Parity was a statistical model that was used during the 30s to try to find out if farm income was keeping up with farm costs. Here's how it worked.
After some study, economists for the U.S. government decided that during the time from 1910 to 1914, the prices that farmers got for their crops and livestock were roughly in balance with the prices they had to pay for goods and services they used in the production of crops and livestock and family living. In other words, a farmer's earning power was on a par with his or her purchasing power.
The concept was actually written into law in the 1933 AAA, Agricultural Adjustment Act, where it became the goal of the U.S. government to get prices up to levels at least close to parity. The Department of Agriculture would do that by paying farmers to NOT to plant some crops and by culling livestock herds. Less supply and a steady demand would raise prices. As the chart to the left shows, they had a long way to go to reach parity.
- During the "parity years" of 1910-14, farmers in Nebraska received $340,100 from crop and livestock sales.
- In 1933, farmers in Nebraska received just $193,400 from sales, and $1,000 total in the first government payments. Those two figures together totaled almost 43 percent less than the parity level.
- Throughout the decade prices went up and down but never reached any higher than 89.9 percent of parity until 1941 as World War II started.
- Government payments to keep crops and livestock off the market reached a high of over 17 percent of total farm income in 1940.
Over the years, the prices that a farmer must pay for production inputs and living expenses have continued to go up. Farm machinery, for example, was at 3,611 percent of parity in 2001.
The parity model has fallen out of favor recently because it doesn't account for technological advances and increased productivity. In other words, it may take a lot more bushels of wheat or corn to buy one tractor or one shirt than it did in 1914, but today's farmer also grows that bushel of wheat much more efficiently.
Written by Bill Ganzel of the Ganzel Group. First written and published in 2003.