Journal of Agricultural Economics. 295

THE CONFLICT BETWEEN CHANGE AND STABILITY IN AGRICULTURE*

By EDGAR THOMAS.

I deeply appreciate the honour of being entrusted with the first Heath Memorial Lecture. William Edward Heath was a great enthusiast for the tasks to which he devoted his tragically short working life. These tasks were especially concerned with two things: with the study of the facts making for increasing efficiency in agriculture, and with the study of the conditions determining the well-being of country people and the rural community. Farming and the countryside are concerned with timeless things, but today both farming and the countryside exist in a world of bewildering change. Heath was acutely aware of the conflict between farming progress'and rural contentment wd stability. He was equally alive to the conflict between change and stability within agriculture itself. I t is the recollection of many stimulating discussions on these absorbing themes which explains the choice of the somewhat ambitious title of this lecture.

The conflict between change and stability is, of course, a universal experience. It springs from the choice between so much " progress " and so much " security " which is always confronting all countries and all groups. and, indeed, all individuals. Within agriculture this choice may lead to conflict a t three different levels. For convenience these levels may be distinguished as the technical level, the institutional level and the economic level. Before dealing with the economic conflict, with which this lecture is mainly concerned, it will be useful to comment briefly on the other two.

I. Technical development is one of the most powerful forces making for

change in the modem economy. Its influence, which has long been enormous in manufacturing industry, is now reaching spectacular proportions in agri- culture also. But in agriculture there are still weighty factors which go far to explain, even though they may not always justify, a more cautious attitude towards the precipitate adoption of new scientific and technical advances.

In the first place there is an undoubted need for a considerable measure of technical stability in fanning since the building up of a soundly conceived system of farming for any particular farm is a long-term operation. Not only does it involve the evolution of suitable rotations and the pursuit of a consistent breeding policy, it also requires the optimum integration of cropping and stocking to form an organic whole. The farmer who has established such a system must give careful thought not so much to the immediate and more obvious effects of adopting a new technique, but to the consequential and ultimate effects on his whole farming policy.

* First William Edward Heath Memorial Lecture. Delivered at the School of Agriculture. University of No'fingham, on 27th April, 1954.

296 Journal of Agricultural Economics.

The farmer’s task is made all the more difficult since most new techniques need to be tried out under practical farming conditions for a very long time before sound conclusions can be made about their reliability. Not only is this “ prototype ” testing phase longer in agriculture than in manufacturing industry, the great diversity of conditions from district to district demands that it be replicated under conditions comparable with each district. It is to be hoped that the new chain of experimental husbandry farms which now exists in this country will carry out this essential function, for in the past the farmer has had to perform it himself by the costly procedure of trial and error.

The diversity of local farming conditions gives rise to two other factors which partly explain why it takes so long for new techniques to become more widely adopted by farmers. Firstly, this diversity makes it possible to adduce an impressive accumulation of evidence for and against many farming practices both old and new. No better illustration can be given than the current conflicting advice-advice usually based on well documented evidence-which is purveyed to farmers on the relative merits of the various ways of fodder use and conservation. Secondly, the essentially “ local ” character of fanning buttresses the hold which tradition and experience has on farming practice. And the truth may well be that farming will always remain partly empirical. Writing recently in the first number of The Agricultural History Review, Sir James Scott-Watson sums up the position in these wise words: “Today’s farming is indeed partly founded upon scientific principles, but modem science is far from providing a complete guide. Its other foundation is the accumulated experience of two hundred generations of practical men.” Perhaps, after all, farmers are well advised to follow, in technical matters, Pope’s well-known maxim :-

“ Be not the first by whom the new is tried, Nor yet the last to lay the old aside.”

It is of some interest to note that, so far, the agricultural industry has itself taken little part in research and in invention. On the contrary, with a few exceptions, the bulk of this work is financed by society as a whole. There are, doubtlessly, good reasons for this-reasons which range from the very heavy cost in funds and in time needed to carry on research involving as it does all the sciences which impinge on farming, to the difficulty of protecting the results of such research under the patent system. Since agricultural research is carried out by the state, the results of such research are and should be available to all farmers. Indeed, the dissemination of the results to farmers is also now carried out by a state advisory service.

