A Top Producer Staff Report…It's difficult to predict who or what will shake out as agriculture's biggest influences and influencers in the coming years, but we identify some that will surely have an impact on your business.
The first 25 years of Top Producer's existence saw some real roller-coaster rides in agriculture and huge policy shifts. We have no doubt the next 25 will bring changes just as significant. It's impossible to predict what or who will shake out as the biggest influences or influencers, but it's wise to identify some that might have an impact on how you do business. We start with our top choice of a person and an issue or trend that will impact agriculture; below that we present more, in no particular order.
On July 1, 2008, indications were that the economy was relatively strong. Whoever won November's presidential election would certainly be concerned less about the economy than the war in Iraq and decreasing our independence on foreign oil.
Then September and October happened, the bottom fell out of the economy and we are looking at the most significant changes since the Great Depression and Roosevelt's New Deal programs. The U.S. is in a world of hurt and the government is getting involved in areas that are probably making our Founding Fathers roll over in their graves—several times a day.
Obama is entering his first term with an electoral mandate and a Democratic Congress, and he's promising sweeping governmental reforms that may make the New Deal look minuscule by comparison.
He supports ethanol, but has a Secretary of Agriculture who has called for ending the ethanol tariffs on foreign sources. Al Gore is also of the same party (an inconvenient truth, in our opinion) and the environment will be front and center with nearly any policy decision Obama makes, second maybe only to the economy and government spending.
The economy, environmental policy, energy policy and transportation: Obama will touch them all and his decisions will forever impact U.S. agriculture.
Big Ag's Nemesis
The founder of the Environmental Working Group and the developer of the Ag Subsidies Database, Ken Cook is a force in Washington. With the more environmentally friendly Democratic party's firm grip on the executive and legislative branch, that voice is likely to get more boisterous and heard throughout the nation's capital.
Cook is smart, well-connected and pragmatic, and is a leader in the fight against large agriculture and megafarms.
The Fund Manager
Question the power of the fund manager in agriculture as well as the overall economy? Look what happened to agricultural stocks on Oct. 2, 2008. On Oct. 1, Agriculture Secretary Ed Schafer begged lawmakers to pass the first bailout package. If not, he said, farmers may not have access to credit in order to plant a 2009 crop. Fund managers, who had been high on agriculture but lacked market understanding, fled the industry like rats from a sinking ship. Ag stocks tanked.
"Funds are like lemmings,” a hedge fund analyst said on Oct. 3. "If a fund does something that looks good, then they all start doing it. Ag was everywhere. There were front page stories in the Wall Street Journal and the New York Times about agriculture and everybody wanted in. That's over now.”
On the commodity side, populist senators like Ag Chairman Tom Harkin believe limits on speculative money will lessen market volatility and make life easier on farmers. With the catastrophic fall from nearly $8/bu. corn in June, that argument may have some traction with the new administration.
The main reason fund managers are on the list: speculative money is needed to keep liquidity in the market.
The Other O
We have Obama…and his biggest fan. Oprah Winfrey is the richest woman in the world, and she has built a multibillion-dollar, multimedia empire that reaches countless numbers of consumers. More than seven million people watch her TV show daily, and a large number of those are soccer moms who buy food and decide what their kids will eat.
Remember the April 1996 show when she said U.S. beef could spread mad cow disease and she vowed never to eat another burger? Cattle prices fell to 10-year lows and Cactus Feeders' owner Paul Engler filed a (unsuccessful) lawsuit against her. Nor is she shy about promoting her latest diet fad (most recently, a 21-day vegan cleansing diet) or her latest discovery, Dr. Oz. She has the voice, the avenue to use that voice and an audience who will listen.
Internet pundits and critics
Two days before Christmas last year, the Pew Charitable Trusts released a study that showed more Americans are now getting their news from the Internet instead of newspapers. It also means what's news now depends on what you decide it is, and that will impact what people know about food production, how it's consumed and what they think about the people who produce it, says veteran ag journalist turned new-media guru Chuck Zimmerman of ZimmComm New Media. Bloggers, or citizen journalists, are growing in influence and that influence will only continue to increase.
"The conversation is taking place already, and agriculture needs to join it,” says Zimmerman, who runs several Web sites for a variety of clients, including his own AgWired. "There is no question public opinion about agriculture is swayed by people who are not directly involved in the industry. And it's not just bloggers, either. I think you're seeing a lot of reporting from more of the traditional media today that is opinionated reporting. I think that's being driven by how blogging has changed the industry.”
One prime example he points to is a new Web site from Johns Hopkins University's medical school. The Web site is for the Center for a Livable Future and it does not put modern agriculture in a good light, but it is passed off as a resource for the media to get information from an unbiased source, he says.
"Agriculture needs to ask itself what it's doing to join the conversation.”
Soy King of the World
Blairo Maggi is not only the largest soybean grower in the world, he's also governor of Mato Grosso, Brazil's leading agriculture state. Maggi also owns the André Maggi Group in Brazil, which owns and operates soybean processing facilities. He is responsible for instituting a program in Mato Grosso where farmers help pay for infrastructure development in return for tax breaks. (See "Moneywise,” November 2007
). As globalization expands, Maggi's influence will continue to grow.
