and sellers.  Since the Boston Market received about seventy-five percent of the milk and cream that was shipped out of the State of Vermont, there was a great deal of concern about fair pricing by farmers and their support organizations.  The 1929 stock market crash and depression only deepened this concern about adequate farm pricing, both in Vermont and throughout the United States.


THE 1929 AGRICULTURAL MARKETING ACT AND THE FEDERAL FARM BOARD

While President Hoover recognized the need for intervention to bring about better farm pricing, the provisions of the Agricultural Marketing Act failed to achieve their desired purposes.  The AMA promoted cooperatives (in 1926 a division of cooperative marketing was created within USDA), and the federal board had eight members representing the major farm cooperatives in the U.S.   The intent of the law was to have the cooperatives control production of crops and to increase exports as a way to better pricing.  The Board had $500 million from the U.S. Treasury to carry out its activities.  To increase dairy pricing, for example, the Board made a loan to Land of Lakes Dairy Cooperative to withhold butter sales and to purchase additional product from the market.  The Board also organized a dairy program with five regional butter-marketing associations as a way to provide aid to dairy cooperatives on production controls and marketing.  Dairy farmers were angered when it was suggested that farmers would be paid by the government to reduce the size of their herds in order to cut surplus dairy products.  This voluntary effort by farmers to cut production implemented through the farmer cooperatives failed to produce the desired results.  Prices continued to decline and Treasury funds were depleted. This experiment on voluntary approaches through farm cooperatives to production controls set the stage for new farm legislation within the first 100 days of the Roosevelt Administration.

ACTIONS OF ROOSEVELT ADMINISTRATION ON FARM PRICES

With the failure of voluntary approaches through cooperatives to address declining farm prices, there was an increased urgency among farm organizations for more direct federal intervention.  President Roosevelt asked Secretary of Agriculture Wallace to assemble farm leaders to reach a consensus on what could be done.  The centerpiece of the New Deal was developed by a well-organized farm-lobbying group, “and the statute was drafted largely by Frederick P. Lee, legislative counsel to the American Farm Bureau.” (see Libecap paper).  The aim of the Agricultural Adjustment Act was to raise agricultural prices relative to the purchasing power of farmers that had prevailed during the period 1909 to 1914.  The law allowed farmers to enter into agreements with the Secretary of Agriculture to reduce their acreage or production in what was deemed to be seven basic commodities; wheat, cotton, corn, rice, tobacco, hogs, and milk.  In return farmers would receive payments derived from taxes levied on processors.  Better compliance with classified pricing issue in markets like Boston was addressed through the issuance of federal licenses to milk dealers.

The Agricultural Adjustment Act was challenged immediately, and in the case of the U.S. vs. Butler, the Court found 6 to 3 that many provisions of the Act were unconstitutional based on the fact that they were an encroachment upon the rights of the States, and that it was illegal to tax one group (processors) to support another (farmers).  There were major divisions within the Court on the opinion.  Nevertheless, the Roosevelt Administration moved quickly to overcome these legal obstacles (later also trying to pack the Court with its supporters).  The Agricultural Marketing Act of 1937 provided clear authority for federal marketing orders and reaffirmed the marketing agreement provisions of the 1933 Act.  Instead of taxing processors to support farmers, general funds were used.

