GEORGIA AGRICULTURE IN THE 21st CENTURY

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'Suddenly There's Too Much Food
on the Farm, and Prices Have Plunged'!

"What will farming be like five years from now?", remarked an acquaintance at a recent field day.

Before we could muster a response, he added "If farming changes as much during the next five years as during the past five years, not many of us will be in business".
 
 

Farm Numbers and
Land in Farms is Declining

His concerns are over an array of recent happenings: Multi-year droughts in the state, depressed farm commodity prices, the Freedom-to-Farm Legislation, buyer concentration of some commodities, vertical integration, environmental restrictions and mergers of many farm input suppliers.

The decline of farm numbers and concentration of production into fewer, but larger, farms has been in progress for decades. This applies to both Georgia and U.S. farms. Currently there are about two million farms in the U.S. In Georgia there are 43,000 farms. Georgia farm numbers are shown in table 1. Part of the decline between 1974 and 1978 was due to the changed definition of a farm (from $50 annual income to $1,000).
 

Table 1. Farm Numbers and 

Percent of Total Land in Farms, Georgia, 1964-97


Year
Farm Numbers Farm Numbers Change From

Previous Period


Percent of the State's Land Area in Farms
1964 88,000 52%
1969 78,000 -10,000 47%
1974 73,000 -5,000 46%
1978 59,000 -14,000 40%
1982 57,000 -2,000 38%
1987 48,000 -9,000 35%
1992 46,000 -2,000 33%
1997 43,000 -3,000 32%
Source: Georgia Agricultural Facts

The rate of farm number decline in Georgia in similar to that in the U.S. But the percentage of land in farming in the state has declined much faster than in the U.S. Much of this decline is due to urban sprawl in North Georgia. Commercial farming in North Georgia is almost non-existent except in a few counties. Most farms in this part of the state are poultry and beef cow-calf operations and some specialty enterprises - a high percentage are part-time operations.

But land in commercial farms in South Georgia has also declined. Urban sprawl around the metropolitan areas has consumed land in farms. However, this cannot be measured by counties as the areas in farms are reported only as state-wide data. Statewide, Georgia has lost 329 acres of farmland daily since 1987. Between 1969 and 1997, 465 acres were lost daily.
 
 

Farm Cash Receipts
and Farm Structure

A review of farm cash receipts would indicate Georgia's farm economy is healthy. Gross receipts were $6.2 billion in 1997, up from $3.4 billion in 1985. Net profits over this period rose from $0.8 billion to $2.5 billion.

But the composition of these receipts are changing (see figure 1). Cash receipts from poultry showed the biggest gain, from 32% of total receipts in 1985 to 43% in 1997. Most of this increase was from broiler production.



Receipts from all crops increased slightly, but fell as a percentage of total. Gains in cotton and vegetable acreages offset declines of traditional row crop commodities such as corn, soybeans and wheat. Cotton income increased from 3% of total in 1985 to 11% in 1997. Income from vegetables increased over this time period from 4% to 8% of total (appendix figure 1).

Livestock receipts remained relatively flat, and declined as a percentage of total receipts.

Receipts from all crops increased slightly, but fell as a percentage of total. Gains in cotton and vegetable acreages offset declines of traditional row crop commodities such as corn, soybeans and wheat. Cotton income increased from 3% of total in 1985 to 11% in 1997. Income from vegetables increased over this time period from 4% to 8% of total (appendix figure 1).

Livestock receipts remained relatively flat, and declined as a percentage of total receipts.
 

Larger Farms and Less of Them

Farms in the state are following the national trend of more part-time farming operations and large farms getting larger. Many farm production sectors are becoming more industrialized or integrated. In 1969, 9.7% of the state's farms accounted for 60% of total farm sales. This means that 91.3% of the farms accounted for the remaining 40% of sales. In 1997, 6.7% of the state's farms accounted for 70% of total sales.

Georgia's farm population is becoming more skewed toward large numbers of small part-time operators and a small number of large commercial farms (figure 2).



Farmers are Aging - More Dependent on Off-Farm Income

The average Georgia farm operator age in 1969 was 52.2 years. In 1997 the average age was 55.9 years. This suggest that few young people are coming into farming, and that older farmers are staying in business longer. It further suggests that the economic incentives have diminished for younger would-be producers, and older producers may be having trouble salvaging their equity in a potential sale. Further, 40% of farm operators work more than 200 days annually off the farm
 
 

Reasons Behind the
Trend Toward Larger Farms.



Georgia and U.S. farmers are victims of their efficiencies.

