Farm crisis
Definition Foreclosure on thousands of American
farms, particularly in the Midwest
Date Took place between 1981 and 1987
The farm crisis restructured American farming and re-
vealed new realities of U.S. agriculture. In the wake of the
crisis, it became clear that the farm lobby’s political clout
had been significantly reduced from its former levels; that
U.S. agriculture had become dependent upon international
markets and was simultaneously threatened by interna-
tional competitition at home; that former client nations
were themselves growing enough food to export, increasing
that competition; and that large government subsidies had
become necessar y for U.S. farms to survive.
The United States entered the international grain
market in the 1970’s, at a time when there was a
world food shortage. Prices for grain tripled be-
tween 1972 and 1974, as American farmers domi-
nated the markets. Federal price supports increased
their profits even more. To increase profits, farmers
planted more acres and bought more land and
equipment, going into debt. Farmland prices, which
averaged $196 per acre in 1970, had increased to
$796 per acre by 1981. Some farmers became mil-
lionaires when land values quadrupled. Large bank
loans to farmers were based upon inflated apprais-
als, as farmers assumed their prosperity would con-
tinue. In 1979, Paul Volcker, head of the Federal Re-
serve, tightened the money supply in an effort to
reduce double-digit inflation rates. Banks had less
money to lend, so interest rates rose. The annual in-
terest rates on some farm loans increased to more
than 20 percent. As the 1980’s began, however, farm-
ers were still reaping profits from the international
grain market. In 1981, at the trend’s peak, the United
States sold $44 billion worth of grain overseas.
The Crisis International markets had become ex-
tremely important to American farmers’ profits; farm-
ers sold one-third of their yield overseas. In 1980, the
Soviet Union invaded Afghanistan, and President
Jimmy Carter responded by imposing a grain em-
bargo against the Soviets. Overnight, America’s farm-
ers lost one of their most important grain markets. In
1981, when Ronald Reagan became president, the
rate of inflation was 13.5 percent. More than three
hundred farms folded; Secretary of Agriculture John
Block predicted more would follow.
In 1982, the appraised worth of America’s farm-
land crashed as the dollar devalued. Suddenly, tens
of thousands of farmers had more debt than assets. A
recession began, as the economy deflated. Many in-
dustrial jobs vanished. At the same time, there was
a record world food harvest, so U.S. grain sales
shrank. American harvests were so large there was a
silo shortage. Grain prices hit bottom. The collective
debt of the nation’s farmers reached $21.5 billion.
Farm income dropped by one-third, with farmers
making $1 billion less than they had in 1929, at the
beginning of the Great Depression. Inflation had
decreased to 5.1 percent, but national unemploy-
ment had risen to 10.8 percent.
Over 30,000 farms closed in 1982. Of the 270,209
farms borrowing money from the U.S. Department
of Agriculture’s Farmer’s Home Administration
(FmHA), 66,470 were in arrears, including one-half
of all borrowers in Florida. The number of fore-
closed farms owned by the FmHA doubled in the
first eight months of 1983. Secretary Block proposed
the Payment in Kind program: Farmers who agreed
not to plant one-half of their acreage would be al-
lowed to take the amount they would otherwise have
grown from government grain stores. They would
then be able either to sell the government grain as if
it were their own or to feed it to their livestock.
By the middle of 1983, the national recession had
improved—but not on the farm. In 1984, 31 percent
of FmHA loans were in arrears. Roughly 10 percent
of Iowa’s farms disappeared. Some sixty-four thou-
sand farms owed a total of $30 billion, with a collec-
tive debt-to-asset ratio of 70 percent, meaning they
were practically insolvent. This group constituted 11
percent of all mid-sized farms in the United States.
In 1985, the average annual income of the members
of the Kansas State Farm Management Association
(who were presumably the state’s best farmers)
dropped to $4,822. Only three years earlier, it had
been $11,053. Nearly 40 percent of farms asking for
emergency aid in 1985 could not show a positive
cash flow. They were judged not to be viable con-
cerns, and their aid requests were rejected. A spokes-
man for FmHA announced that the administra-
tion would work to save only those farms that had a
chance of surviving. However, a moratorium was de-
clared on federal land seizures, and a new federal
program promised an extra $650 million in loan
guarantees.
President Reagan’s 1985 farm bill phased out356 Farm crisis The Eighties in America