He's not popular with environmentalists, however. In 2006, he was given the Golden Chainsaw Award by Greenpeace. They cited him as doing more than any other Brazilian for contributing to the destruction of the Amazon rainforest.
President of Brazil
Luiz Inácio Lula da Silva, considered a man of the people in Brazil, is making agriculture a national priority. The current financial crisis, which has hit Brazil hard, will test his leadership and his ability to keep Brazil on the path of agricultural growth.
Pro Farmer Editor Chip Flory's nomination to the list may be the most appropriate and will certainly be the one who is talked about in 25 years—though we don't know the person's name yet. "The real `shapers' just seem to emerge from chaos and take leadership. So...with that in mind, I'd nominate the `unknown' person out there and guess at what they might do or where they may emerge from.” There is no shortage of problems, so let's hope there are plenty of great, unknown leaders out there.
Scientists in the Field
Plant breeders could lead the way in a food, feed and fuel revolution over the next couple of decades. Some say yield increases won't be that dramatic, but with the corn genome mapped and amazing molecular tools at hand, some astounding things are already starting to happen.
What Term Limits?
Russia's Prime Minister Vladimir Putin keeps European leaders looking over their shoulders, despite giving up the presidency due to term limits. Still very much in a position of power, the moves he makes could have long-term impact on competition for U.S. grain markets in Russia. If former Soviet nations with big ag potential like Ukraine and Georgia wind up in Putin's pocket, he may make the big decisions on where much of Europe's food and fuel originates.
With Russia's oil and natural gas supply, he also holds much of the EU's, as well as the world's, fertilizer supply in his hands.
Ethanol's Money Man
A native of India who became wealthy through Sun Microsystems and other Silicon Valley investments, Vinod Khosla sank millions of venture capital dollars in ethanol plants and research. Mentoring entrepreneurs, he says, is his great passion. Is he passionate enough to continue investing in biofuels despite what happened to the industry in 2008?
Simply Talking Cellulosic
If cellulosic ethanol becomes a reality, one reason will be because of Kelly Tiller and her coworkers' research figuring out the economics beyond the test tube stage. Tiller, an economist by trade, is the director of external operations for the University of Tennessee's Office of Bioenergy Programs. She has a way of cutting through the technical jargon to get to the heart of the issue—which, as she'll point out, is how to make a profit.
Cellulosic's Can-Do Man
Jeff Broin likens his goal of commercializing cellulosic ethanol to that of putting a man on the moon: it takes a leap of faith, but it is critical to the future of our country. As CEO of Poet, the nation's largest ethanol company, Broin is a cheerleader for all things ethanol. Nicknamed "Mr. Ethanol” by Forbes magazine in 2008, Broin recently formed a new organization called Growth Energy to fight "misinformation being put out by people who want to protect the status quo,” he says. Growth Energy launched an ad campaign in December to set the record straight on food prices.
Broin expects to commercially produce cellulosic ethanol at his Project Liberty plant by 2011 and hopes to replicate the cellulosic ethanol production technology to other Poet plants. Poet currently produces 1.5 billion gallons of ethanol at 26 plants in seven states.
He's Dead Serious
Over and again, Texas oil billionaire T. Boone Pickens makes it clear he favors development of ethanol, wind and solar as alternatives to importing oil for gasoline production. He is sponsoring special energy crisis television ads saying America's energy situation is the key issue facing the nation, while pouring millions of dollars into alternative fuel development.
His much-touted "Pickens Plan” (www.pickensplan.com
), which, as he stated in his ads, "I'm dead serious about,” includes special focus on wind power development.
"The United States is the Saudi Arabia of wind power,” Pickens says. He hopes to spur investment in a wind facility corridor that stretches from the Texas panhandle to North Dakota, which could produce 20% of the electricity for the U.S. at a one-time cost of $1 trillion. That's a bargain, Pickens says, compared to the $700 billion the U.S. spends on foreign oil every year.
Still, the colorful oilman may best be known for his description of ethanol as "an ugly baby, but it's ours.”
The Modern Farmer
The number of farm operators under age 35 dropped from 16% to 6% over the past two decades, and that trend will likely continue. In the future, there will be fewer producers farming more ground and they will need a different set of demographics and skill sets than farmers in the past, according to Mike Boehlje, Purdue University ag economist.
Increasing globalization, changes in technology, volatile markets, higher input prices and rising land costs will require farmers to have better management, relationship and negotiation skills. Tomorrow's younger, modern farmers will include those who grew up on larger, technologically advanced farms and those who are better in tune with consumers and adept at niche marketing.
The Business Professor
Texas A&M economist, founder of TEPAP (The Executive Program for Agricultural Producers) and Illinois farm boy Danny Klinefelter has raised the level of professionalism in agriculture. Through TEPAP, founded 16 years ago, Klinefelter has introduced hundreds of the country's best agricultural producers to business principles and helped them grow and streamline their operations. Though the end of his career may be on the horizon, Klinefelter's legacy will live on through the producers who will succeed because of his desire to help them broaden their horizons, raise their professionalism and learn from each other with the networks they develop as TEPAP participants.
Congress' focus will turn to budget cuts in the years ahead to help reduce the bulging budget deficit, says Informa's Washington analyst Jim Wiesemeyer. Expected money savers could include cuts in direct payments and tighter payment limits.
