In an ongoing struggle to make sense of what is happening in agriculture today, does any of the following sound familiar? I think that you can substitute Canada for almost every occurrence of America below.
“American production agriculture is one of the most productive and efficient agricultural industries in the world. So why is it slowly disappearing?”
“...some of the biggest economic issues threatening the long-term survival of American farming and ranching” according to Blank are as follows:
US Department of Agriculture Census “showing that land and farms are leaving agriculture, trends that has been in place for decades and, until recently, have been explained as natural results of the “industrialization” of agriculture”
Excerpted from Figure 1 (1959 figures compared to 1997) Land in farms in Million acres ( 1,123.5 - 931.8). No of Farms in 1000s (3710.5 -1911.9). Full-time farms in 1000s (2046.7 – 869.7). Farms of 1000 acres or more in 1000s (136.4 – 176.1). Machinery & equipment average value in $/farm (1969: 9,770; 1997: 57,678)
“Economists noted that as more technology is used in the agricultural production processes, more “economies of scale” would provide incentives for farms to grow larger. Indeed, more large farms exist now than in the past. However, the trend of declining acreage in agriculture seems contradictory to the trends of growing farm sizes and increasing total revenues”.
“Profits to American agricultural producers are being squeezed. For an increasing number of commodities, price is global, production cost is local. Thus, profits vary by location. By that I mean the markets and prices of commodities have become global in scope, while production costs remain local. With a single competitive “world price” ceiling affecting producers of a global commodity, it means that local costs determine the profit per unit of producers dispersed across the globe and, therefore, costs determine which producers will survive in the long-run”
(Hence the number of Alberta farmers along the number 2 highway leaving for low cost land in Sask and the Grande Prairie regions)
“What created global markets and prices?” “Technological advances. …better machines, methods of producing, storing transporting and processing commodities” The advances have made it “increasingly possible for American and Foreign producers to supply commodities to buyers in more distant locations” “Although consumers benefit by having increased supplies available to them, the global effect of technological advances on American farmers is an increase in the competition between them and other suppliers of commodities.”
“Why local costs? Production costs will always be local because resources are inflexible. Land, obviously, is fixed in location and productivity, labor mobility is low for low-paying jobs in agriculture, and local supplies of other inputs like water, fertilizers, etc., affect the prices of those resources. In other words, a farmer’s or rancher’s costs per unit of production are dictated largely by the quantity and quality of resources close at hand.”
“Also, income at the farm level is low and not improving. Over the last 20-30 years, agriculture’s gross profit margin has been in the 2-3% range, on average. That is relatively low – you can do better putting your money in a risk-free certificate of deposit. The average rate of return on equity in American agriculture has trended downward from 2.5% in 1960 to 1.5% in 2000. The average real net returns to assets financed by debt has been negative every year since 1993 and was -3.8% in 1999. Thus, it should not be surprising that the scale of off-farm investments has increased such that “on average, 88 percent of farm operator households’ income came from off-farm sources in 1998” and that figure rose to 90 percent in 1999”. Statistics from USDA show Agricultural Sales and Income (in millions of $) from 1996 compared to 2000 have declined from 54.9 in 1996 to 45.6 whereas subsidies have increased from 13.3% to 51% in 2000.
“Two general cost strategies have been most successful: (1) reducing cost/unit by increasing the scale of operations, and (2) reducing cost/unit with technological advances in production and/or harvest methods and machines as well as developments that raise yields. The first strategy is most readily available to producers, so it is used nationally, as indicated by the steadily increasing average size of farms. The second strategy has been the most successful – technological advances have kept American producers competitive, on average, with other commodity suppliers by greatly expanding yields and reducing costs per unit. When technological advances occur, early adopters reap the greatest advantages, but those advantages erode over time as other producers catch up and adopt the technology.” And conversely technologies “... often come with high price tags that add incentive for producers to expand farm size”
Blank argues that producers, in search of high returns on investment abandon production of low return crops such as grains in favor of high-value crops such as g****s and orchards. Drawbacks include more money per acre invested (e.g., irrigation etc) to improve land and more risk (lag time before production begins). In search of profitability, farms need to take on more risk, while government policies create the willingness to take on more risk. “Farmers are moving up the Farming Food Chain and counting on Uncle Sam to be there if disaster strikes.” “Eventually, farmers and ranchers are choosing to leave agriculture out of personal economic necessity – it is an investment decision. The fact that ‘good’ producers are leaving agriculture surprises people because of the following assumption mistakenly believed by many in agriculture: “the most efficient producer will be the last to disappear.” That assumption is not true!” To survive farms must be profitable, able to under-price all direct competitors and be willing to accept agriculture’s low return on investments for long-run survival.”