Mechanization, new varieties, improved cultural practices (especially irrigation) and genetic modifications all have helped increase production of basic foodstuffs faster than domestic demand. The result is a surplus that is dependent on the world market to consume. In recent years much of our commodities went to Pacific Rim countries where markets and economies were growing. In 1996, the U.S. exported a record $60 billion worth of agricultural products.

But exports have fallen.

The result has been a decline in market prices of these commodities. "A surplus is worthless and a shortage is priceless", according to one economist describing the world supply-demand of farm goods. Too much food has a low value because a population can consume only the capacity of their stomachs. But a food shortage results in higher prices because the first need of a population is to feed themselves.

A comparison of some annual crop prices received in Georgia in 1996-98 and estimated production costs of these commodities are shown below. Average yields and prices received over the past twenty years are shown in appendix table 1. This points out the efficiencies achieved by farmers, both in Georgia and the U.S.

At this writing, prices of these commodities are still at depressed levels, especially soybeans and cotton. Forward pricing opportunities in early July were $4.42 for soybeans and $0.52 for cotton.
 

Table 2. Annual Prices Received and Estimated Production Costs

of Selected Dryland Crops, Georgia, 1996-98

Annual Prices Received Estimated Production Costs *
Crop Unit 1996 1997 1998 1996 1997 1998
Corn Bu, $3.58 $2.90 $2.40 $3.14 $3.30 $3.39
Soybeans Bu. 6.87 6.65 5.35 6.27 6.21 6.57
Wheat Bu. 4.38 3.19 2.60 4.02 4.21 4.31
Cotton Lb. 0.71 0.68 0.67 0.60 0.62 0.63

NOTE: Cost estimates are from annual estimates by the Georgia Cooperative Extension Service.
They include variable and fixed production costs, exclusive of a charge for land.

* With Normal Yields
_________________________

These figures show that many producers of these crops in the state have experienced a price-cost squeeze in recent years. Current prices will cover variable production costs in most instances but not total costs. In addition, farm debt payment and a living allowance must be earned if one is to stay in business.
 

Getting Larger to Compete

When farm commodity prices are low, the profit margin is low. In an attempt to keep net income at liveable levels, farm operators have a tendency to get larger. This means renting additional land and buying larger equipment. Usually, larger farms have economies of scale that are not present in smaller operations. So, large producers are expected to produce a commodity at a lower per unit cost than smaller producers. But this is not always the case.

While farm equipment prices are currently relatively stable, they have increased 3-5% annually in recent years. Tractors currently cost an average of $500 per pto horsepower. A large combine costs in the vicinity of $150,000, and a four-row cotton picker can command a list price near $200,000.
 

Higher Investments = More Risks

Many Georgia farmers have increased their cotton acreage in recent years due to strong cotton market prices in the mid-1990's. These specialized, expensive cotton harvesters caused many growers to become more financially leveraged, especially those who also purchased larger tractors, planters and tillage items.

In order to generate more income to pay for these items, farmers have rented additional land. Often they have bid against each other, forcing up the price of rental land - which increased their production costs.

Irrigated cropland with a high production potential has rented from $150-$200 per acres in recent years. If this irrigated land has an expected cotton yield of 1,000 pounds per acre, rents of this magnitude causes the grower to incur land costs of $0.15 to $0.20 per pound of cotton before the machinery starts land preparation.

Thus, higher equipment costs and more rental land puts growers in a leveraged position where they have more to lose in the event of lower commodity prices, droughts, or disease or insects that cannot be controlled. In effect, today's growers are incurring more financial risk than in the past.
 
 

The 1996 Farm Bill...

... Often referred to as, the Freedom to Farm Bill, the 1996 legislation has had a pronounced effect on farms nationwide. This legislation severed the link between income support payments and farm prices by providing annual fixed, but declining payments through the year 2002. At the time of its' passage, prices for most major crops were strong and exports were expanding. Farmers received prices that were profitable while receiving the market transition payments.

The bill was designed to permit farmers to decide what crops to produce based on market signals rather than price support programs. Further, it provided that the government would stop controlling the supply of commodities. Congress promised farmers access to "the free market".
 

But someone forgot to tell farmers just how brutal the free market can be.

In 1997, the Asian economic crisis hit. The hangover from this and the worldwide economic slowdown is expected to crunch exports from the $60 billion figure in 1996 to only $49 billion this year. Asia accounts for an estimated 80% of this decline.

