Agricultural Adjustment Act

Agricultural Adjustment Act, in U.S. history, legislation signed in May 1933 by Pres. Franklin D. Roosevelt as part of the Hundred Days phase of his New Deal domestic program. The Agricultural Adjustment Act was designed to provide immediate economic relief to farmers during the Great Depression (1929–39). It was intended to increase farmers’ purchasing power by reducing surpluses of agricultural products to encourage prices to rise back to levels that would provide sustainable incomes for farmers, as in the years of relative stability and prosperity before the Great Depression and before World War I (1914–18). The Agricultural Adjustment Act created the Agricultural Adjustment Administration to oversee the program and distribute subsidies and a national income to farmers as emergency relief.

Background

During World War I, the government had encouraged farmers to produce bigger harvests. To achieve this farmers borrowed money to buy additional acreage and farm machinery to keep up with the increased demand to feed people at home and abroad, as much of Europe’s food production was impacted by the war. American farmers’ huge harvests continued into the 1920s, with the price of a bushel of wheat reaching a high of more than $2 in 1919 before a glut of agricultural products caused prices to drop, requiring farmers to produce greater yields just to net the same amount of money. A bushel of corn that generated as much as $1.02 for a farmer in the early 1920s commanded just $0.29 in 1932. With the stock market crash of 1929 exacerbating the Great Depression, consumers in cities could not afford food or coal for heat, and overextended farmers could not make their mortgage and other debt payments. As many as 750,000 farms went under from 1930 to 1935, either through bankruptcy or foreclosure.

Objectives and implementation

With the Agricultural Adjustment Act, Congress declared “an acute economic emergency,” asserting that the system of commerce involved in regulating agricultural activities had devolved so far as to necessitate a relief program of national public interest. The act set forth three policy goals: (1) to restore the balance between farmers’ expenses and the market price of goods, (2) to encourage the correction of prices as quickly as the market would allow without causing additional instability, and (3) to ensure that prices did not hurt consumers while helping to provide for farmers. The time period to be used as a benchmark for prices and farmers’ incomes was August 1909 to July 1914 for all commodities except tobacco, which was pegged to the years between World War I and the Great Depression, August 1919 to July 1929.

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The Agricultural Adjustment Act called for a voluntary “reduction in the acreage or reduction in the production for market, or both, of any basic agricultural commodity” (Section 8:1). This led to 10 million acres of cotton being plowed under and 6 million hogs being killed. Paying farmers not to produce consumable goods at a time when both the poverty rate and food insecurity were high—at least 30 deaths from starvation were recorded in 1933—proved to be controversial. Farmers were also affected by seeing their labor wasted. These repercussions led to the founding of the Federal Surplus Relief Corporation in October 1933. This corporation worked to utilize excesses purchased by the Agricultural Adjustment Administration and direct them to relief organizations like food banks.

The Agricultural Adjustment Act identified seven commodities that qualified for subsidies: wheat, corn (maize), hogs, cotton, tobacco, rice, and milk. Further sections of the act dealt with regulating exports and foreign trade. A processing tax was also introduced. This was calculated based on the difference between the current price of farm goods and the price those goods would have fetched in the target years, said to be the “fair exchange value” of the goods. The tax would be paid by the processor when the commodities changed form, as when wheat was milled or hogs were slaughtered, for example.

The act included the creation of the Agricultural Adjustment Administration, granting its employees the power to enforce the act and to assemble local committees to administer its provisions as necessary. The administration was given a budget of $100 million (roughly equivalent to $2.3 billion in 2023). This money was primarily intended for subsidy and benefit payments made directly to farmers. Several revisions to the Federal Farm Loan Act of 1916 were also made. That act had involved the creation of 12 federal land banks that encouraged farmers to take advantage of the boom by expanding. The Agricultural Administration Act’s intent was to issue farm loans and to refinance or purchase mortgages from farmers. The administration would also attempt to keep interest rates to 4 percent or less.

Effects and outcomes

In 1935, just two years after the introduction of the Agricultural Adjustment Act, farmers’ incomes were reported to be 50 percent higher than in 1932. But for some farmers and particularly for many Black sharecroppers in the South, the Agricultural Adjustment Act caused deeper poverty when it halted planting. It was the landowners who were paid the subsidies for not planting, and, in almost all cases, they did not distribute this money to their tenant farmers. Instead, some landowners used the money to purchase more machinery and modernize their farms, which meant less work for tenant sharecroppers when planting eventually did resume.

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In 1936 the U.S. Supreme Court ruled the Agricultural Adjustment Act unconstitutional in U.S. v. Butler, deeming that it unduly burdened processors with taxes, money that was then used to fund the subsidies for farmers. The Court decided that this power should have been reserved for the states, via the Tenth Amendment. The act was rescued by rolling its provisions into the Soil Conservation and Domestic Allotment Act of 1936, and then a modified Agricultural Adjustment Act was fully reauthorized in 1938, with additional provisions for conserving natural resources and prioritizing soil health as well as expansions to ensure the supply and demand of agricultural products in domestic and foreign markets remained at fair prices.

The Agricultural Adjustment Act revived farmers’ incomes and kept many from bankruptcy, and its policies persist as permanent legislation. It had the unintentional effect, however, of steering the future of American agriculture toward increased mechanization and larger commercial operations.