Cynics call this a mass exodus. Optimists call it a delicate fade. Mark Drabenstott calls it an opportunity.

Put simply, Drabenstott’s message – presented at the 2003 Agriculture-Business Conference at Arkansas State University – centers around this single sentence: Commodities may be the wrong business to be in.

“I think it’s time we think about where the new economic opportunities are in rural America. And in many cases, they aren’t in commodities,” says the vice president and director of the Center for the Study of Rural America at The Federal Reserve Bank of Kansas City. “In fact, I’d suggest that one of the prices we’ve paid for commodity-driven policies is that we think only in terms of commodities. If we continue to think strictly in terms of commodities, things won’t change.”

There are some tremendous business opportunities on the horizon – many of them made possible by technology. But in almost every case those opportunities for rural America represent a new way of doing business. They also probably require a very different set of public policies than have been historically prescribed.

Economic engines

Why the need for changes and new economic engines? Very simple: the old ones are sputtering.

“We have very uneven economic growth in the rural parts of our nation. And, in agriculture, we see the continued benefits of productivity gains while at the same time, needing fewer inputs to get that higher output. Among those inputs aren’t just fertilizer and fuel – we’re also talking about Deere dealers, grain elevator employees, farmers, community banks and everything else.

Drabenstott says that through the 20th Century, most thought of the rural economy as having two legs – commodity agriculture and manufacturing. There is a continued perception – among both farmers and non-farmers – that the rural economy depends on agriculture. But Drabenstott says that’s not the case.

“In fact, manufacturing is more important to the rural economy than is agriculture. But there is a perception that commodity agriculture drives the rural economy. To support commodity agriculture, we’ve had nearly seven decades of farm bills and a host of programs that have supplied payments to farmers and the rural economy.

“Much less recognized, but probably more important, has been an economic development strategy in much of rural America that said, ‘If we could get a branch plant to locate on the edge of town, we’d do just fine.’ That’s especially true in the South, where there has been a very big push in the last 30 years to get a lot of manufacturing facilities to leave the North and come south.”

That migration has been supported by a huge pot of industrial recruitment subsidies, he says. The South has done what it takes to get these plants to move.

“I’d argue that if we piled up all those industrial subsidies, it would probably be as high – if not higher – than the pile spent on farm programs.”

The dilemma is that the two-legged economic strategy isn’t working very well. There is uneven growth and rural residents have discovered that globalization has had tremendous impact on both legs of the rural economy. Economists are finding that the impact of globalization come home to roost. When you have a commodity-based economy – whether agricultural or industrial – a tremendous impact is seen from globalization, he says.

And then there is the population shift. Drabenstott shows a map of the U.S. There are three colors on the map: gray, blue and yellow.

The gray counties are metropolitan areas where 80 percent of Americans live. Dark blue represents rural counties that had above average economic growth in the 1990s. Counties colored yellow had below-average economic growth in the 1990s.

Anywhere you find a heavy concentration of agriculture, you’ll likely find counties colored yellow. In these seas of yellow, “you’ll find that six to seven out of every 10 rural counties are asking themselves a very basic question: Where is our next economic engine?”

Drabenstott shows a chart, this one showing South America and U.S. soybean production.

The chart shows that last year, for the first time, Brazil and Argentina’s total soybean production exceeded that of the U.S.

“In a global marketplace there’s one very simple law at work: the low-cost producer survives. American farmers are seeing what is happening in South America and they’re asking whether it’s better to own Iowa farmland or Brazilian farmland.”

Commodity agriculture isn’t the only part of the rural economy feeling the effects of globalization. More quietly, but more fundamental is what’s happening to manufacturing facilities in rural America.

“Last year, there were nearly 150 factories in rural America that closed. We can’t track from data where the plants went. However, I don’t think it takes a rocket scientist to figure that out. They probably went to Mexico, China, somewhere in the Far East or even eastern Europe.”

Drabenstott says there are two reasons why factories were moved to rural America over the last 50 years: Cheap land and cheap labor. But with globalization there are places with even cheaper land and labor.

“My point is, the fundamental foundation of what we’ve thought of the rural economy – ag and basic manufacturing – is facing a real challenge as the world shrinks.”

A second map is put on the screen. On this map, dark blue represents rural counties with the most rapid gain in population during the 1990s. Similarly, the yellow counties are those that have had an outright exodus of population.

“When I travel to farm country, I frequently encounter a chorus line at some point during nearly every conversation. That chorus is, ‘How are we going to keep our kids in South Dakota?’ There is a huge challenge in much of farm country – there are too many hats and not enough heads. There are too many leadership jobs and not enough qualified people to fill them. This is a problem encountered throughout farm country.”

Potential solutions

“I think there’s a lot of opportunity – but we’re not going to stop growing crops or stop producing widgets in rural factories. I would never suggest otherwise.

“What I am suggesting is that unless we start supplementing a commodity-based rural economy with something else, all the trends I’ve already laid out are certain to continue.

What can we begin to think of adding to the mix of the rural economy?”

Drabenstott says there is a growing consensus among economists that regions must constantly invest in new sources of competitive advantage instead of trying to protect the old.

