Today’s farming and ranching operations will need new financial solutions to take advantage of forces re-shaping U.S. and world agriculture, according to a report by the Farm Credit Council, the national association representing the interests of the institutions of the Farm Credit System.
“Yesterday’s ways of doing business simply will not work to ensure the continued success of agriculture and America’s rural communities,” said Wayne Lambertson, a Maryland farmer and chairman of the Farm Credit Council board of directors.
In January, the council released a report, Farm Credit Horizons, which describes how changes in agriculture need to drive policy solutions to help farmers, rural businesses and rural communities succeed in the emerging marketplace.
The project indicates that incremental changes to the Farm Credit System can provide agriculture and rural America greater access to additional capital that can be used to expand agriculture’s contribution to rural prosperity.
There were eight findings in the report, most of which point to one thing — this ain’t your grandfather’s farm anymore.
1. There is tremendous diversity in size, annual revenue, ownership structure and marketing approaches, as well as in the age, ethnicity and gender of the owners and operators of today’s farms.
2. Farmers are diversifying their business interests both within and outside agriculture. The overwhelming majority of all farmers, but especially small-sized operations, rely on off-farm employment to stay in agriculture.
3. Farmers depend on a wide range of businesses that may or may not be owned by farmers, and they may or may not be located in a rural community, but all are essential to the economic viability and quality of life for farmers.
4. While the number of farmers, the jobs in agriculture and agriculturally related industries, and the number of counties and communities that rely on agriculture have all declined, the future of U.S. agriculture remains bright. Future possibilities are expanding, not contracting.
5. It is becoming increasingly difficult to define a rural community solely by population or traditional qualities.
6. Regional collaboration, public-private partnerships and coalitions of investors are key to the future of many rural communities. To create jobs, attract new business and foster an environment for future economic development, agriculture and rural American will need to find new ways to reinvest farm real estate equity.
7. As skilled, experience and innovative business owners, today’s rural entrepreneurs, including farmers, ranchers and producers alike, will continue to need access to capital, essential infrastructure and business support service for that entrepreneurial engine to continue to spur rural economic growth.
8. The diverse farms, rural businesses and rural communities of the 21st century need ongoing access to dependable, flexible and competitive financial products and services to compete and thrive in this global and rapidly changing environment.
The study, based on a combination of research, surveys and interviews, pointed out that the percentage of the U.S. workforce employed in agriculture has declined significantly since the beginning of the 20th century — from 41 percent in 1900 to 22 percent in 1930, to 16 percent in 1945, to 4 percent in 1970 to 2 percent in 2002.
Meanwhile, commercial farm and ranch sizes are growing, while smaller-scale farms, including specialty and beginning operations, continue to make up the largest number of farms. These trends place new demands on production and marketing systems that must rely on debt and equity capital to grow and profit.
These changing demands challenge existing rural transportation networks, schools, housing health care facilities, energy, weather and communications systems, all created to serve rural America in an earlier time.
Biotechnology has improved crop yields and reduced the need for labor, energy and chemicals and it promises new markets for agriculture, including pharmaceuticals and industrial products.
Ethanol and biodiesel technology fulfill a need for cleaner, alternative fuel sources, and at the same time create new markets for farmers.
Technology continues to transform this generation’s agricultural business just as the tractor and hybrid seed transformed its grandparents’. More and more, agricultural producers use the Internet for marketing information to obtain farm inputs and to seek other services.
The internationalization of the agricultural economy is perhaps the most challenging aspect of this change, according to the report. Today, export earnings account for 20 percent to 30 percent of U.S. gross farm income. U.S. farm exports exceeded $61 billion in 2004, a new record. While agricultural exports still outpace imports, imports are on the rise due to global competition and expanded trade under negotiated trade agreements.
More than 95 percent of the world’s consumers live outside the United States, many in countries with rising incomes. U.S. exports of higher-value products such as meat and dairy products and processed foods have increased by 25 percent since 1998. By comparison, exports of bulk commodities such as corn, soybeans and wheat rose modestly in value and stayed flat or declined in volume.
U.S. commercial producers tend to fall into three categories, the report noted: producers of bulk commodities, generally on large-scale operations; farms of varying size supplying targeted niche markets or those with specific output characteristics; and producing specifically for vertically integrated value chains, where farmers grow the product and participate in at least part of its further processing, marketing and retailing.
Continued growth is likely for the largest commercial farms — those with annual sales of $5 million or more — as well as for smaller specialty growers. Mid-size, traditional farms and ranches producing between $250,000 and $1 million face the greatest challenges. Such farms will continue to decline in number — either expanding into the larger category, diversifying into non-farm enterprises to survive, or ceasing production, mostly through retirement.
Experts anticipate the largest numerical growth among smaller-scale operations, especially those in the category with annual production of less than $50,000. In addition, the number of landowner investors will continue to increase in size and importance.
About 7 percent of farms tallied in the 2002 Census of Agriculture reported cash receipts of more than $250,000 and were responsible for 76 percent of all agricultural sales. The historical data show that fewer farms are becoming increasingly important as the source of the bulk of our nation’s food.
Today, the 30,000 commercial farm operations — those that sell more than $1 million in farm products annually — account for about half of all farm output.
The percentage of farmers with off-farm work or income grew from 30 percent in 1930, to 27 percent in 1945, to 54 percent in 1970 to 93 percent in 2002.
More than 6 million farm families worked the land in 1916, on an average farm of about 150 acres. Today’s 2.1 million farm operations average about 440 acres. American agriculture sold $240 billion in crops and livestock last year, exporting more than a fourth of it.
Copies of the report can be downloaded from www.fchorizons.com. To request a print copy, contact the Farm Credit Council by mail at 50 F St., N.W. Washington, D.C., 20001.