Energy legislation also will be a priority. A bipartisan group of 20 senators has launched a compromise energy bill called the New Energy Reform Act, also known as New ERA. Meanwhile, Sen. Tom Harkin (D-Iowa) and Sen. Richard Lugar (R-Ind.) have introduced legislation aimed at giving ethanol producers access to lower-cost transportation via pipelines. Harkin and Lugar subsequently introduced legislation to expand the availability of Flex Fuel Vehicles (FFV) to consumers by requiring that half of all light-duty vehicles made for sale in America be FFVs by 2011.
Obama's ag review team
Before choosing a Secretary of Agriculture, President-elect Obama announced his ag transition team: Bart Chilton and Carole Jett. These White House advisers will help set the tone for the Obama team.
Chilton most recently was a commissioner of the Commodity Futures Trading Commission, so he's well versed in the controversy regarding recent price volatility and its possible causes. In the past, he was vice president for government relations at the National Farmers Union, held posts at the Farm Credit Administration, was a deputy chief of staff for Ag Secretary Dan Glickman, worked for Senate Majority Leader Tom Daschle and was legislative director for three different members of Congress. He also was on the board of directors of animal waste treatment giant Bion Environmental Technologies and treasurer for the Association of Family Farms. He's been described as a long-term apparatchik and a bureaucrat tied to the ag lobby.
Jett has played some major roles at USDA as well: She was the farm bill coordinator for USDA's Natural Resources Conservation Service and played an important role in developing strategies regarding confinement unit regulation under the 2002 farm bill. According to change.gov, she also recently launched Blackwood's Group, LLC, a conservation consulting group.
In mid-December, the team held listening sessions on conservation, commodity programs and rural development in Washington. Dozens of organizations had their say.
The Environmental Working Group sent out a fundraising letter saying: "This is our moment, our chance to reverse the catastrophic damage caused by bad government policy, big agribusiness and industrial polluters.”
According to Steve Dittmer, executive vice president of the Agribusiness Freedom Foundation, "The 2006 shift in Congressional leadership and committee chairmanships drastically changed the agenda and the attitude in Congress toward key animal agricultural issues and the Farm Bill.” The change will be more severe now with a Democratic White House.
"The challenges for agriculture—animal agriculture in particular—will be to fend off efforts to restructure agriculture, to gain control of production standards and methods (some European countries have banned pig castration), to eliminate technology and tools (antibiotics, genetic engineering, feed additions), to increase government regulation.”
On the other hand, the choice of Tom Vilsack as Secretary is squarely in the middle of the road, says Barry Flinchbaugh, Kansas State University ag economist. "We could have had the president of the Farmers Union. The only issue I have with his time as governor of Iowa is his favoring a packer ownership ban.
"The fact that Obama named a farmer/rancher as Secretary of the Interior [Kansas senator Ken Salazar] speaks volumes,” he adds. "We could have had Al Gore!”
Iowa's New Washington Insider
New Secretary of Agriculture Tom Vilsack of Iowa brings to USDA experience as the former chief executive of a state heavily reliant on agriculture and biofuels. A staunch advocate of ethanol, Vilsack is being looked to for help in writing the nation's ethanol policy—this won't be easy, as biofuel subsidies are likely to be eyed for budget cuts.
But Vilsack first faces the challenge of writing rules for the $289 billion, five-year farm bill, with key decisions to be made on how to tailor crop subsidy programs. He will also need to handle current controversies over food safety, the humane treatment of livestock and climate change.
Secretary Vilsack must also focus on trade issues, including the approval of pending free trade agreements, says Ken Hobbie, U.S. Grains Council president and CEO. "2008 proved free and open trade is paramount to the U.S. economy, and we are confident Mr. Vilsack will consider a liberalized trade environmental a top priority,” Hobbie says.
Lastly, Vilsack will be called upon to make the tough decision of whether to completely restructure USDA, as is being suggested by some congressional leaders.
These issues all come amid extreme volatility in the agriculture industry, says Clayton Yeutter, former Agriculture Secretary under President George H. W. Bush., who spoke at the Farm Journal Forum in December 2008. "This is an administration that has a chance to make a historic difference,” Yeutter said.
When Bill Gates started the Bill and Melinda Gates Foundation, the scope of world agriculture production changed. Gates, through his philanthropic efforts, is setting his goals high for developing rural economies in some of the world's poorest regions. Some recent grants in agricultural development aim to increase earnings on 250,000 India farms by an additional 50% to 100% by 2011; double dairy-related incomes in East Africa by 2010; and raise rice yields in South Asia by 50% by 2018.
Ted Turner: The billionaire next door
Ted Turner is widely quoted as saying, "I don't want to own every ranch, I just want to own the ranch next door.” If actions speak louder than words, one has to take this statement with a grain of salt. Turner owns 15 ranches in seven states—some with vast distances between them. The single largest landholder in North America, Turner holds close to 2 million acres—more than the states of Delaware or Rhode Island (see www.tedturner.com/returner/turner_ranch_map_web.jpg
"Next door” covers a lot of properties. And when a billionaire makes up his mind to buy something, neighbors simply can't compete. Some, who have been outbid repeatedly by Turner, see a future in which they are unable to grow—and the only potential buyer, should they have to sell, would be Turner.