But it rests with the farmers themselves to avail themselves of this service and to make use of the new knowledge that science and technology has put at their disposal. So far, the adoption of new techniques and new practices by the general run of farmers has been a feature of “ good times.” It is an interesting fact, on the other hand, that the notable instances of farmers who have themselves been pioneers of new farming systems belong mainly to periods of acute agricultural distress. It is also true that as farming develops the gap between the technically efficient and the technically inefficient farmers is widening appreciably.

Although the incorporation of new practices and new techniques into established farming systems is itself a process of change, many of the inno- vations are, nevertheless, forces making for a greater measure of stability in farming. This is particularly true of those innovations which give the farmer a greater degree of control over nature, such as, for example, new crop varieties

Journal of Agricultural Economics. 297

which help to reduce fluctuations in yield. In fact, scientific and mechanical changes have already gone some considerable way towards reducing the element of physical uncertainty in farming, and physical uncertainty is one of the farmer’s outstanding problems.

11. The cautious attitude of farmers towards technological innovation is also

linked to the relatively static institutional structure within which the agri- cultural industry operates. Up to the present, this structure appears capable of absorbing technical changes without itself undergoing radical changes in the process.

This is in marked contrast to the position in manufacturing industry, for in manufacturing industry technical development has gone hand in hand with the growth of the big production plant and with the evolution of joint- stock finance.

In agriculture, on the contrary, the size of farm and the financial system of the family business are highly stable elements. Indeed, when one remembers the big technical changes which have occurred in the present century, the stability of the farms themselves is one of the more remarkable facts about agriculture. Moreover, there is little indication that the existing pattern of farms is likely to be radically changed or that the farm family will cease to be the basis of the typical agricultural business.

This tenacity of the small and medium farm business is largely due to political and social reasons of a particularly stubborn kind. But there are also important technical and economic factors involved.

The fact is that the economies of scale which, until recently, have been accepted almost without question in most factory trades have never been proved to be equally applicable to farming. In the main this follows from the pre- occupation of farming with the biological processes of crop and animal growth, processes which have little in common with the making of things in the factory. Thus the efficient oversight of crops and animals does not lend itself to remote control, while the cyclical character of growth itself means that the unending repetition of identical processes is not a feature of the farming scene. Perhaps that is something to be thankful for.

Mechanisation in particular has been one of the most powerful forces making for large-scale organisation in manufacturing industry. Mechanisation is now assuming spectacular proportions in agriculture also. But in agriculture it can never be expected to accomplish the same revolutionary changes in organisation. For in agriculture no amount of mechanisation can alter the natural sequence of operations and, because of this, industrial mass-production methods, which depend ultimately on the ability to carry on all the steps in production continuously and simultaneously, can never be developed. I t is probable, of course, that the use of machines may have some impact on farm sizes. But, even so, there are reasons for thinking that mechanisation as a process is more likely to strengthen than to weaken the family business structure of farming. In a penetrating analysis of the machine process in agriculture and in industry it has recently been stated that in America, a t least, the machine process tends to reinforce family enterprise in farming. “ As much after mechanisation as before, ’ farming as a business ’ means- about what it has always meant-the opportunity of being a self-directing workman . . . In this limited but important sense, machine agriculture is mechanically progressive but socially conservative.”

* John M. Brewster in the Journal of Farm Economics, Vol. XXXII, No. 1. 1950.

290 Journal of Agricultural Ecolzomics.

The major role which land plays as a factor of production in agriculture also tends to retard the development of the large farm and the growth of the joint-stock company. Thus any farm which is big enough to be beyond the capacity of a single private operator (unless it is very intensive like a market garden) must occupy an area so great that problems of distance arise even if the difficulty of acquiring a sufficiently large contiguous acreage can be surmounted. A business employing 20 men is not unduly large for private management in most industries; but in farming this may imply 2,000 acres of land and a farm of this size takes a very long time to build up. Moreover, in farming the large joint-stock business cannot easily grow up alongside the family business and eventually extinguish it by competition as happens in other industries for the simple reason that the supply of land is limited.

