August 25, 2000 / Capital Press / by Peggy Steward, Capital Press Staff Writer YAKIMA, Wash. -- This could be the century the federal government lets American agriculture slide away. That was the dire prediction of noted agricultural economist Steven Blank in a presentation at the Yakima Pomological Club Aug. 16. Blank, on the faculty of the University of California-Davis, is the author of "The End of Agriculture in the American Portfolio." Blank, whose father was born in Wenatchee, Wash., was raised on a California cattle ranch. He became a specialist in agricultural risk management and traveled widely, talking with farmers. Many of the ideas in his book were learned from ag producers, he said. The gradual demise of agriculture may be inevitable because it's ultimately an investment decision, Blank said. And agriculture has increasingly poor returns on investment. At some point, agriculture may be dropped entirely from the national portfolio because it cannot compete with the profitability of newer industries, he said. The country is moving away from resource-dependent industries such as agriculture, to high-tech manufacturing and information production, which exploits capital and management. Agriculture, because of its high-risk nature, may no longer be a good investment. Today's agriculture is very different than it was just decades ago. Technology has changed the face of agriculture -- from production to processing, transportation and storage of ag products. Those technological advances have changed more than agriculture, they have changed the world, Blank said. American agriculture is in a "profit squeeze." Farm numbers and farm acreage are dwindling. That means consolidation is forcing some farms, mostly mid-sized ones, out of business. Decades ago, observers said "bad farmers" were the ones going out of business, but in the last 20 years, theres been no such thing as a "bad farmer," Blank said. Instead, its no longer profitable to keep land in production. One of the prime problems facing U.S. agriculture is that commodity prices are global while production costs are local. That means agricultural producers face both rising costs and increased price pressure from imported products. For example, in the 1950s, transportation and storage technology was limited. Competition between tomato growers was regional at most. Today, technological advances make it possible to ship tomatoes intercontinentally in direct competition with producers around the world. "Under those conditions, an undifferentiated commodity drops to the lowest level any seller is willing to take," Blank said. There becomes, in essence, one global price. At the same time, production costs such as land and labor are local. U.S. farmers find it hard to compete when local land prices and worker wages are many times higher than in other countries, Blank said. The squeeze comes when costs rise while world commodity prices are relatively stable or falling, ignoring seasonality. In 1999, prices for ag commodities fell an average of 7 percent while costs rose 20 percent, Blank said. The value of American farmland has changed in recent years. Increasing land values mean non-ag uses, including development, become more attractive. Farmland close to urban areas has higher value, increasing pressure to take it out of production. Despite the bleak picture, he offered some suggestions for farmers to help them remain competitive. Price strategies, including adding value through processing, and strategic alliances or integration between producers and processors can work. For example, there's almost no money to be made growing winegrapes in California, Blank said. But there's plenty of money to be made making wine. Wine becomes a differentiated, branded product. "The most profitable parts of agriculture are those closest to the consumer," Blank said. Strategic alliances are increasingly important since only 8 percent of American income is spent on food, a percentage that economists expect to remain static, Blank said. Cooperatives are just one example of an alliance. They require enough capital to operate at a sufficiently large size, and expertise to do the job as well as the competition. Farmers have been good at adopting cost strategies, Blank said. Producers can reduce the cost per unit by increasing their scale of operation and by using new technology. But technology becomes obsolete quickly and competitors tend to catch up. Much of the shift in farm acreage has been to high-risk, high-value perennial crops. For example, eight years ago, almond prices were good and acreage greatly increased. This year, Blank estimates almond prices will be two-thirds the cost of production. "American agriculture is moving up the farming food chain," Blank said. "It's become more risky as it requires more money per acre for higher value crops." Unfortunately, government policy makes it possible to take on more risk, he said. The 1996 Freedom to Farm Bill was supposed to remove government support, but just the opposite happened, Blank said. In 1999, a record amount of federal money was appropriated to prop up farmers threatened by falling commodity prices and evaporating markets. Food is no longer vital to national security, Blank said. He said the global market has fostered a kind of international mutual dependence that benefits consumers and large U.S. food processing companies because imported ag products are available year-round at low prices.
He urged farmers to emulate agribusiness. Farmers need to diversify, to differentiate their product, to bolster marketing skills, and to learn what the consumer wants and work back from that point.
"Do not be only a commodity seller," Blank said.
Don Gibson, president of the Yakima Pomological Club and a White Salmon, Wash., orchardist, said Blank's perspective is an important one for growers to hear.
The presentation affirmed what most growers already knew, Gibson said. And while he doesn't agree with everything Blank said, he agrees that there are greatly increased risks associated with agriculture. "We've had a tough few years and we can probably expect a few more," Gibson said. "Whether optimistic or pessimistic, growers like to see things in the real sense. There's a sense of realism in much of what Blank is saying. "Blank's done a fair job of identifying the problems. It's up to us to identify the solutions.":