In addition Blank suggests that, in a Global perspective, as American farmers and labor leave agriculture for higher paying jobs higher up the “Economic Food Chain” the void will be filled by less developed countries that have lower input costs and often a reduced value of their currency. In order to secure a stable ongoing food supply, American agribusiness is seeking out low cost sources using strategic alliances, direct foreign investment and other methods of securing foreign sources of the commodities they use as inputs into their processing and distribution industries thereby guaranteeing a steady food supply.
Blank concludes “The fact that we now have both domestic and international producers willing to provide us with products at the same or lower prices means that we are eating better and the price is not going up. Politicians do not want to change that. As a results in recent years American farm policy has shifted away from agriculture. The last farm bill, the “Freedom to Farm Act,” clearly signaled that the U.S. government intends to get out of the agriculture business which, ironically, is what agriculture has been requesting for decades. Farmers have said “let supply and demand set prices, not government policies,” and that is what is happening. What this new policy means is that U.S. producers are now less protected from the competition of global producers, Unfortunately, there are less than 2 million American producers and they can no long win any political battles against the 260 million consumers of the cheap food being provided by the global market”
Stephen Blank addresses agriculture today in more or less economic terms only and although he acknowledges that quality of life enters into the equation, he has not factored it into the above argument.
He also does not take into consideration the effect of ‘disaster’ on agriculture. A secure food supply can be bought but not at any price as illustrated by the problem some of us experienced last year on a smaller scale. When evaluating whether to outsource our cattle feed or buy enough land and machinery to produce your own, the economist point of view indicated it was cheaper to buy than raise your own. However if local supply is affected by drought (disease, etc.) the cost of purchased feed can far exceed any savings made in buying feed over previous years. Do we, either locally or nationally, want to relinquish control of our production to corporations and countries which lie outside of our area of influence?
For the complete text, see http://www.uga.edu/caes/symposium01/sblank.html Stephen C. Blank, Extension Economist, Agricultural and Resource Economics Department, University of California, Davis.
“American production agriculture is one of the most productive and efficient agricultural industries in the world. So why is it slowly disappearing?”
“...some of the biggest economic issues threatening the long-term survival of American farming and ranching” according to Blank are as follows:
US Department of Agriculture Census “showing that land and farms are leaving agriculture, trends that has been in place for decades and, until recently, have been explained as natural results of the “industrialization” of agriculture”
Excerpted from Figure 1 (1959 figures compared to 1997) Land in farms in Million acres ( 1,123.5 - 931.8). No of Farms in 1000s (3710.5 -1911.9). Full-time farms in 1000s (2046.7 – 869.7). Farms of 1000 acres or more in 1000s (136.4 – 176.1). Machinery & equipment average value in $/farm (1969: 9,770; 1997: 57,678)
“Economists noted that as more technology is used in the agricultural production processes, more “economies of scale” would provide incentives for farms to grow larger. Indeed, more large farms exist now than in the past. However, the trend of declining acreage in agriculture seems contradictory to the trends of growing farm sizes and increasing total revenues”.
“Profits to American agricultural producers are being squeezed. For an increasing number of commodities, price is global, production cost is local. Thus, profits vary by location. By that I mean the markets and prices of commodities have become global in scope, while production costs remain local. With a single competitive “world price” ceiling affecting producers of a global commodity, it means that local costs determine the profit per unit of producers dispersed across the globe and, therefore, costs determine which producers will survive in the long-run”
(Hence the number of Alberta farmers along the number 2 highway leaving for low cost land in Sask and the Grande Prairie regions)
“What created global markets and prices?” “Technological advances. …better machines, methods of producing, storing transporting and processing commodities” The advances have made it “increasingly possible for American and Foreign producers to supply commodities to buyers in more distant locations” “Although consumers benefit by having increased supplies available to them, the global effect of technological advances on American farmers is an increase in the competition between them and other suppliers of commodities.”
“Why local costs? Production costs will always be local because resources are inflexible. Land, obviously, is fixed in location and productivity, labor mobility is low for low-paying jobs in agriculture, and local supplies of other inputs like water, fertilizers, etc., affect the prices of those resources. In other words, a farmer’s or rancher’s costs per unit of production are dictated largely by the quantity and quality of resources close at hand.”