The former media mogul views land both as a moneymaker and a wildlife project. Forbes magazine reports his ranch holdings generate $750 million in income a year from sales of bison, timber, minerals (including petroleum), hunting and fishing licenses and farm operations.
His bison number 50,000 "herd.” When he found little demand for the meat, he launched "Ted's Montana Grill” restaurants, creating his own demand.
Turner, who has a reputation as a perennial conservationist, contributes to dozens of nonprofit groups through his Turner Foundation (for a list of recipients, see tax returns at: http://buffalofarmer.com/index.html
), UN Foundation, Captain Planet Foundation and Turner Endangered Species Fund.
His ranches host a number of endangered species projects (restoring wolves, black-tailed prairie dogs, black-footed ferrets and cutthroat trout, for example), and he aims for all his holdings to be managed in a sustainable way.
Public opinions of Turner run the gamut from beneficent protector of world resources to billionaire villain who wants to put all of the West's ranchers out of business, control all the land over the Ogallala aquifer or create a vast wildlife refuge that would be turned over to the U.S. government.
Regardless who is right about Turner's intentions, his influence is felt both next door and in the far-flung regions of the globe.
Michael Pollan: The food industry's critic
More than 8 million people live in New York city, and since the turn of this century, they have been fed a regular diet of Michael Pollan's compelling prose revealing modern agriculture's dark side in the pages of the New York Times Sunday Magazine (NYTM). He's also well known nationally, through countless television appearances and his best-selling books, where he has touched upon everything from the life of a steer to the evils of too much sugar and fat in our diets, which he pins squarely on the farm bill.
Consider the following excerpts:
In "You Are What You Grow” (NYTM, 4/22/07), he reports that a dollar could buy 1,200 calories of cookies or potato chips but only 250 calories of carrots; 875 calories of soda but only 170 of orange juice. It makes no sense for fresh fruits and vegetables to cost more, he notes: ”Compared with a bunch of carrots, a package of Twinkies, to take one iconic processed foodlike substance as an example, is a highly complicated, high-tech piece of manufacture, involving no fewer than 39 ingredients.” The blame: "The current farm bill helps commodity farmers by cutting them a check . . . The result? A good system awash in added sugars (derived from corn) and added fats (derived mainly from soy) as well as dirt-cheap meat and milk (derived from both).”
"Our Decrepit Food Factories” (NYTM, 12/16/07) tells America that "Two stories in the news this year . . . may point to an imminent breakdown in the way we're growing food today. The first story is about MRSA, the very scary antibiotic-resistant strain of Staphylococcus bacteria that is now killing more Americans each year than AIDS—100,000 infections leading to 19,000 deaths in 2005.” Pollan reports that scientists are looking at confinement units [which he describes as raising vast numbers of animals in close and filthy conditions] as a source. "At least 70 percent of the antibiotics used in America are fed to animals living on factory farms . . . Recent studies in Europe and Canada found that confinement pig operations have become reservoirs of MRSA.”
The second story in this article is about Colony Collapse Disorder. Pollan points out that one of every three bites you eat depends on honeybees for pollination. And because of the intensive production of almonds, "more than half of all the beehives in America are on the move to California every February, for . . . the world's greatest pollination event.” He goes on to quote Marla Spivak, a honeybee entomologist at the University of Minnesota: "We're placing so many demands on bees we're forgetting that they're a living organism [with] a seasonal life cycle.” His conclusion: "The story of Colony Collapse Disorder and the story of MRSA are the same story. Both are parables about the precariousness of monocultures.”
Elsewhere, Pollan declares, "We should be using the world's agricultural lands to grow food for people, not for cars or cattle.” After cars, he says, "the food system uses more fossil fuel than any other sector of the economy—19%. And while the experts disagree about the exact amount, the way we feed ourselves contributes more greenhouse gases to the atmosphere than anything else we do--as much as 37% according to one study.” In his article "Farmer in Chief,” NYTM, 10/12/08), he lines out a redesign for American ag.
If you are tempted to write him off as a city slicker crackpot, look beyond your backyard and your town. According to the Census Bureau, some 75% of the U.S. population is urban. Some 10% live in the 10 biggest cities and 25% in the 50 largest. These folks are ever-more-disconnected from where their food comes from. Pollan's entertaining writing style, high visibility and earnestness will sway public thinking--from classrooms to barrooms, and especially on the coasts. Someone is listening to him--he charges $27,000 for a public speech.
Hu Jintao: China's rural advocate
China's "fourth generation” Communist leader was the first whose succession took place in a fairly orderly and civil manner. His "buzz words” include a Harmonious Society in China, Peaceful Development internationally and a Scientific Development perspective—meaning studied decisions based on fact rather than specifically supporting science.
Notably, Hu sees a need for economic growth that is sustainable--with less environmental degradation. High on his priority list is narrowing the gap between the rich and poor and interior vs. coastal portions of the country. This could mean support for agriculture. In fact, he is on record this fall as seeing a need to develop modern agriculture and public services in rural areas. First on the agenda, many believe, is health care, which 80% of farmers have no access to.