VERMONT AND NEW ENGLAND DAIRY FARMERS INTEREST IN 1937 ACT

In June of 1937, a conference of dairy leaders from four of the New England States (including Vermont), organized by the Governors of those states, unanimously adopted a resolution approving the federal control of dairy pricing (see Lewiston Daily Sun, June 26, 1937).  The resolution described those states’ control of the milk shed as being impossible because of interstate commerce laws.  The majority of the milk and cream going to Boston and surrounding cities came from states outside Massachusetts and so controls could not be imposed.  This was due to the Commerce Clause of the U.S. Constitution.  Governor George Aiken described the dire economic situation facing Vermont dairy farms (approximately 10,000 at that time), and said that federal control of milk pricing “would save hundred’s of dairy farmers in the State.”  In the same year, when Congress was debating the 1937 Agricultural Marketing Act, Governor George Aiken sent a terse telegram to Capitol Hill. “Informed that the Senate was stalled on a procedural issue, Governor Aiken wrote in true New England style: Dairy industry in peril, act without delay.” (See N.Y. Times Opinion on Milk Pricing, Oct. 3, 1994).    Prior to 1937, Aiken’s predecessor, Governor Charles Smith, had also expressed concern, saying that if action was not taken to overturn a Court injunction (in 1935, the federal government lost its case when it attempted to enforce the provisions of the federal license to milk dealers for classified pricing, but later over-turned on appeal), the Boston market would crumble and there would be a disastrous affect on interstate and intrastate commerce in milk and cream from Vermont (See Lewiston Daily Sun, May 5, 1936, Boston milk case). In his farewell address to the Vermont legislature, Governor Aiken said “state officials and several farmer cooperatives appealed for a federal marketing order.  As sufficient farmers voted, it went into effect and has led to the stabilization of milk prices in Boston and later New York milk shed.”

There has been discussion from the beginning and over a period of time whether the 1937 Act and the resulting marketing orders for dairy were intended to establish parity prices for farmers.  However, USDA from the beginning of the Act, has contended that the chief objective of marketing orders was to stabilize milk markets through orderly marketing, not to raise milk prices to artificially high levels.  This interpretation relative to dairy marketing orders exists to this day.

OTHER KEY NEW DEAL LEGISLATION FOR VERMONT FARMERS

  • Soil Conservation and Domestic Allotment Act:  In 1936 Congress passed this act as a result of the dust bowl that swept the West.  The Soil Conservation Service was established within USDA (now the National Resource and Conservation Service).  In 1937 President Roosevelt asked all State governors to promote state legislation to allow the formation of Soil Conservation Districts within the State as a partners with SCS.  These Districts were established by Vermont law and still exist.
  • Farm Credit Act of 1933: This Act provided funding to refinance one-fifth of farm mortgages over an eighteen-month period.  It also established local Production Credit Associations throughout the U.S. and twelve District Bank for Cooperatives with one Central Bank for Cooperatives (Federal Land Banks in the twelve Districts had been created by federal law in 1916).  The Farm Credit Administration was established as an independent agency by Executive Order.  (Henry Morgentheu, later Secretary of Treasury, a dairy farmer and fruit grower from Dutchess County, New York was appointed Chairman of the Federal Farm Credit Board and Governor of the Farm Credit Administration).  He had chaired the New York Agricultural Advisory Committee when Roosevelt was Governor of the State.  Major amendments to Farm Credit Act in 1987 have resulted in changes in the organizational structure of these farmer-owned institutions as originally established by Congress.  In Vermont, Yankee Farm Credit ACA exists to serve qualified farmers with production and farm mortgage loans. (Note: President Teddy Roosevelt’s Country Life Commission had recommended a cooperative credit system for farmers).
  • Rural Electric Administration:  In 1935 President Roosevelt signed an executive             order creating the REA.  At that time only twelve percent of U.S. farms had electric service.  As a point of interest, I asked my 95 year old mother if she remembered when they were provided electricity in Brookline, Vermont.  She said, “Yes, the year was 1938 and your father was farming with his father and they brought one line into the house and we had one 15 watt bulb.  I said to your father, that is awfully bright and we will never need anything brighter.”  Electricity helped to transform rural America and Vermont.  


NEW DEAL PROGRAMS THAT WERE REJECTED BY VERMONT

  • Resettlement Administration:  This was created in 1935 with three major purposes: 1) loans and grants to needy farmers; 2) erosion, flood control and land retirement, and 3) resettlement programs.  One of the proposals for Vermont was the retirement of 20,000 acres of marginal “hill country” land and permanent placement into forestry.  Then Governor Wilson appointed a committee to select the land for retirement.  There was a great deal of division on the subject with George Aiken opposed (loss of local control and would hinder development of the State), and others like Dorothy Canfield Fisher, Commissioner of Agriculture Ed Jones, leaders of the State Grange and Chamber of Commerce in support.  The goal was to turn under productive farms into tree farms and parks.  The conditions laid down by the Committee for an agreement were too onerous for the federal government, and it withdrew its offer.  The Resettlement Administration was replaced by the Farm Security Administration, which became the Farmers’ Home Administration in 1946.  Federal farm lending and federal crop support programs are now handled in Vermont and the rest of the U.S. through the Farm Service Agency.  This was created through the reorganization of USDA agencies in the 1990’s.
  • Green Mountain Parkway:  This parkway that was planned to run the length of the state would be a sister to the Blue Ridge Parkway.  While the legislation passed in the Vermont Senate, it failed in the House.   A referendum was held on Town Meeting Day in 1936.  42,873 were opposed to the Parkway, and 30,895 supported the construction.


