Parity and the Agricultural Sector

GAO was asked to evaluate the concept of parity prices and to identify the impacts, particularly the secondary impacts, expected from parity-level price supports for agricultural products. Parity is generally expected to measure the economic well-being of the farm sector relative to other sectors. Changes in the parity ratio have tracked: (1) structural changes (as the ratio has fallen, so have the number of farms); (2) changes in farmers' margins on a per unit basis; and (3) net farm income from marketing receipts. However, parity does not adequately reflect total farm sector well-being, total personal income of farm families, or increased farm assets and equities. The trends in U.S. agriculture have been toward greater technological advances, declining margins, declining numbers of farms, and increasingly larger farms. The nation has generally benefited from these trends, but if the trends continue unabated, the secondary impacts may well be a loss of farm sector resiliency, a decline in rural viability, a cutback in efforts to conserve fertile soil, and less competition. Parity, by itself, is not a good indicator of secondary impacts. The impacts of parity-level price supports are difficult to assess under the evaluation and analytical techniques currently available. It is not known whether there would be more or less farmers or whether consumers would be better or worse off in the long run. However, it is known that consumers would pay more for food in the short term and that net farm income would rise. GAO concluded that Congress and other policymakers need, in addition to parity, a broader framework to use in developing, analyzing, and evaluating farm policies and programs. GAO proposed a framework that would assist in ensuring that all major impacts are systematically considered in formulating agricultural policy. The framework visualizes that economics, social soundness, environment, and politics all play overlapping roles in the process of determining a desired farm policy.