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Research Bulletin (Iowa Agriculture and Home Economics Experiment Station)

Abstract

The present parity price formula provides the parity ratio-that is, the ratio between the prices received and the prices paid by farmers. It also provides parity prices for individual farm products-prices that would give farm products the same purchasing power per unit which they had in an earlier base period.

The parity ratio-the ratio between the prices received and the prices paid by farmers-is regarded by many people as a measure of the economic status of agriculture.1 When the parity ratio is 81, for example, that ratio is regarded as indicating that the prices received by farmers are too low; some regard a parity ratio of 81 as indicating that the prices of farm products are 19 percent too low.

The same sort of opinion is held concerning parity prices for individual farm products. When the prices received by farmers for corn are only 55 percent of the parity price of corn, this is generally believed to indicate that corn prices are too low; some believe that it indicates that corn prices are 45 percent too low. Certain percentages of the parity prices for some farm products are used for bases for the price support operation of the Commodity Credit Corporation for those products. These operations run into billions of dollars. The purpose of this report is to examine the parity formula, see how well suited it is for these purposes and determine whether any more appropriate formula might be developed.

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