An Assessment of Parity as a Tool for Formulating and Evaluating Agricultural Policy

The essence of U.S. farm policy has been to provide a certain level of economic security to the farm sector through various government programs. Until 1973, these programs were linked to parity, a measure of the purchasing power of farm commodities today in relation to their purchasing power during the base period of 1910 to 1914. Although most programs are now linked to costs of production, policymakers and others still regard parity as a barometer of the economic health of the agricultural sector.

There is much confusion as to the meaning and usefulness of parity. Parity is still a rallying point for many of today's farmers. Government price support programs have been, and some still are, linked to parity although the support levels have never been 100 percent. They have ranged up to 90 percent. Parity is useful as a barometer or indicator of certain aspects of economic well-being. Changes in the parity ratio have tracked structural changes, changes in farmers' margins on a per unit basis, and total net farm income from marketing receipts. Parity does not adequately reflect total farm sector well-being, total personal income of farm families, or increased farm assets and equities. Parity is a broad national indicator which may or may not reflect an individual farmer's well-being. Trends in U.S. agriculture have been toward greater technological advances, declining margins, declining numbers of farms, and increasingly larger farms. No one knows whether there would be more or fewer farmers or whether consumers would be better or worse off in the long run. Congress and other policymakers need, in addition to parity, a broader framework to use in developing, analyzing, and evaluating farm policies and programs. The framework which GAO developed can be a starting point for the Department of Agriculture and others in setting up a systematic methodology for considering the impact of various policy alternatives. GAO also discusses various factors that can be considered in better targeting government programs, and distinguishes between various farm sizes.

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