The small farm and the family business are obviously interlinked and together they help to perpetuate the significance of the subsistence element in agriculture. It is this element of subsistence which enables the family farm to hang on in economic circumstances which would put an end to the private business in other fields. I t also partly explains the ability of the less technically up-to-date producer to continue in production. A motor car manu- facturer who reduces his costs by technical improvements will quickly price his competitors out of the market and establish a monopoly position for himself. But in agriculture, with a world market for most commodities based on the relationship of supply and demand, the technically superior producer will simply make more profit, he will not capture the market.

One important consequence of the rigidity of the institutional framework of agriculture is the fact that many developments-developments which have had a great influence on the fortunes of farmers-have taken place outside the farm itself. These developments take many forms, but usually they have meant the delegation to non-farming occupations of operations previously carried out by farmers themselves. Many well-known examples quickly spring to mind: the rise of the food-processing industry which now buys about half of the output of our farms has relieved farmers of many heavy tasks; trading and distributive industries of many sorts now perform,most of his marketing functions for the farmer; there are now contractors and other agencies prepared to carry out many operations on the farm itself; it is no longer necessary for the farmer to produce all his own farming raw materials, for he can now buy his seeds and his feedingstuffs from commercial firms, while the recent spread of artificial insemination means that the supply of livestock for farms is also passing away from the farm itself.

Many of these developments have helped to invest the agricultural industry with some of the benefits of large-scale organisation while retaining the essential small-scale features of the farms themselves. They have all tended to make farming more commercial and they have helped farmers to concentrate effort more and more on direct revenue producing activities-a most desirable thing for any business which carries a relatively heavy burden of fixed costs. These developments are by no means at an end and they can be expected to exert an increasing influence not only on the productivity of agriculture but also on the welfare of the farming community.

By making existing farms more viable they may also very well tend to add to the stability of the family business in agriculture. This stability has undoubted merits. But in so far as it tends to make farming a “closed” industry it must, to that extent, be regarded as conflicting with economic progress. This is the position if the degree of stability tends to entrench the less progressive producers and prevents or slows down their replacement by more efficient farmers. For agriculture depends on the occupation of land

Journal of Agricultural Economics. 299

and in a fully developed country every poor farmer shuts out a better farmer since no two farmers can farm the same holding. The danger of this happening is increased as the tempo of technological development rises and as the supply of competently trained young farmers increases.

There are reasons for thinking that this situation exists to some degree in this country today, especially in the case of tenant farmers. The need for security of tenure as an essential condition for long-term technical improve- ments by tenant farmers is obvious. But the abundant legal protection now given tends towards excessive security so that unless a tenant farmer is atro- ciously bad it seems almost impossible to shift him either by termination of tenancy or by rent raising. Even the owner-occupier can be more easily got rid of for he at least can always be tempted to sell by the offer of a good price for his farm. It is to be feared that the problem of reconciling adequate security for the good farmer with adequate measures for the elimination of the bad is far easier to pose than to solve.

I t is obviously necessary to keep the technical and the institutional background of farming very much in mind when considering the problems of economic change and economic stability. In so far as economic change is controlled by the movement of prices, technical and institutional restrictions provide some of the explanation for the peculiar behaviour of farmers in facing economic forces. Thus the technical difficulties of changing the tempo or the content of the production programme on the farm, together with the economic difficulties resulting from the high ratio of fixed to variable costs, makes a quick response to price conhtions often impossible. Moreover, it must always be remembered that the response of many farmers to outside stimulus, be it price or what not, is often tempered by the subsistence element in fdrming. It is also powerfully influenced by the fact that the family farmer is not primarily concerned with making quick profits, but with his survival in farming and with the maintenance of a stable level of income for his family. It is hfficult to say how effective the price mechanism may be in the long run in agriculture, but it is fairly certain that for these reasons its effectiveness is by no means rapid and immediate.