BLOGGER’S COMMENTS
The New Deal established new USDA Agency Programs.  Many of these programs still exist today.  A very well organized farm lobby advocated several of these initiatives. While there still are dairy market orders to assure “orderly marketing,” the majority of Vermont dairy farms today still face economic challenges due to wide pricing swings as a result of changes in markets, periodic supply and demand imbalances, and a federal price support structure way below their cost of production.   Methods to provide better financial returns to dairy farmers in Vermont and in the Northeast have been a continuing challenge to farm leaders and policy makers over time. A minimum dairy parity pricing system was introduced into federal law in 1949 following WWII.  This law could not withstand cost increases to the Government resulting from too much production of milk in the late 1970’s and early 1980’s when the parity price was established at too high a level causing large surpluses of butter, cheese, and non-fat dried milk. (With then Congressman Jeffords of Vermont, an ardent supporter of the dairy industry, I worked as a staff aid to help negotiate a pricing replacement to parity as a result of federal budgetary pressures and as part of the 1981 Farm Bill Conference Committee). This change in federal dairy policy in 1981 marketed the beginning of deregulation of the dairy industry in the United States.  Other actions have been taken over time to address the pricing issues of dairy farmers to include the whole herd buyout, the Northeast Dairy Compact, and in the more recent past the milk income loss program, or MILC.  Some states have taken action to increase milk prices to farmers by imposing over-order pricing where they have more control over milk supply and are not confronted by interstate commerce issues. Some farmers have also moved to organic dairy production as a way to confront lower commodity pricing.  Others have engaged in greater on-the- farm diversification to include energy systems and the production of value added products.  Still today, due to consolidation at both the retail and wholesale levels and independence of many dairy farmers, dairy cooperatives do not control enough milk to leverage higher prices for their members. They have not historically been able to agree collectively on ways to reduce production to achieve higher pricing either. The dairy sector still represents the anchor of Vermont’s agricultural economy (75 percent or so of gross farm income in the state), and longer-term unstable milk pricing issues still confront farmers, their cooperatives, and policy officials.

Personal note: 
As a boy I had many jobs to raise funds for college, and one was working mowing lawns and doing yard and garden work for a retired medical doctor who lived in Newfane, Vermont.  His name was Charles Nelson Leach.  He was a wonderful gentleman who would always work around the yard with me.  One day as we were working his wife called out, “Charles the President is on the line”.  When he returned he said sternly to me, “Roger, that was my dear friend Herbert Hoover.  I want you to remember that President Hoover had many of the ideas that President Roosevelt put into place.”  This blog cannot give justice to such an evaluation, but it is clear from my brief investigation that the 1929 Agricultural Marketing Act helped to set the stage for many of the New Deal Farm programs.