“We must realize there is a basic element of human at play here – whether you’re talking about the federal government, state government, or the economy in northeast Arkansas the easiest thing to do is protect the status quo. The hardest thing to do is to reinvent yourself. But that is the challenge that a global economy presents.”

“I increasingly use the term ‘product ag’ to differentiate that portion of agriculture that is distinct from commodity ag. Product ag is a fairly wide spectrum.”

Drabenstott points to bio-plastics. Last year, a plant was opened in Nebraska that produces biodegradable clothing fabrics that are popular in the Japanese market.

On the far end of the spectrum, are things like “farmaceuticals.”

Somewhere in the middle are what Drabenstott calls “farm to grocer” foods. This gives consumers additional choices when they go to market to satisfy different tastes, variety, and nutritional desires. There are very few cases of good product to grocer alliances in the United States.

“I recently met an executive for a top U.S. grocer and asked how many farm to grocer alliances his company had in the country. He said zero. How many would he like to have? He said it depends. Depends on what, I asked? He said it depends on the ability of farmers to consistently meet quality standards and sufficient product flow to keep shelves stocked even if it’s a seasonal item.”

There’s an interesting example of this in the United Kingdom – Waitrose, the third or fourth largest U.K. grocer. Waitrose weren’t even on the scene 10 years ago. The grocery chain has had rapid growth by providing consumers with a tremendous variety of farm-fresh, organic products.

“They sell everything from organic legs of lamb to deep-straw eggs. I went shopping with a friend of mine in a London Waitrose a couple of years ago. She went down the egg aisle and picked up a box of 6 eggs labeled ‘deep straw.’ I asked what that was and she handed me the box. On the box was written, ‘These eggs came from hens with ample space to scratch, preen and dust bathe.’ I’m not even sure what dust bathing is.”

And who cares what dust bathing is? Waitrose was charging four times the cost of a dozen regular eggs and consumers were willing to pay the price.

“There are opportunities to be had for farmers within driving distance of a city like Memphis. The dilemma is it will take more than one farmer to get it done – and we tend to celebrate independence in ag above all else.”

Regional branding

Regional branding in the U.S. is in its infancy. European farmers are far advanced in this area of commerce.

To give a sense of how this adds value, Drabenstott points at U.S. and Italian hogs. Italian farmers are fetching a much higher price for their hogs and one of the reasons is Parma ham.

“Everyone wants Parma ham and you can only sell ham as Parma if the hog lived near Parma. Same thing with Italian Parmesan cheese – the dairy cows reside outside Parma.”

Likewise, if you’ve ever bought a bottle of French wine with the words “appellation controlee” on the label, that means you’re getting something regional. If you buy champagne, the grapes came from Champagne. If the grape came from anywhere else, the resulting drink isn’t “proper” champagne. The same is true of Bordeaux wine, Roquefort cheese and many other products.

“My point is, maybe it’s time to go beyond soybeans. Maybe we need to start regional food brands that can attach greater value to products.”

Farmaceuticals and tourism

One of the most exciting things on the horizon is what Drabenstott terms farmaceuticals.

“But I must tell you the door could slam shut. Last year, there was a very bad occurrence with some volunteer genetically modified (GM) corn came up and was harvested along with some soybeans. It was dumped in a bin with 500,000 bushels. The whole bin had to be destroyed.”

As the U.S. is at a crossroads with this new technology, Drabenstott says the industry desperately needs a Bill Gates of sorts – “someone who will bring forward the gold standard of production protocols. We need someone to say, ‘This is how we’re going to grow this stuff.’”

In Iowa, there is a group of farmers working to put together 3,000 acres of GM corn to be used in manufacturing a drug for cystic fibrosis. The beneficial protein can be grown in corn and costs a seventh of the price it would cost to produce in a lab.

The problem is to get 3,000 acres – which doesn’t sound like a lot – requires a few hundred farmers because growing the corn is management intensive.

“So how do you get 250 Iowa farmers to agree on anything? If you make a call at the Chatterbox Café – and some of you were there this morning – you know that if there are four farmers sitting down having coffee, there are at least nine opinions at the table. How do we start thinking about getting 250 farmers to grow the same corn, the same way in an ISO 9000 quality control manner?

“Think of the upside! If they can pull this off, an $80 million to $100 million processing facility will be built out amongst their fields offering high-scale, high-wage jobs. But getting everyone on the same page is difficult.”

Farmers are also steadily learning the value of hunting and tourism. As in the Delta – where duck and deer hunting operations are operating on many farms – Drabenstott says in parts of South Dakota, “farmers are discovering that selling pheasant hunts are better than growing soybeans. But it helps if you have more than one ranch doing that. You need a constellation of these in an area.”

But regardless of whether you’re talking agriculture or tourism, Drabenstott believes there’s a common thread. That thread is interdependence.

“You can’t get to critical mass in farmaceuticals with one farm. You can’t get to tourism with one bed and breakfast – it takes region. This is a new time with new opportunities. We must adapt our business models to where the opportunity lies.”

e-mail: dbennett@primediabusiness.com