Also of possible impact for the U.S.: Past leaders tended to focus on the U.S. as trading partner; Hu is courting a much wider variety of countries, both potential buyers and sources of much-needed inputs such as minerals.
Most recently chair of the Audubon Society, Browner will coordinate energy and climate policy in a newly created White House position. Farmers will recall she was appointed director of the EPA by President Clinton in January 1993 and played a role in implementing the Clean Water Act. She is on record as saying, "Taking action now will allow us to avoid the worst climate impacts and will drive the creation of a clean energy economy.”
Directors of the New New Deal
The Obama Administration will take office facing an economic mess of epic proportions. Consider the sobering facts:
- The U.S. is in the worst recession since the big depression.
- Unemployment rose to 6.7% in November--10.3 million are unemployed. The Labor Department notes: "Job losses are large and widespread.”
- Since the start of the recession in December 2007, an additional 2.7 million have lost their jobs; 2.8 million have been forced to work only part-time. We actually need to add 1.8 million jobs a year to keep up with new workers entering the job force (see "Obamanomics” at www.indypendent.org).
- Total employment is falling, and the employment-to-population ratio is also falling, currently at 61.4%.
- The growth gap this year may be nearly 7% or close to $1 trillion of economic activity (see "Obamanomics” at www.indypendent.org).
- The government has printed out of thin air more than $700 billion in bailouts—an amount equal to the GDP of Turkey or the Netherlands. If the U.S. public paid it out of pocket, we'd contribute about $2,333 per man, woman and child.
- National Debt has been growing at $3.74 billion a day since October.
- The national debt stood at $438 billion for the year ended Sept. 30, 2008, and likely will top $500 billion this fiscal year.
- The total national debt is over $10.6 trillion—about $35,000 per person.
- And it's not over yet, with no sign the economy or the stock market will recover anytime soon. Obama says the overhaul of financial regulation is one of his top legislative priorities.
- He's assembled a leadership team it's hard to find fault with, says Barry Flinchbaugh, Kansas State University ag economist. "We elect the most liberal senator, and every appointment except one [Carol Browner] has been middle-of-the-road. Those who think with their hearts and not their heads--on both ends of the political spectrum--are unhappy. The Republicans don't know where to find fault. The extreme left is the most upset.
- "You don't get a better economist than Paul Volcker [head White House financial adviser],” Flinchbaugh says. "And his choice of Treasury Secretary, Timothy Geithner, is every bit as good as Paulson, and Geithner can actually say what he means clearly.”
- This President is in the position to reshape the Federal Reserve: He can appoint three governors immediately and can keep or replace Chair Ben Bernanke when his term expires in January 2010, followed by the vice chair seat in June 2010—representing five of seven governors within 18 months of taking office. His first appointment is Daniel Tarullo, a law professor and former adviser to President Bill Clinton—a critic of current international standards for bank regulation.
- Obama's choice to head the Securities and Exchange Commission is Mary Schapiro, a former SEC member, and chair of the Commodity Futures Trading Commission is Gary Gensler, who served as an undersecretary of the Treasury under Clinton. Christina Romer, chair of the Council of Economic Advisers, also is a highly regarded economist.
The Issues and Trends
The Green Economy
Green is red-hot right now. Ecology and living green are being taught in schools, are preached about in daily life and are shifting our economy. Just look at the reusable shopping bags being sold for $1 in grocery stores throughout the country. Even TV networks go green to get a ratings boost with an environmental message on their shows during the key sweeps period. This red-hot green movement is the new way companies can get into the black.
It's also providing an opportunity to give us something to hold onto as a society. As Thomas L. Friedman points out in his best-selling book Hot, Flat, and Crowded, the U.S. hasn't had a national goal since we decided to put a man on the moon—in 1969. That goal was driven by our desire to defeat the Soviet Union. Well, that mission has been accomplished, and Friedman feels we've floundered as a country ever since.
Today's enemy is terror, and the underlying issue is our never-ending thirst for foreign energy. What better way to eliminate this thirst while cutting off the redistribution of our wealth to the Middle East? Stop the financial gravy train and keep the money at home by developing and manufacturing our own energy.
Friedman argues it is our country's responsibility to lead like we did in the Space Race. After all, he says, the world wants a reason to like the United States and we haven't given them a whole lot of reasons to do that lately.
Well-funded nongovernmental organizations stoke this fire. They are organizedand they have emotion on their side. Compound that with the fact that there is a groundswell of support for adopting green technologies—green energy, among other green issues--and the public is ready to embrace green.
Whether you're a Democrat or Republican, hippie or neocon, all you have to do is follow the money. This money train is leaving, and there are several seats open for agriculture. The industry needs to get to the station and take a seat.
The technological divide between rural and urban America has grown over the years. Broadband access to the Internet still is lacking across the countryside and many areas are saddled with old telephone service. Lawmakers such as Iowa senator Tom Harkin have made a commitment to bring broadband access to rural America, and the options are growing.
Meanwhile, the nation's roads, bridges, rail lines and waterways are also crying for attention. Lawmakers made headway with the Water Resources Development Act, but funding is still a concern. The Obama Administration plans to rebuild infrastructure as a way to get jobs back into the economy.
