During a recent webinar, a producer from the eastern Corn Belt asked an interesting question, “Are there any similarities between the early 1920s and the 2020s?” Well, let's get out our history books and draw some perspectives.
One of the similarities has been how technology is changing the agriculture industry. Of course, in the 1920s new technology spurred the mechanical movement from hand power to horsepower to increase operational efficiency. During the 1920s, successful farmers focused on the management of land, labor and capital. Fast-forward 100 years and add the management of information, data and biotechnology to the list. These elements can give agricultural producers an incremental advantage in profits.
In the 1920s, global economic power shifts were emerging as a result of the Industrial Revolution in Europe and the United States. As a result, there was a movement from farms to cities because assembly line workers were needed. This created a boom in wages, resulting in the roaring 20s. The overall standard of living increased and the middle class was established. Meanwhile, agriculture, farming and ranching started a rapid decline.
One hundred years after the Industrial Revolution, automation, artificial intelligence and predictive analytics are the accelerators of the economy. The global population is observing de-urbanization and a movement back to rural areas. Global economic power is now shifting from North America and Europe to the Asian region of the world, with China being the central focus. This shift in power has occurred in a matter of 30 years. In 1990, China was 2 percent of the world’s GDP and is now generating 16.8 percent of the global GDP 30 years later. The Asian region is a coveted area of the world for businesses and industries seeking new markets.
One interesting aspect is that the current boom in the economy is a result of a dependence on central government stimulus and accommodative central bank policy throughout the globe. Any changes in this stance will bring into question whether the U.S. and global economics has the foundation to sustain growth through the 2020s.
G.F. Warren, a famous agriculture economist from Cornell University, wrote a book more than 100 years ago that provides some interesting comparisons and reflections. In his book, he stated that new technology innovations will require farmers to be better at business and finance. He also stated that agriculture in the future will be about operational productivity through management. Interestingly enough, chapters in his book pointed out that supply and output will often exceed demand, requiring a good marketing plan. The management of costs and investments will be increasingly important the more technology is applied. He also stated that economic cycles are inevitable and to be careful of making long-term decisions without planning for the best and the worst-case scenarios.
As always, we can learn a lot from examining history. Do not forget that the Great Depression followed the roaring 20s. Hopefully, history will not repeat itself!