111. In its economic context the term “ stability ” often denotes a nebulous

and elusive idea. More particularly, if one is thinking of a country in which population, technical knowledge and accumulated capital are normally changing, probably no two thinkers, working independently, would coincide with precision in their definitions of a “stable agriculture.” For example, taking only the complication of population change, is a “ stable agriculture ” t o mean one which continues to absorb the same proportion of the working population ? Then if population increases, this must involve a diminishing amount of land per person engaged in agriculture: this, in turn, must involve changes in t e c h q u e and in organisation which would often seem, from some points of view, inconsistent with the notion of stability. On the other hand, is a “ stable agriculture ” to mean one in which the number engaged does not change ? Then, with increasing population, this must involve a relative diminu.ion in the number engaged in agriculture as compared with other industries. It implies that many individuals for whom farming would provide the normal occupation, will continually be obliged to leave agriculture and seek employment of another kind elsewhere. This obligation might often arise in a form which would seem to the individuals concerned (and, indeed, to any observer) inconsistent with the notion of stability. So elusive does the concept of stability become when it is thought of in this way that precision, except of an arbitrary and unsatisfactory kind, is virtually unobtainable.

300 Journal of Agricultural Economics.

It is important that the lack of precision and the conceptual difficulties associated with this much used term should be more widely appreciated than they are. That is not to say, however, that economic stability is not to be thought of in connection with agriculture, for there is a sense in which stability is a legitimate and realistic aim of practical agricultural policy. The approach to this interpretation of stability is best made, however, by studylng the complex concept of economic “ change.”

Let us then consider change as it is relevant to a farmer, or to a maker of agricultural policy, at the moment of making a decision. In the case of a farmer the decision might be whether or not to erect a costly and long-lasting system of grain storage equipment; whether or not to introduce some change in the rotation; or it might be a question of retaining or selling off certain animals. Equally, on the national plane, decisions vary widely in the time- periods to which they relate, from very long-term decisions to very short-term decisions.

In all cases it will be necessary to make estimates, initially in physical terms, of the changes in resources used, and in production forthcoming, which the proposal would involve. I t will be necessary then to bring these estimates to some kind of account, so that a balance of advantage can be struck which will provide the basis for a decision. Usually the account must largely be in money terms, so that it will be necessary to assign prices to the physical quantities involved. And the fundamental difficulty is a t once encountered that these prices are liable to change, and that, consequently, they may be difficult to forecast. Here, then, is one major department of ‘ change ’ as it affects agriculture.

Clearly, moreover, the problems of forecasting which will loom largest when it is the next twenty or thirty years with which one is concerned, will in general, not be the same as those which will seem most important when twelve months ahead will suffice. There are in fact many elements of change which enter into price movements, and these are usually classified conveniently into those mostly relevant to long-period, intermediate period and short-period problems respectively. Let us consider these three in turn.

The difficulties of forecasting the trends during the next few decades of the most important prices relevant to British agriculture are practically insurmountable. To do so with any degree of confidence it would be necessary to know, for the principal countries of the world, the answers to a formidable list of questions. For example, it would be necessary to know the changes which are likely to take place (i) in the output per person engaged in agriculture as a result of improvements in technique and in equipment; (ii) in the pro- portions of resources devoted to non-agricultural activities; (iii) in the birth rate and in the death rate; and (iv) in the aggregate pattern of consumers’ desires and preferences.

In the intermediate period the principal complication results from the tendency of the economy to a certain oscillatory instability of the kind of an alternation of boom and slump-the so-called trade-cycle. One might perhaps also include here certain other oscillatory disturbances whose effects are less universal-whose immediate effects, indeed, are confined to agriculture inself-such as, for example, the so-called pig cycle, the potato cycle and similar phenomena. I t should be stated that the length of the cycle in these agricultural cases is usually shorter than the trade cycle.