And with nearly all commodity prices in the dumps, there is little or no alternative commodities with strong prices to which farmers can turn. Plummeting prices are expected to cut U.S. farm income 12.4% in 1999 - down 12.4% from the 1997 level. Two hundred of Minnesota's top farmers (producing primarily corn, hogs and soybeans) had a average net income in 1998 of $8,000, the third lowest income level in history. About $30,000 of these farm's cash receipts were from market transition payments. In the past, the solution to a problem of this type was for the government to raise commodity support prices. Some economists contend that 1 out of 4 farmers will likely not earn enough income to cover expenses this year.
 

This type situation in Georgia is confirmed by a survey in the spring of 1999 of county Extension Agents to measure the state's farm financial crises. The counties responding reported 10,917 full time farmers in their counties, which accounts for about all the commercial farms in the state. Of this number, an estimated 262 had quit farming since Fall, 1998, and nearly one-
half -- 5,362 operators -- had trouble paying their farming expenses incurred in 1998.

Despite the large existing stocks and falling prices, it's difficult for most farmers to put the brakes on production. Livestock producers have production periods of several months. And many farmers can't afford to let their land lie fallow and machinery sit idle as they have taxes and bank loans to pay.
 

Peanuts and Tobacco are Mainstays of Georgia Agriculture

Farm income directly associated with government programs accounted for 28% of gross farm receipts in Georgia in 1997. Thus, the remaining 72% of income depended on the free market for its' profitability, although the livestock and poultry industry benefit from stable grain and oilseed prices - or from relatively inexpensive grain prices. Income for one group of farmers (grains) is production costs for other groups that use this grain.

While income from cotton is the number one single crop-income-producer in Georgia, peanuts and tobacco are numbers two and three, 5.9% and 2.6% of total, respectively in 1997. Although the sum of these two is only 8.5% of total farm receipts, these crops generate a much higher percentage of farm profits.

These two commodities are the only crops grown in the state still produced with a quota system and support prices. Some growers contend that if all other commodity income supports are terminated in 2003, that both peanut and tobacco commodity programs will be ended. This is especially likely for tobacco given the current concerns about smoking and health, the agreements between the tobacco companies and the state attorney generals, and the status of lawsuits against the tobacco companies.

Currently these two crops keep a lot of Georgia farmers in business. Not only are they more profitable than other major commodities, but they subsidize lessor profits or losses from other enterprises during times of economic stress. A summary of the current relatively of profits of major field crops is shown in table 3.

While the current market prices are not expected to continue indefinitely, these estimates show the importance of the two quota crops grown in Georgia. The loss of these program commodities would have widespread effects on rural Georgia without some alternative(s) to make up for the income loss. But experience has shown that alternative enterprises must have approved cultural practices and an established market structure before they can become a part of local agriculture.

Further, the success of a new farm commodity usually depends on a niche market. As these commodities generally are produced in limited amounts, an attempt at widespread production usually destroys the market - and profitability - of that commodity.
 

Table 3. Estimated Profits of Selected

Crops in Georgia, 1999

Production Costs

(/ Acre)*


Returns Above Costs:
Crop Yield Price Variable Total ** Variable Total 
Dryland
Corn 75 bu. $2.70 $164 $252 $38 -$50
Soybeans 30 bu. $5.00 $132 $204 $18 -$64
Cotton 650 lbs. $0.58 $291 $411 $86 -$86
Peanuts 1.25 tons $610 $412 $551 $350 $211
Peanuts 1.25 tons $350 $412 $551 $25 -$114
Irrigated
Corn 150 bu. $2.70 $294 $466 $111 -$61
Soybeans 50 bu. $5.00 $150 $298 $100 -$48
Cotton 1,000 lbs. $0.58 $352 $559 $228 $21
Peanuts 1.75 tons $610 $462 $690 $605 $377
Tobacco 2,200 lbs. $1.70 $1991 $2764 $1749 $967

* Estimate taken from South Georgia 1999 Crop Enterprise Cost Analysis
** Costs are exclusive of land and/or quota costs. Returns are to land and/or quota where applicable.
__________________________
 

All the crops shown have returns above variable costs. But only quota peanuts, tobacco and irrigated cotton show a return greater than non-land, total, costs. Under this cost and price situation, it would require 46 acres of irrigated cotton to equal net returns to one acre of tobacco and 18 acres of this cotton to equal returns from one acre of irrigated-quota peanuts.
 

The importance of these crops to the individual grower

To show the importance of these quota crops, a "study farm" was constructed that can be representative of a farm in parts of South Georgia. While there is no official "representative farm" for any commodity, this farm was devised with assistance from commodity specialists who work in these areas. This is shown in appendix table 2.