The debate over using crops for food, feed or fuel will likely continue until the nation's energy crisis is solved. Both sides believe cellulosic ethanol is a solution for filling the need for alternative fuel without taking away feedstuffs.
Going forward, a new issue rising amid the food versus fuel debate is whether ethanol contributes to carbon emissions when virgin land is tilled to produce more crops for food and fuel. Watch for this issue to gain ground in the new Congress.
Iowa is a perfect example of what is happening with land ownership and who will control it in the future (see "Moneywise”
). "We're really in unchartered territory here,” says Iowa State University economist Mike Duffy. "We have over half of the land [in Iowa] owned by people over 65, and one in 10 acres is owned by a single woman over the age of 75. It's interesting in terms of ownership changing hands and, for young farmers, how are you going to acquire that asset?”
Today, 40% of the farm ground in Iowa is operated by its owner, compared with 55% in 1982. During that same time, land in cash-rent agreements has risen from 21% to 44%.
Starting in February 2009, the EPA's final rule regulating concentrated animal feeding operations, or CAFOs, goes into effect. The rule requires CAFOs that discharge manure into waterways to get water-quality permits. Also, nutrient management plans (which are required for most dairies to get a permit) will be open to public review and comment under the new CAFO rule.
Livestock industry groups argue that farms are not factories and should not be regulated as such. However, most groups are working toward implementation of the CAFO rule.
The next environmental battles for agriculture include preventing congressional efforts to redefine "Waters of the United States" and stopping the regulation of dust under the Clean Air Act.
The world population is literally exploding and, until the fall of 2008, that increasing population was enjoying a higher standard of living. More people will want better diets, and agriculture must rise to meet the needs of this growing population.
The U.S. Census Bureau estimates the world will need to house and feed more than nine billion people by 2050 on the same amount of land we have today. The population in 2050 represents a more than 300% increase since 1950, when the world population was about 2.5 billion people. On January 1, 2009, the U.S. Census Bureau projections pegged world population at 6.75 billion, an increase of 165% in 49 years.
The Drive to Double Output
This is a solution to many of the issues on this list, but it will take time and work. (see "On the Corn-Yield Fast Track”
How will we get it all to market? Locks and dams on the upper Mississippi River are in pitiful shape, and promised funds to fix them are slow to arrive. Railroads yawn when ag is mentioned. And trucks? Remember $5/gal. diesel? Time to call in the infrastructure cavalry!
A major theme of the 2008 campaign season, immigration was pushed to the back burner as the economy melted down. Bush Administration moves to streamline H-2A visas before leaving office aside, look for this issue to heat up again as the economic debate shifts to focus on specific areas of the economy. Decisions about how to handle illegal immigrants will impact industries from meat packing to vegetable and livestock farms.
If the rules tighten, it will only compound an already difficult labor situation throughout rural America. Even if the rules don't firm, labor issues will impact megafarms that must deal with greater need for skilled labor as equipment becomes more technical. In shrinking communities, finding qualified workers will become more difficult. This will drive the need for extensive training and create a focus for human resource plans.
Agriculture's Changing Ethics
The landscape of rural America is changing, and so are the rules. This will be a significant challenge for producers who are struggling to hold on to commonly accepted social norms of rural America.
In our Spring 2008 issue, Mt. Pulaski, Ill., farmer Tom Martin reflected on the intense competition for ground in his area, which resulted in his loss of a farm he cash-rented for 25 years. "We have always treated it as a way of life,” Martin says. "Maybe it's not a God-given right to farm. Maybe it is just strictly business.”
A Top Producer reader survey in our Spring 2008 issue showed 14% of respondents have lost farm ground to other farmers. In September 2008, despite a rapid drop in commodity prices, a strong majority believed cash-rent prices would continue to rise, proving how fierce competition for ground is and to what lengths some farmers are willing to go to expand. This has ruffled feathers throughout the industry and provides proof we have moved beyond the days of farming as a way of life—yet success is often not welcome in rural communities.
Consensus is building that Congress will approve cap-and-trade legislation that imposes a mandatory "cap” on U.S. carbon emissions. Manufacturers could then "trade” or buy carbon credits from carbon-reduction sources, such as farmers, to meet their cap.
Even a limited U.S. carbon market could be valued at $8 billion a year for the next 30 years with the right market mechanisms, according to the Consortium for Agricultural Soils Mitigation of Greenhouse Gases (CASMGS). Some estimates point to a market of $10/ton to $12/ton of CO2—equal to nearly the value of the entire wheat market.
Thousands of farmers have already signed up to sell carbon credits through aggregators, organizations that pool parcels of qualified acreage into one large block for carbon credit trading. AgraGate, a subsidiary of the Iowa Farm Bureau, has enrolled more than 1.5 million acres in 24 states for carbon credits sold on the Chicago Climate Exchange.
Will be a bigger issue as the market demands to know where food comes from and who grows it. Demand for organic and natural products, as well as accountability up and down the food chain, will also drive this issue.
The Wal-Martization of America
What Wal-Mart wants, it usually gets, and what it wants now is a greener image. That includes food. The nation's largest food retailer touts organic sales plus locally grown produce. The company's Web site features farmers from around the nation whose products are sold in the stores. As Wal-Mart goes, so go the rest of us? Time will tell.
