Parity Basics: What Parity Is and Is Not

George Naylor Economic Justice, Farmer Voices on Parity, History of Parity

On the one hand, parity is simply a measure of the buying power of commodities over time –   measuring the value of commodities in “real dollars” or “inflation adjusted dollars.” This requires the construction of an index, called the prices paid index, based on changes in the costs of the things farmers pay for – inputs, interest, living expenses, taxes, insurance, hired labor wages, etc. The traditional parity index – the prices paid index provided for in law – takes 1910 to 1914 as the base period.

The barometer of overall health of the agriculture sector has been gauged by the parity ratio.[1]   An index of the prices farmers receive for all commodities is called the prices received index. The parity ratio is the ratio of the prices received index to the prices paid index, with the base period being 1910 to 1914. A parity farm program would intend for the parity ratio to be 100 percent, meaning that farm commodities, on average, maintain their purchasing power adjusted for inflation. In June 2020, it stood at 31 percent. When the New Deal farm programs were clearly aimed at parity, from 1941 to 1952, non-recourse loans for storable commodities were set at 90 percent and the parity ratio was always above 100 percent. Loans would be available as soon as the crop was stored at harvest which was due in nine months with interest. As the marketing season progressed, it's likely that the price would go up from there to provide for at least "carry," the cost of storage and interest, so that the loan could be paid back with interest.

Creating a Price Band for the Minimum Farmers Receive and Purchasers Have to Pay

A parity price for each commodity would simply be the average price of each commodity during the base period times the parity index/100. The parity index for June 2020 stood at 2,952, so each parity price should be the average price during 1910 to 1914 times 29.52. In short, parity farm prices would be about 30 times higher than market prices today. (Agricultural Prices by the National Agricultural Statistics Service (NASS), Agricultural Statistics Board, United States Department of Agriculture (USDA))

Policy can aim for an overall parity ratio of 100 percent. Operationally, the goal would be to keep the prices within a band centered on a parity price. Storable commodity prices can be set with little doubt about the reliability of the price band, with a price support – a non-recourse loan or a standing offer to buy at a minimum price, creating a floor price. Any surplus in any given year not absorbed by the market at the floor price will be withheld from the market in a food security reserve and only released at the upper level of the price band. This food security will be paid for and administered by the government through use of a farmer-owned reserve, government-owned storage, or payment for commercial grain storage. (Then-Secretary of Agriculture Earl Butz sold off all government storage facilities in the early 1970s.)

An important point: A farm program must deal with the natural reaction in a market economy to increase supplies in response to increased prices. Therefore, to avoid wasteful overproduction, the Secretary of Agriculture will create a supply management system by determining annually the nation’s required production to be assigned equitably to farms and enforced locally with the supervision of democratically elected committees. A quota system, as used in Canada for milk, turns the farmer's thinking right side up for a beneficial environmental outcome: to meet the quota, the farmer will minimize costs for inputs like chemicals and fertilizer while maximizing conservation and care for the land. Land no longer needed for soil depleting annual crops can be shifted to perennial hay and pasture to be used for extensive livestock production and more sound crop rotations.

This system of “supply management” must be designed after the guarantee of a price floor, not before. If the idea is to restrict production to raise prices, we could be creating a food shortage that no one would want, especially if there are no food security reserves. Also, if production is restricted by “supply management” to raise prices, it will be a guessing game as to what the resulting prices will be – weather, crop disease, and political events could intervene to throw predictions completely off. With such uncertainty, farmers are still stuck in the casino mode of when to sell their crops and reading tea leaves from “market advisers.”

The Importance of Storable Commodities

Land in the US devoted to fruits and vegetables is only around 12 million acres, while acres committed to storable crops is closer to a quarter billion acres. Since feed grains and oilseeds provide the main ingredients of feed for concentrated livestock production, stabilizing the storable commodity sector at parity with supply management will have a profound effect on environmental outcomes and the price level of livestock (see the Starbuck and Anderson essays). These price levels will also give an indirect boost to the price levels of fruits and vegetables, since higher livestock prices will make the prices of fruits and vegetables lower in comparison. Federal marketing orders for fruits and vegetables can stabilize prices aimed at parity prices as published by USDA.

Parity—a Basis for Food Sovereignty, a Challenge to Global Corporate Power

Neoliberal free market policy under various free trade agreements requires borders to be open to imports which eliminates every country’s food sovereignty – the ability to set policy to assure domestic production and just prices for producers. Under old US legislation that aimed at parity, the Secretary of Agriculture could limit imports if the price support mechanism and quantities of reserves accumulated were destabilized. .In today’s world, every politician should be asked if it makes sense that global prices for corn and soybeans imposed on US farmers be even more depressed by the burning of Amazon rainforest to make way for millions more acres of corn and soybeans that will feed animals in CAFOs anywhere in the world.

Parity—not just “Fair Prices for Farmers”

The economic outcome from prices supported at parity versus any means of improving farmer income by transferring taxpayer dollars to farmers will be profoundly different. Parity prices along with supply management will result in different structures of agriculture upstream and downstream. Upstream, livestock raised on family farms will outcompete CAFO production. Fewer bushels of corn and soybeans will be feeding fewer animals. When supply management lessens the acres devoted to grow corn and soybeans needed at lower levels, these acres can be switched to perennial hay and pasture or trees and native prairie restoration which will sequester more carbon in the soil, stop soil erosion, and create crop rotations that will not rely on artificial nitrogen fertilizer and chemical weed control.

In other words, parity prices should not be interpreted as “just fair prices for farmers.” Downstream, parity prices like 13 dollars per bushel for corn and over 30 dollars per bushel for soybeans will change dramatically how corn and soybeans are used. CAFO livestock production will no longer be profitable with the sole purpose of extracting wealth from our people and the land to insure profits for anonymously owned corporations. Only limited quantities of biofuels to address motor car pollution will be produced from grain outside of quotas on suitable land. Small grains will provide feed and bedding for more humane animal husbandry.

Parity—for the Benefit of Farmers, Society, and Future Generations

With parity pricing and supply management, every farmer, big and small, will no longer be producing more and more for less and less. As Jesse Jackson once said, “The best urban policy starts with the best rural policy.” A parity system will be restoring balance and economic opportunity to rural economies, while communities can democratically guide the new small business infrastructure. The livestock opportunities opened by availability of land for hay and pasture will appeal to young people wanting to get into agriculture. The few farmers we have today can take the lead in supporting our political efforts and provide firsthand knowledge of farming to newcomers not available in books or slick agribusiness propaganda. A society dedicated to parity and not disparity will inspire new healthy human and ecological relationships for generations to come.