REFERENCES AND SOURCES OF INFORMATION FOR THIS BLOG POSTING

  • Newspaper article, Lewiston Daily Sun, June 26, 1937, Federal Control of Milk Advocated, Dairymen from four states at Concord endorse proposal.
  • Newspaper article, Lewiston Dairy Sun, May 5, 1936, The Boston Milk Case.
  • “Tarnished Gold: Fifty Years of New Deal Farm Programs”, by Don Paarlberg, Professor Emeritus, Purdue University, from Conference on the Legacy of the New Deal, Center for Constructive Alternatives, Hillsdale, Michigan, March 10, 1987.
  • Farm Policy of the 20th Century, U.S. Department of State from About.com Economics
  • Federal Direct Price Support Payment Programs by Stan Siegel, in the National Agricultural Law Center, University of Arkansas School of Law (originally published in So. Dakota Law Review, 1986).
  • Visualizing the Rural West.  The Bill Lane Center for the American West, Stanford University.
  • American Business.org   Agriculture
  • Jewish Virtual Library: Henry Morgentheau
  • Vermont Historical Society, the New Deal in Vermont
  • National Association of Rural Rehabilitation Corporation, A Brief History of America’s Rural Rehabilitation Corporation and a Brief History of the Founding of the National Association of Rural Rehabilitation Corporations by Leland Beatty, General Manager Texas Rural Communities Inc.
  • “Government Project” by Edward C. Banfield, The Free Press, Glencoe, IL, 1951
  • Can We “Trust Uncle Sam”?  Vermont and the Sub marginal Lands Project, 1934-1936 by Sara M. Gregg, Vermont History 69 (winter/spring 2001) by Vermont Historical Society.
  • Farewell address of George D. Aiken as it appears in the Journal of the Jt. Assembly, 1941
  • New York Times, Opinion, “Milk Price Regulation/Protects Consumers” by Howard Dean and William F. Weld, Oct. 3, 1994.
  • The Farm Security Administration, Oklahoma Historical Society’s Encyclopedia of Oklahoma History and Culture
  • Chapter 4: Crisis and Activism: 1929-1940. www.access.gpo.gov/congress/senate
  • The Evolution of Milk Pricing and Government Intervention in Dairy Markets by Eric M. Erba and Andrew M. Novakovic, Feb., E.B. 95-05, A Publication of the Cornell Program on Dairy Markets and Policy.
  • Dairy Price Support Program Options by Bob Cropp, University of Wisconsin-Madison, Oct. 9, 2001
  • The Depression Begins: President Hoover Takes Command, Ludwig Von Mises Institute
  • The Defining Moment: The Great Depression and the American Economy in the Twentieth Century by Michael D. Bordo, Claudia Goldin and Eugene N. White, University of Chicago Press January 1998.  Chapter Title: The Great Depression and the Regulating State:  Federal Government Regulation of Agriculture, 1884-1970 by Gary D. Libecap.
  • This Milk Problem by Harry R. Varney, Circular no. 95, The Vermont Extension Service, June 1937.
  • Milk Pricing Policy and Procedures, Part 1 The Milk Pricing Problem, Report of the Milk Pricing Advisory Committee, U.S. Department of Agriculture, March 1972.
  • Federal Dairy Programs, Insights Into Their Past Provide Perspectives on Their Future, General Accounting Office (GAO), Report to the Chairman, Committee on Agriculture, Nutrition, and Forestry, U.S. Senate.
  • The Structure of Fluid Milk Markets, Two Decades of Change, Agricultural Economic Report No. 137, U.S. Department of Agriculture, Economic Research Service.
  • Dairy Farming in the Northeast, Now and in the Future by James N. Putnam 11 and Raymond J. Nowak, Springfield District, Farm Credit Service, November 1984.
  • Agricultural Cooperation and Rural Credit in Europe, American and United States Commissions, 1913, Senate Document No. 214, 63D Congress.
  • Rural Vermont, A Program for the Future, The Vermont Commission on Country Life, 1931
  • Agriculture of Vermont, Fifteenth Biennial Report of the Commissioner of Agriculture, 1928-1930
  • Agriculture of Vermont, Sixteenth Biennial Report of the Commissioner of Agriculture, 1930-1932


ANSWER TO QUESTION ON LAST BLOG POSTING
President Franklin Roosevelt was in office when the first Agricultural Adjustment Act was passed in 1933.  It was passed as one of his first 100-day initiatives.

NEXT BLOG POSTING: 
The next blog posting will highlight the reasons why some of the Vermont agricultural leaders over time have pushed for the production and marketing of valued added products as a way to overcome commodity pricing. 

TRIVIA QUESTION:  Who was the Chairperson of the first Board of Agriculture for the State of Vermont?

Edition 9, May 18, 2011










2 comments:

  1. I thoroughly enjoyed the history lesson. The market dynamics, the players responses and the political solutions -- change the names and dates, you could have been writing about today.

    ReplyDelete
  2. The first Chair of the Vermont State Board of Agriculture was Peter Collier.

    ReplyDelete