Just how precise can we get? Would you believe farming by the inch? Precision farming technology has already changed how we farm. Something tells us we've just seen the start of it. A few years ago, who would have thought tractors could drive themselves?
The public debate has already started, but look for it to get more fierce. Audubon last year cut a deal with the Tejon Ranch, California's largest private landowner, to keep 90% of the property from being developed. In Florida, after years of pressure from environmental groups, United States Sugar Corp. agreed in December to sell 180,000 acres for $1.34 billion to the South Florida Water Management District for an Everglades restoration project. Other groups can offer competing bids until mid-February.
No list about what will impact agriculture's future is complete without considering the weather. What that impact will be is anybody's guess when it's still difficult to accurately predict weather more than a week away. But with 2008 seeing the second of two 500-year floods just 15 years apart and the continuation of a three-year-long drought in the Southeast impacting farmers and the transportation industry alike, this story will continue to play out and change daily.
In 1948, when the General Agreement on Tariffs and Trade (GATT) first began, there were 23 members. Today, 151 countries belong to its successor, the World Trade Organization.
The record attests that free-trade agreements boost U.S. exports to member countries: Whereas free-trade agreement countries (Australia, Bahrain, Canada, Chile, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Mexico, Morocco, Nicaragua and Singapore) accounted for only 7.5% of world GDP (excluding the U.S.) in 2006, they accounted for 43% of U.S. exports.
"Each farm export dollar earned stimulated another $1.65 in business activity in 2006,” says William Edmondson, USDA economist. "The $71 billion produced an additional $117.2 billion in economic activity, for a total economic output of $188.2 billion. Ag exports also generated 841,000 full-time civilian jobs, which include 482,000 in the nonfarm sector.”
Obama favors free trade but wants stronger negotiation and more benefit on Main Street. He stresses we should insist on labor standards and human rights, as well as structures to protect the environment. On those issues, he wants to amend NAFTA and voted against CAFTA. He criticizes China for manipulating currency and for lack of quality controls.
As U.S. Trade Representative, Ron Kirk, former mayor of Dallas, will be knowledgeable in seeking stronger labor and environmental provisions in NAFTA.
"Our free trade agreements should not just be good for Wall Street, they should also be good for Main Street.” Barack Obama at a Democratic primary forum in 2007
Wake up to animal rights
"We have no ethical obligation to preserve the different breeds of livestock produced through selective breeding . . . one generation and out. We have no problems with the extinction of domestic animals. They are creations of human selective breeding,” Wayne Pacelle of the Humane Society of the United States, said in Animal People News (May 1993). The Humane Society of the United States is the world's richest animal rights organization, with revenue of $100.8 million and net assets of $225.7 million in 2006. People for the Ethical Treatment of Animals, though perhaps causing more of a stir, has a war chest only a third the size. Charity Navigator finds 401 organizations having to do with "animals” and 246 specifically about animal rights.
Pacelle isn't talking about just farm animals, either; he is talking about breeds of dogs and cats and horses as well. Joe Biden's White House German shepherd puppy? Gone in Pacelle's world. And you can kiss 4-H projects goodbye.
"The animal rights movement pressed into school systems and devised an educational program for every animal venue. Farming, exhibits, zoos, wildlife, environment, veterinarians, companion animals—no stone was left unturned. It doesn't matter what we do, it's surely not in accordance with the animal rights activist groups,” says Linda Witouski, an American Kennel Club judge and legislation delegate.
Those groups are having an effect. The latest Harris Poll found some 2.3% of adults over 18 are vegetarians. That's some 4.7 million people. Another 6.7% don't eat meat (they do eat fish and/or fowl). And some 3% of teens say they are vegetarians.
Gestation crates have been banned in Florida, Oregon and Arizona. California passed its "Proposition 2,” the Standards for Confining Farm Animals initiative. U.S. Congressman Peter DeFazio (D-Ore.) introduced a federal bill called the Farm Animal Stewardship Purchasing Act (H.R. 1726) that would require basic welfare standards for all animal products purchased for federal programs (the military, prisons, school lunches, etc). Buying only pork products made from pigs that were not kept in gestation crates would be among the requirements.
Now, it's not only animal welfare activists but also environmentalists who are attacking animal agriculture. Two researchers at MIT, for example, found that "replacing just 21% to 24% of red meat in the diet with chicken or fish would cut out as much greenhouse gas as buying all-local.” Or consider these statements from www.all-creatures.org
"Raising cattle for food consumes over half of all water used in the U.S.”
"It takes 2,500 gallons of water to produce a pound of meat but only 25 gallons to produce a pound of wheat.”
"Chicken processing plants use up to 100 million gallons of water per day.”
"Rainforests are being destroyed at a rate of 125,000 square miles per year to create space to raise animals for food. Rainforests are extraordinarily important for the health and climate of the planet since they produce a great deal of oxygen and absorb carbon dioxide.”
From Local Foods to Skyfarming
It's trendy to "eat local” and "buy local” these days. As suggested by the alternate term "food patriotism,” it carries a positive connotation. Locavore (a person who eats food harvested from an area most commonly defined as a 100-mile radius) was chosen as the word of the year in 2007 by the New Oxford American Dictionary. It implies less fuel used for transportation, support of local farmers and economy, freshness and high quality, and safety.
