Economics of Freedom to Farm put survival of some in doubt

If U.S. rice producers are to continue to survive under Freedom to Farm, many will have to change the way they do business in the years ahead, a University of Arkansas farm policy analyst says.

Bobby Coats, agricultural economist with the university's Cooperative Extension Service, says the outlook for Arkansas rice farmers for 2001 is fairly bright given the government assistance programs Congress passed this year. But, after that, things get cloudy.

"If you talk to agricultural lenders in the Mississippi River Delta area, they're fairly bullish today on making rice loans for next year," says Coats. "But, if you're talking about any commodity that is grown dryland or without irrigation, it will become increasingly difficult to obtain a loan."

Speaking at the Southern Region Agricultural Outlook Conference in Atlanta, Coats said that while many farmers say they like the flexibility of Freedom to Farm, the economics are putting their long-term survival in doubt.

"When Congress passed the 1996 farm bill, I asked myself whether we in the Mississippi River Valley Delta could compete in a global economy given our current production structure," he noted. "And the answer I came up with was that we cannot.

"So, what things do we do to change so that we will be able to compete? For the Mississippi Valley Delta, it means fully developing every acre of land and fully developing our water resources, and that will mean different things throughout the rice-growing areas of Arkansas."

Coats said flexibility has become a popular word in farm circles since the passage of the Federal Agricultural Improvement and Reform (FAIR Act) of 1996. "You ask a group of producers about flexibility, and they all want to keep flexibility.

"But what does flexibility mean? For rice growers, it means that the low-cost producer ultimately survives, and it means there will be a tremendous shakeout for many of those who do not become low-cost producers."

Becoming the low-cost producer does not mean simply trimming input costs, says Coats, who is based in Little Rock. For Arkansas rice growers, it may mean pushing their farm yield average to 200 bushels per acre by the year 2010, thus lowering their costs. It may also mean changing their farming operations.

"Until 1996, the primary issue for many of our producers was when to expand their operations to gain additional revenues," he said. "But after the passage of Freedom to Farm and the global financial crisis of 1997, we were in a position where we needed to begin focusing on optimal yields with these farms.

"In many cases, our producers have contracted or need to contract their operations so they can gain that optimization of their yields."

What will it take to get Mid-South rice producers to the 200-bushel yield range? For that, they may need to look to areas like California where growers have improved yields a third over what the Mid-South produces.

"What they will tell you is semi-dwarf varieties, precision leveling and abundant water," he noted. "We will have to follow that to fully develop our land resources to achieve optimal yields, superior grain quality and reduce yield variability."

Coats used a "hypothetical" 1,380-acre Arkansas rice-soybean-wheat farm to trace what has happened to rice producers in his state since the advent of Freedom to Farm. (The farm includes 550 acres of rice, 480 acres of full-season soybeans, 250 acres of double-cropped soybeans and 250 acres of wheat.)

In 1996, when the season average price for rice was $10 per hundredweight, the farm registered a positive change in net worth of $66,000. In 1997, it had a positive change of $37,000; in 1998, a positive change of $9,000; and in 1999, a negative change of $7,000. Coats expects the 2000 results to be similar to 1999.

"If you look at the farm over all four years, we have a total gross of $2,108, 635," he said. "On a fully developed farm or one that could produce yields approaching 200 bushels of rice per acre, the gross would go from $2.1 million to $2.9 million."

Rice farmers may also have to look at changing their crop mixes, says Coats.

"Historically, if you're talking about rice in Arkansas, you're actually talking about rice and soybeans or rice, soybeans and wheat," he said. "Now, you're talking about rice and aquaculture or rice, soybeans, wheat and corn."

Arkansas grew about 200,000 acres of corn in 2000. "I contend that we probably need to be focusing on a million acres of corn. That can only be done, though, if those land resources are developed - precision-leveling, straight and permanent levees, improved drainage, water delivery and water recovery."

Farmers may also be looking at adding cotton to that rotation. "Traditionally, our cotton and rice regions have been separate, but rice works quite well on a cotton farm when you put rice on the heavier soils associated with soybean production."

Turning to the market outlook, Coats said some analysts are beginning to paint a bullish scenario, in part, because USDA reduced its beginning stocks estimate for U.S. rice by 10 million hundredweight (27 percent) in early September.

"When we look at total use for the 2000-01 marketing year, domestic and foreign demand is quite strong," he noted. "Production is expected to be down slightly in the United States and in the world because globally we are responding to the lower prices of recent years."

Coats says he is projecting an increase in U.S. rice acreage for 2001 if rice prices and the loan deficiency payment rate combined reach $9 per hundredweight in January through March. "$8.50 or less says we probably stay status quo."

Using world rice trade figures from the last decade, Coat demonstrated how much more competitive the rice markets have become.

"In 1985, world rice trade totaled 11.7 million metric tons with 50 countries participating in the world market," he noted. "This year, world rice trade is expected to reach 24.4 million metric tons, and 100 countries have embraced the idea of globalization."

Most of the stocks reduction in September came in long grain rice, the type that most producers in the Mid-South grow. Long grain stocks fell from an estimated 30.5 million hundredweight in August to 15.6 million hundredweight in September. Medium grain stocks, meanwhile, rose from 6 million to 10.4 million hundredweight.

Long grain production for 2000 is estimated at 130 million hundredweight, a 14 percent reduction from last year. Medium grain production is expected to total 61.6 million hundredweight, an increase of 13.7 percent.

"Many analysts are projecting a bullish scenario, but it's a bullish scenario only if you can couple that with a disaster somewhere so there's additional demand created," says Coats. "With all the competition we face in the world market, we could easily have another test of the new farm bill if something like that doesn't happen."