In the short period, prices are affected by a heterogeneous group of influences. I t is possible to discern a regular pattern in time for some of these, more particularly seasonal fluctuations in the demand and supply conditions

Journal of Agricultural Economics. 30 1

for certain products. The others, such as harvest weather, freak abenations of demand and supply and similar random influences, are, however, completely haphazard.

Here then is change in great complexity. I t confronts the individual farmer however humble as inevitably as it confronts the maker of national policy. All concerned with managerial or policy decisions must, deliberately or by default, take these considerations into account, assess their probable effect as best they can, and suffer more or less dire consequences in the event of error. Well may we ask how much of this complexity is unavoidable and how much of it really helps the cause of human welfare.

This is not a question to be taken lightly. On the contrary, a great deal of academic economic thought is devoted to providing a just answer. At the very least a grasp of the main principles of orthodox marginal theory is required for its serious consideration. But a few suggestions may be made here as some indication of the possible answer.

Take first the short period changes. I t is unlikely that price changes resulting from unpredictable haphazard short-period influences have any relevance for human welfare. More precisely, i t is unlikely that any response to such price changes, in the form of a modified aggregate pattern of production, could consistently have the effect of increasing welfare. If the effect of the response could be instantaneous this statement would no doubt need amend- ment. But in agriculture, the reaction, so far from being instantaneous is more likely to take several months, or even more than a year, to come into effect, by which time the circumstances from which it sprang will have passed away.

This component of change, then, may be stigmatised as unnecessary and unprofitable. Its elimination is to be desired.

Those short-period fluctuations in which a ,seasonal pattern is to be dscerned are, however, in a fundamentally different category in so far as their seasonal regularity permits them to be predicted. The response in this case can be controlled to come into effect a t the appropriate time. These seasonal short-period variations are of special importance in agriculture. In general they should be preserved. They tend either to level up the flow of a commodity, such as milk, which is naturally subject to seasonal production, or else to concentrate its availability into those parts of the year in which it is most desired. For these reasons they are likely to be systematically linked to the cause of consumer satisfaction.

The oscillatory disturbances of the intermedate period may be classified unequivocally as undesirable. The whole economy would be better if they d d not occur. Both producers and consumers would benefit from their elimination.

There remains the long-period changes. The whole trend of classical economic theory (and much recent thought) favours their retention and demands a full response to them on the part of all producers. I t is, in fact, one of the major functions of farmers, as entrepreneurs, to respond to persistent changes of price for this is the mechanism whereby, in an economy in which individual producers retain initiative, the aggregate pattern of production is kept in harmony with a changing pattern of demand and a changing pattern of supply.

IV. It is now possible, perhaps, to return to the notion of a ' stable agriculture '

and to assign to this expression a useful and precise meaning. I t may, in fact, be taken to mean an agriculture which is completely shielded from the impact

302 Journal of Agricultural Economics.

of those price fluctuations and disturbances which are, economically speaking, functionless-an agriculture which is thereby enabled to respond more smoothly and accurately to those price movements which are significant for welfare.

Here arises a second fundamental question. By what means is it possible to eliminate undesirable price movements without at the same time eliminating those which ought to be retained ? The answer to this question must inevitably be somewhat piecemeal.

One important category of unwanted price movements, namely those associated with trade-cycle fluctuations, cannot be treated here. This part of the problem immediately raises the issue of the general budgetary and economic policy of governments and cognate matters and clearly lies beyond the scope of this lecture.

As to the remainder of the problem several solutions have been proposed. As is well known, some of these, such as insurance schemes and stockholding programmes, have been tried with varying degrees of success. They all have a part to play, for there is no one supreme remedy. Nevertheless, it may be suggested that the main part of the solution to the problem must be sought in some kind of a forward-pricing procedure and in its proper use. This is the procedure which is particularly provided for in the 1947 Agriculture Act. It will be useful to comment on two basic principles which must be observed if the relevant provisions of this Act are to achieve their aim.

After periodical reviews the government announces the prices which farmers will receive for their main products. These prices will be valid for an appropriate period ahead. Whatever this period is, it is clear that price fluctuations of shorter duration are automatically ironed out, except in so fa r as seasonal variations are prescribed in the announcement.