For more on local food, see http://en.wikipedia.org/wiki/Local_food
Suburbanites not only are frequenting farmers markets, they are also cutting back on flower gardens to plant vegetables; more vertical hydroponic gardens are catching on indoors and out. Far more exciting—and entertaining—however, is "skyfarming.” Taking local to the inner city, the idea involves skyscrapers designed to produce food. These self-sustaining vertical buildings would produce not just food but also energy and water.
For links to designs, see www.verticalfarm.com, http://weburbanist.com/2008/11/23/future-green-design-technology/
For an argument that food miles are less important to the environment than food choices (meats are the environmental bad boys), see http://news.mongabay.com/2008/0602-ucsc_liaw_food_miles.html
Input costs soar
In the past year, farming rose to a whole new level in terms of cash changing hands. Corn budgets for 2009 are projected just shy of $600/acre and soybeans in the mid to upper $300s. Serious planning ahead is needed, comments Jerry Gulke of Strategic Marketing Services in Chicago. This includes heightened risk management—including more autonomy in marketing, planning sales to cover cash needs, and making risk management needs a line item on your budget. "If your lender doesn't understand the need for options premiums or margin calls, find one who does,” Gulke declares (see Market Strategy
). "Relying on cash sales only just leaves too much money on the table.”
More growers are renegotiating leases and working out flexible arrangements to control costs, and leases will continue to be a cost that requires attention as more land shifts hands (see Moneywise
Fertilizer, the other major cost factor, tripled in the eight years of this century. And world competition means prices will remain volatile. The U.S. imports 55% of its nitrogen and 90% of potash needs, says Ford West, president of the Fertilizer Institute. That means freight costs are a huge component in prices paid at the farm level. In addition, strong demand pits U.S. farmers squarely against their brethren in other countries. China is the world's largest consumer of fertilizer, with the U.S. second. India and Brazil are rapidly catching up.
Sky-high capital investment
With today's high capital requirements, farming isn't a casual occupation. For example, in 1997, farms in Minnesota with 1,000 to 1,5000 acres had more than $350,000 in intermediate-term assets (such as machinery); in 2007, value had risen to a touch under $500,000—about a 40% increase. Meanwhile, long-term assets (land and buildings) rose from $1 million to $1.8 million—a 40% increase! Great if your assets are paid off; not so good if you are starting out. Only the strong-willed and financially strong will gain a foothold. How do you spell consolidation?
BRIC Rocks Globalization
The world's pendulum has swung to the side of free trade, and although protectionism has not been vanquished, those carrying its banner will have a hard time mounting any sort of campaign.
"The benefits of reciprocal trade concessions extend beyond the increased exports valued by producers; consumers also gain from concessions that lower the cost of imports,” says USDA economist Anne Effland.
Remember when fruit was seasonal? Imagine your children's faces if told they can no longer have fresh grapes or strawberries in January! Close to half the value and volume of U.S. ag imports is for horticultural crops and products.
In addition, financial markets are as entwined as a strand of DNA. Japanese companies own grain elevators in the U.S. and Brazil; Brazilian JBS wants to buy U.S. packing company Swift; the Chinese government's bank dropped $5 billion into brokerage house Morgan Stanley (and other Asian and Middle Eastern government banks bought into Citibank and Merrill Lynch); you may gas up at Lukoil, the Russian state-owned petroleum company that gobbled Getty in 2000. There is no turning back. For a list of foreign government investments in U.S. financial firms, see http://www.chicagofed.org/publications/fedletter/cfljanuary2009_258.pdf
The building blocks of world growth are the BRIC countries—Brazil, Russia, India and China—which are home to more than half the world's population. Both customers and competitors of U.S. farmers, their economic growth will fuel ag sales worldwide.
Accept a hotter world
"It is time to quit questioning climate change and its possible causes,” says Barry Flinchbaugh, Kansas State University economist. "Science now is beside the point. The political community has decided we are going to do something about it. Agriculture needs to step up and turn it to its advantage.”
Financial reform momentum
It's pretty hard to argue against the fact that lack of regulatory oversight was partially at fault for the financial markets' collapse. Rumblings have been heard about the desirability of a merger between the Securities and Exchange Commission for years. The Secretary of the Treasury, Henry Paulson, Jr., recommended it in March. In the wake of the 2008 financial earthquake and with a new President who is on record as wanting to eliminate duplication in government, will it happen?
Then-candidate Obama was critical of the plan Paulson proposed and suggested creating a financial oversight panel. He has already set up a panel called the President's Economic Recovery Advisory Board, headed by former Federal Reserve Chairman Paul Volcker (who tamed rampant inflation and dealt with recession in the 1980s) and modeled on the Foreign Intelligence Advisory Board set up by President Dwight Eisenhower in 1956 to ensure the U.S. was capable of winning the Cold War.
With taxpayers funding massive government buy-ins, some say we are moving to a more socialistic society. There is little doubt more changes are on the way in this corner of the economy.
Market specific ag
Farmers are experimenting with switchgrass for ethanol and you may soon see corn grown for cobs. Many farmers are finding local and world markets for their production of traditional crops.
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Top Producer, January 2009