“Also, income at the farm level is low and not improving. Over the last 20-30 years, agriculture’s gross profit margin has been in the 2-3% range, on average. That is relatively low – you can do better putting your money in a risk-free certificate of deposit. The average rate of return on equity in American agriculture has trended downward from 2.5% in 1960 to 1.5% in 2000. The average real net returns to assets financed by debt has been negative every year since 1993 and was -3.8% in 1999. Thus, it should not be surprising that the scale of off-farm investments has increased such that “on average, 88 percent of farm operator households’ income came from off-farm sources in 1998” and that figure rose to 90 percent in 1999”. Statistics from USDA show Agricultural Sales and Income (in millions of $) from 1996 compared to 2000 have declined from 54.9 in 1996 to 45.6 whereas subsidies have increased from 13.3% to 51% in 2000.
“Two general cost strategies have been most successful: (1) reducing cost/unit by increasing the scale of operations, and (2) reducing cost/unit with technological advances in production and/or harvest methods and machines as well as developments that raise yields. The first strategy is most readily available to producers, so it is used nationally, as indicated by the steadily increasing average size of farms. The second strategy has been the most successful – technological advances have kept American producers competitive, on average, with other commodity suppliers by greatly expanding yields and reducing costs per unit. When technological advances occur, early adopters reap the greatest advantages, but those advantages erode over time as other producers catch up and adopt the technology.” And conversely technologies “... often come with high price tags that add incentive for producers to expand farm size”
Blank argues that producers, in search of high returns on investment abandon production of low return crops such as grains in favor of high-value crops such as g****s and orchards. Drawbacks include more money per acre invested (e.g., irrigation etc) to improve land and more risk (lag time before production begins). In search of profitability, farms need to take on more risk, while government policies create the willingness to take on more risk. “Farmers are moving up the Farming Food Chain and counting on Uncle Sam to be there if disaster strikes.” “Eventually, farmers and ranchers are choosing to leave agriculture out of personal economic necessity – it is an investment decision. The fact that ‘good’ producers are leaving agriculture surprises people because of the following assumption mistakenly believed by many in agriculture: “the most efficient producer will be the last to disappear.” That assumption is not true!” To survive farms must be profitable, able to under-price all direct competitors and be willing to accept agriculture’s low return on investments for long-run survival.”
In addition Blank suggests that, in a Global perspective, as American farmers and labor leave agriculture for higher paying jobs higher up the “Economic Food Chain” the void will be filled by less developed countries that have lower input costs and often a reduced value of their currency. In order to secure a stable ongoing food supply, American agribusiness is seeking out low cost sources using strategic alliances, direct foreign investment and other methods of securing foreign sources of the commodities they use as inputs into their processing and distribution industries thereby guaranteeing a steady food supply.
Blank concludes “The fact that we now have both domestic and international producers willing to provide us with products at the same or lower prices means that we are eating better and the price is not going up. Politicians do not want to change that. As a results in recent years American farm policy has shifted away from agriculture. The last farm bill, the “Freedom to Farm Act,” clearly signaled that the U.S. government intends to get out of the agriculture business which, ironically, is what agriculture has been requesting for decades. Farmers have said “let supply and demand set prices, not government policies,” and that is what is happening. What this new policy means is that U.S. producers are now less protected from the competition of global producers, Unfortunately, there are less than 2 million American producers and they can no long win any political battles against the 260 million consumers of the cheap food being provided by the global market”
Stephen Blank addresses agriculture today in more or less economic terms only and although he acknowledges that quality of life enters into the equation, he has not factored it into the above argument.
He also does not take into consideration the effect of ‘disaster’ on agriculture. A secure food supply can be bought but not at any price as illustrated by the problem some of us experienced last year on a smaller scale. When evaluating whether to outsource our cattle feed or buy enough land and machinery to produce your own, the economist point of view indicated it was cheaper to buy than raise your own. However if local supply is affected by drought (disease, etc.) the cost of purchased feed can far exceed any savings made in buying feed over previous years. Do we, either locally or nationally, want to relinquish control of our production to corporations and countries which lie outside of our area of influence?
For the complete text, see http://www.uga.edu/caes/symposium01/sblank.html Stephen C. Blank, Extension Economist, Agricultural and Resource Economics Department, University of California, Davis.
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