The costprice squeeze

The cost-price squeeze confronting farmers in the USA is exemplified by the maize-soybean cropping system used in much of Iowa, where a total of 9.3 million ha was planted with the two crops in 1998 (United States Department of Agriculture, 1999c). Average yields of maize and soybean in Iowa rose 28% and 24%, respectively, from 1972-80 to 1990-98 (Figure 1.5a). For those same periods, average non-land production costs in constant dollars fell 37% for maize and 31% for soybean (Figure 1.5b). Costs for maize and soybean herbicides, in constant dollars, decreased 9% and 13%, respectively.

Increases in yields and reductions in production costs would seem to bode well for profitability, but prices fell precipitously for both crops. Between 1972-80 and 1990-98, the average price of a metric ton of maize, in constant dollars, decreased 60%; soybean price dropped 62% (Figure 1.5c). Consequently, gross returns declined 47% for maize and 52% for soybean (Figure 1.5d). Returns over non-land costs also declined sharply. For maize, average returns in constant dollars dropped from $396 per hectare in 1972-80 to $153 per hectare in 1990-98, a 61% decline; for soybean, average returns dropped from $530 to $182 per hectare, a 66% decline (Figure 1.5e).

For many Iowa farmers, reductions in returns per unit of cropland have reinforced the importance of herbicides within the production process. Herbicides accounted for 7% of non-land production costs for maize in 1972-80, but 11% in 1990-98; for soybean, the proportion of non-land costs spent on herbicides rose from 12% to 15% (Figure 1.5f). As discussed in Chapter 11, these increases reflect, in part, the greater land area farmers must harvest to maintain farm-derived income, the shift toward hired applications of agricultural chemicals to cover more hectares, and the limited time available for weed management and other farming activities when farmers add nonfarm jobs to their existing responsibilities.

A cost-price squeeze also confronts farmers in developing countries. Beets

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