I t is also clear, however, that if consumer demand is not such as exactly to absorb the production coming forward a t the announced prices, then some adjustment will have to be made. In principle this adjustment could be made in one of two ways. It could be made by means of consumer subsidies or purchase taxes or rationing. Or, if demand is left alone, it could be by means of some form of deficiency payment or levy for producers. Either way the government is in a position to make a loss, or (in theory at least) a profit, according to the direction of the necessary adjustment.

From this consideration springs the first basic principle comprehension of which should attend the proper operation of a forward-pricing system.

If the government’s policy, at price reviews, is to fix prices so that, on balance over a period of years, it makes neither a profit nor a loss out of these transactions, then the government may be said to be fully respecting the long-period trend. The effect of its intervention, in this case, is to eliminate certain short-period fluctuations only. But if the government is consistently aiming at a certain order of profit, or a certain order of loss, then to that extent the impact of the long-period trend upon home agriculture is being modified. In the case of a government profit the home industry is being to some degree held down: in the case of a loss it is being in some degree supported.

The second basic principle to be borne in mind in operating a forward pricing system is this. It is essential that the price announced should apply without qualification to the entire production of the commodity in question free1y.comin.g forward in the period covered by the announcement. There is a provision in the 1947 Act for quantitative limitation. This provision, wrongly applied, could destroy the whole purpose of this part of the Act. On the other hand, correctly used it could become a valuable administrative device.

Journal of Agricultural Economics., 303

So far, the forward-pricing mechanism has been used in this country almost entirely to encourage greater total production, so that this provision has not hitherto been prominent. But the position is now changing and the need for the more discriminating use of forward prices in guiding production is providing the first real test of the effectiveness of the system.

Thus suppose, as might well arise, that it was felt to be in the national interest to set a quantitative limit to the home production of a certain commodity. The procedure might then be as follows. At the next review this quantitative limit is announced at the same time as the price for the commodity. The price announced, however, will nevertheless apply to the entire production coming forward during the relevant period whether or not this exceeds the stated limit. There will, however, be a definite commitment on the part of the government to lower the price at the following review if, in the event, the limit is exceeded; and to repeat this procedure at subsequent reviews, if necessary, until the limit decided upon is made effective.

There are two important merits in this method of operating the forward- pricing system.

In the first place it helps to ensure that the prices are, at one and the same time, guaranteed prices as well as “ supply and demand ” prices. In other words, the mechanism for guaranteeing prices to the farmer in the short- run does not also maintain agricultural activity at a long-term level different from that to which a freely competitive system would tend to do. One of the objectives of guaranteeing prices in the short-run, would, however, be to mitigate any acute distress or suffering which might be involved in following the long-term trends. I t would also still be possible for the government to modify the impact of long-period trends on the pattern of its agriculture if it wished to do so for strategic, or social or other special reasons. The problem then would be to decide how much it was worth while to pay for this or that non-economic effect, and then to adjust the level of activity so as to ensure that no more than a worthwhile price was in fact paid.

The second merit is this. Although the price decision is a government decision, the entrepreneurial independence of the farmer is left unimpaired. It is still up to him to decide whether and how much to produce within the price announced. The farmer might even decide to increase production in order to offset a fall in price. His right to do so should be preserved for in some circumstances this could well be the proper decision for any particular farmer to take.

It will call for considerable statesmanship to administer the system of forward-prices in this way for as Professor Lionel Robbins has recently pointed out, “ the reluctance of public officials to change prices is an interesting sociological phenomenon.” But, if it is done, the result may well show that the notion of a “ stable agriculture ” as this was defined earlier can be achieved. In other words, it may well be that providing farmers with price stability in the short run can both assist and stimulate them in the task of coping more efficiently with those long-term changes which are indispensible if the pro- duction of their industry is to keep abreast of general conditions in a progressing economy. In this sense the proper working of the 1947 Act is a challenge to both farmers and administrators. I t can be made the means of going a considerable way towards resolving the economic conflict between change and stability in agriculture.