This farm consists of 500 acres of irrigated cropland, on which 50 acres of tobacco, 75 acres of both peanuts and corn and 300 acres of cotton are grown. Production costs and yields shown in table 3 are used to estimate farm expenses, and projected 1999 commodity prices are used with the projected yields to estimate farm sales.

Given these data, this farm could be expected to generate nearly $500,000 gross receipts. This seems like a lot of income, which amounts to nearly $1,000 per acre of cropland. But expenses must be paid.

Net income to land is approximately $90,000. While this, too, appears to be a lot of income, any costs for land taxes (or rent, if applicable) must be paid from this figure. Further, a farming operation of this type often has more than one owner (or manager). So, in effect, this money usually has to support more than one household.

Fifty-four percent of this farm's net profit was generated by tobacco - and 31% from peanuts - for a total of 85% from these two crops. This point out the concern these farmers have over the prospects for the future of these programs -- and for the future of their farming programs. Further, it points the difficulty for farmers in the state to remain sustainable who do not grow these two crops.
 
 

What Will Georgia Farmers Produce in the Future ?

Given that Georgia agriculture is not a major player in the national grain-oilseeds sector, and given that there is a possibility of major changes in the two major program commodities grown - we often hear the question "What will Georgia agriculture be like in a few years? Will we become a state of broiler producers and pine trees?

We think not!

First, there are about 1.9 million acres of pasture in the state. This can be utilized only by livestock, and currently most of it is used by the 600,000 beef cows in Georgia. It is likely this will continue.

Second, the Enterprise Efficient Programs for Corn, Soybeans and Wheat are conducted each year to recognize growers who show a minimum cost for producing these crops. Each year there are growers who produce corn and wheat for less than $2.00 per bushel and soybeans for less than $3.00 per bushel. While circumstances surrounding these growers may be different each year, they show that Georgia growers can be competitive with these crops. Consequently, some of these crops will continue to be grown, especially as the state is a grain deficient state for grain used in poultry rations.
 

Grains and Oilseeds

Georgia corn, soybean and wheat acres have risen sharply and fallen sharply since the mid 1960's. Figure 3. details the rise and fall in grain and soybean acres in Georgia. Georgia acres planted to corn and wheat have followed the general trend in U.S. acreage to a certain degree. Georgia corn and wheat acres were increasing and reached a maximum when the same was happening across the U.S. Georgia soybean acreage generally followed U.S. trends but both rose and fell much faster than U.S. numbers. Georgia growers did not follow other U.S. growers in expanding acres increasing soybean acres during the 1990s.

The natural question is why have Georgia grain acres fallen so sharply over the last 20 years? There are probably several contributing factors including farm program support payment
schedules, periodic drought problems and perhaps most importantly, profitability.

The farm programs of the 80's and early 90's tied deficiency payments received by farmers to acreage bases and yields from the early 1980s. Georgia yields were reduced during the base period by drought that resulted in Georgia farmers being placed in a competitive disadvantage in Government payments relative to other U.S. farmers. Additionally, Georgia farmers shifted large acreages from dryland production into irrigated production. The disconnect between program payments and actual yields became further distorted again placing Georgia farmers at a further disadvantage.

In terms of costs of production, Georgia costs per acre are not significantly different from other U.S. farmers according to U.S.D.A. research. But when costs are computed on a per bushel basis, costs of production rise due to lower average yields for corn, soybeans and wheat compared to national averages. In periods of low profitability in grains and oilseeds, areas of production that have higher per unit costs will be the first to reduce production. That appears to be the case in Georgia.

The future of grain acreage in Georgia is difficult to predict. However, unless there is an increase in the general price level for grains and oil seeds, it is difficult to envision a substantial increase in acres. Georgia farmers may have arrived at a sustainable acreage level for grains given current price structures. Georgia does have good farmers that have proven to be profitable in grain and oilseed production even at low prices. Unfortunately, not all Georgia farmers are able to produce grains and oilseeds in a manner competitive with other farmers from around the U. S. and the world.
 

Georgia's Cotton Industry Appears Stable

Since 1995, the state's cotton acreage has varied between 1.34 and 1.5 million acres (reaching 1.5 million acres planted in 1999 as was the 1995 acreage) -- a modern day record. Georgia is now the nation's number two state in cotton acres and number three in production. Cotton acreage has shown a remarkable stability and resilience despite three back-to-back years of disappointing prices and/or yields in 1997-99.

