The American Banker | July 18, 2001 | BY BEN JACKSON
Rural America is not synonymous with American agriculture.
This principle underlies the mission of the Center for the Study of Rural America, a unit of the Federal Reserve Bank of Kansas City that aims to influence the way agricultural policy is set.
The center's director, Mark Drabenstott, said he believes that rural America's problems are too often viewed through the narrow prism of crop production. Rather than just looking for ways to increase farmers' yield per acre, the center examines a much larger issue: bringing people and businesses into rural America.
With Congress beginning to debate the 2002 farm bill, the center's work could play a part in setting agriculture policy. Though they do not advocate specific legislative positions, the center's staff would like to see the farm bill become part of comprehensive legislation to address all of rural America's needs, instead of just those of farmers and ranchers. (See story below.)
"The rural economy has changed a lot since" the government "put in place our rural policy mechanisms," Mr. Drabenstott said.
The current structure of rural policymaking was started around the turn of the 20th century when President Theodore Roosevelt created a Country Life Commission. The panel was assigned to assess the state of farm life and to help farmers solve problems not directly crop-related.
From the commission's work grew the Capper-Volstead Act of 1922, which created agricultural cooperatives and, 11 years later, the Farm Credit Administration. Though the commission examined rural America as a whole, including schools, infrastructure, and even churches, these topics were ancillary to raising and marketing crops and livestock. Now, however, farming is considered one of many industries in rural America.
Mr. Drabenstott proposed the idea for the center three years ago to Kansas City Fed President Thomas M. Hoenig. With other Federal Reserve district banks devoting fewer resources to rural issues, Mr. Drabenstott saw an opportunity to use the expertise of his staff to examine rural America's problems.
"If you look at this region of the country, we're still importantly a rural region," Mr. Hoenig said. "As Mark Drabenstott observed things, he said, 'Why don't we formalize this and build a center on rural America?' "
The center has since grown to include two economists and two research associates, plus an editor for its monthly newsletter. It also is looking to add a senior research adviser to the staff, whose members hail from such towns as Strawberry Point, Iowa; Shallow Water, Kan.; and Minco, Okla.
"We think it's important for the nation's central bank to understand the dynamics of the rural economy," Mr. Drabenstott said.
To bring about such understanding, the center's staff turns data into information by analyzing economic numbers and preparing its own surveys. It plays host at conferences that bring together experts on the economy, policymakers from this country and abroad, and residents of rural America to exchange ideas.
Mr. Drabenstott also testifies regularly before congressional agriculture panels, and the center tries to educate the public by publishing research reports and a monthly newsletter called The Main Street Economist, which has a circulation of about 8,000.
"I find farmers saying it's not just agriculture out here in rural America," said Kendall McDaniel, associate economist at the center. He said the farmers he meets worry about the towns they live in and say they rely on businesses there.
Mr. McDaniel is working on a National Land Credit Survey to determine credit conditions in rural areas. The goal is to broaden the scope of existing surveys and use the resources of all 12 Federal Reserve banks to measure the value of farm land and the creditworthiness of its owners.
Jason Henderson, an economist at the center, has studied the use of electronic commerce by agribusiness. He believes the new business model for farming has helped change attitudes.
"Farmers were more office managers than farmers," he said he had found, adding that three-fourths of agriculture-related businesses engage in electronic commerce.
The evolution in farming does not mean agriculture should be subsumed under rural policy, however, according to Peter J. Barry, director of the Center for Farm and Rural Business Finance at the University of Illinois in Urbana-Champaign. In his view, the next farm bill should primarily deal with farming.
Agriculture and rural policy "are closely related, certainly, but they often have quite different constituencies," Mr. Barry said.
He added that he thinks rural policy is addressed as a special niche in the Department of Agriculture through measures like the business and industry guaranteed loan program. Rural stakeholders would have a better chance of carving out programs for their needs through the niche approach, he suggested, rather than a revolution in the established order.
Agricultural bankers have yet to weigh in on the crafting of a new farm bill, but most agree that rural policy should be rethought. To that end, the Nebraska Bankers Association created a task force last year to encourage options in rural areas.
Mr. Drabenstott spoke at the group's first meeting and helped it identify areas of focus and strategies for meeting its goals. The center makes its staff available and provides research to groups working on rural issues.
"I think what's most important is that they are for the first time defining the issues in terms of rural issues," said George Beattie, executive vice president of the Nebraska association. "That's a big step to move from just talking about how we're going to support agriculture to discuss rural development, economic development, and social issues."
Craig G. Brewster, president of the $19 million-asset Butte State Bank in Butte, Neb., said rural policy needs to change because mechanization has made it possible for one farmer to do more work.
"There are less and less people in rural America because one person can do more," Mr. Brewster said. "There needs to be things done to attract more types of business to rural America."
As rural communities look for ways to diversify their economies, they face three principal challenges, according to Mr. McDaniel of the Kansas City Fed's rural-study center. These are: infrastructure, human capital, and investment capital. The latter is an issue because, most often, rural entrepreneurs have only a community bank that offers debt financing as a source of start-up money.
"While it probably hasn't been proven by rigorous research, rural America has a paucity of entrepreneurs," Mr. Drabenstott said. "The real homesteaders of the 21st century are small businesses in rural America."
Mr. Drabenstott said he sees two kinds of agriculture in America's future. The first is the traditional commodity agriculture that is familiar to people today. "Commodity agriculture is driven by being low-cost," he said. "The name of that game is get big or get out."
The second type is product agriculture, he said. This is farming that focuses on supplying a finished product to the consumer in what Mr. Drabenstott called a "genetics to dinner plate" model. Farmers form cooperatives that produce commodities and own processing facilities to turn them into finished products.
"There's a very interesting frontier emerging at the agriculture, nutrient, and health-care industries," Mr. Drabenstott said. This frontier is "nutriceuticals," crops that have been engineered to help treat or prevent diseases. However, whatever its potential benefits to consumers, this technology is not a miracle cure for rural ills since it is still in development.
Regardless of which direction rural communities take, Mr. Drabenstott and his staff, as well as rural bankers, think the most effective change will come from the local level. He predicted that rural America will see institutions start to develop to supply things like venture capital for rural businesses and support for new kinds of agriculture.
"At some point, the rural policy stakeholders themselves will have to decide: 'Are these institutions we will invest in?' " Mr. Drabenstott said.
Mr. Brewster, the Nebraska banker, agreed that the onus falls on rural leaders, but he thought the center could give support through its research.
"What they're doing is providing good information," he said of the center. "But it boils down to what you're doing in your own community."
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