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Why were American farmers angry during the grain invasion era, 1870-1900?
| The response of European farmers to the American grain invasion at the end of the nineteenth century was predictable: competition from overseas low cost producers, in particular the US, was unpopular, and either forced an adjustment out of cereal production or triggered a protectionist response. However, it is usually assumed that American farmers gained as falling transportation costs allowed easier and cheaper access to export markets where demand was increasing.
Paradoxically, however, this was also a time of agricultural discontent in the main exporting country, the United States, culminating in the famous Populist movement of the 1890s. One of the most popular explanations for this is to assume that farmers suffered from nominal illusions, mistaking a nominal fall in the price of their produce for a real fall. Needless to say, this explanation is unsatisfactory from the vantage point of an economist, used to assuming rational agents.
This paper argues that farmers in the US were not simply wrong or misinformed. Although the price of farm products did increase relative to the general price level, this is only true if the quality of the product is not controlled for. We argue that a simple comparison of the real price changes in exporting and importing markets is not sufficient to assess the gains or losses to producers and consumers. If product quality is improving over time, this will underestimate the gains for consumers and the loss for producers.
It has long been recognized that foreign demand will shift to a higher quality variety of an imported commodity, since higher qualities are relatively inexpensive, transport costs being the same for both high and low quality produce. US producers met this demand by costly improvements in quality and the introduction of well-defined standards. So, although real prices for American farmers increased, it is by no means clear that they realized this gain.
Using a series of a homogenous grade of grain in the producer’s region, Chicago, and in the importing market, the UK, we show that the real change in the price of wheat for producers did indeed increase: by around half a percent per year (UK consumers gained from a price fall of a similar magnitude). We estimate the value of the quality improvement by comparing the price of American wheat to that of British wheat and find a relative increase of 0.5 percent per year. This might even underestimate the improvement in quality, since British wheat probably improved over time as the sector shrank and the least suitable land was taken out of production first.
Our initial findings suggest that quality adjusted real US prices fell. In the UK, consumers got a better product for a lower price. We also speculate that farmers on the American frontier had most to lose from the fall in transport costs, since falling domestic freight rates gave landlocked farmers access to world markets, where they were required to sell their produce at world market prices. Indeed, it was in these areas that the protest was loudest.
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