Georgia currently has over 4,000 cotton-producing farms compared to about 2,000 in 1992. The average per farm acreage is 350 to 375 acres.

Arguably, Georgia cotton has yet to be seriously challenged because prices for competing crop enterprises have been simultaneously low. Yet, cotton producers have invested in expanding irrigation use and have benefitted from boll weevil eradication and recent advances in production practices including genetic varieties (Bt, RR, and Bt/RR). An estimated 75% - or more - of the state's acreage is planted to genetic engineered varieties. This has resulted in lower costs and less labor required for most situations.

The Southeast is now the low-cost producer of cotton in the U.S. Production in other regions (and for some farmers in the Southeast) is clearly not sustainable in the long-run without improved market prices or continued government income enhancements such as loan deficiency payments and the 1996 farm bill Market Transition Payments (MTP's).

But improved profits are not likely to be achieved through production practices alone. Methods to reduce ginning, warehousing, and marketing costs also need to be investigated. Improved marketing skills to achieve higher prices and reduce risk are also needed.
 

Despite future challenges, Georgia's cotton industry is positioned to compete and survive. The
state likely has a "baseline" acreage of not less than 1.0 million acres. It is difficult to envision a scenario of economic occurrences that would push acreage below this baseline in the near future. Table 4 below illustrates "break-even" prices of other crop enterprises needed to provide Net Return Above Variable Cost equivalent to cotton at various prices.
 

Table 4. Price Needed for Corn, Soybeans and Additional Peanuts to Provide

Net Returns Above Variable Costs Equal to Cotton Return *

If Cotton Price is:
The Equivalent Price is...
($ / Lb.)
Corn ($ / bu.)

Soybeans ($/bu.)
Additional Peanuts ($ / Ton)
$0.50 $2.64 $5.26 $348
.55 3.01 6.29 375
.60 3.38 7.32 403
.65 3.74 8.36 430
.70 4.11 9.39 458
.75 4.48 10.42 485
* Calculated from cost estimates in Crop Enterprise Cost Analysis: South Georgia 1999, AGECON94-010-S-Revised, Department of Agricultural and Applied Economics, University of Georgia, November 1998. Costs include crop insurance and are average of irrigated and non-irrigated production.




Because of increased cotton acreage, Georgia has experienced growth in cotton business infrastructure (table 5). The number of cotton gins increased from 59 in 1992 to 79 in 1996 and many of the 59 gins in 1992 have retooled and expanded. Currently, there are 77 active gins in the state.

Generally, this has not been an overexpansion. Currently, some gins are experiencing production and cashflow shortfall but this has been due more to yield than acreage.
 

Table 5. Number of Gins and Gin Volume in Georgia, 1992-97
1992 1993 1994 1995 1996 1997 1998
No. Active Gins 59 61 66 79 79 77 77
Avg. Bales Per Gin (000) 12.6 12.0 23.3 24.6 26.3 24.9 20.0

Source: USDA
 

The gin expansion came with the 1994 and 1995 crops. Some gins have exceeded their projected business volume while some have not. Most gins look at a 7 to 10 year feasible payback on investment. While there has been some financial restructuring and farmer co-op of gins, most ginning operations are expected to remain financially viable. The next 2-3 years will be the most critical.
 

Peanuts Future Influenced by Trade Issues and Peanut Program

The U.S. government peanut program underwent major changes in the 1996 farm bill.

1) Limited across-county-line sale and transfer of quota was allowed, 2) The "undermarketing provision" was eliminated, 3) Quota support price was reduced 10%, 4) The cost of production escalator was eliminated, 5) The quota floor of 1.35 million tons was eliminated, and 6) New rules established whereby growers would pay for any CCC program losses. Compared to the past, the program is on good/favorable political footing.

But profit margins in peanut production have been reduced. This is due largely to lower prices, increased input costs, and "sticky" quota rental value (quota rent has not declined in response to the decline in price). Lower support prices and profit which began with the 1996 crop also were accompanied by a sharp reduction in the U.S. poundage quota. In effect, this increased demand for quota pounds to lease and rent was bid up.

Due to reductions in quota and competition from cotton, the state's peanut acreage has declined since 1990-91 but is now at a level that should promote improved crop rotation (figure 5). Acreage intended for production of additionals (non-quota peanuts) has declined to the 100,000 acre level. Georgia's peanut acreage will likely move in tandem with changes in the U.S. national poundage quota. Contract prices for additional peanuts will likely not move above the $325/ton level unless foreign production drops markedly. Prices above $350-$375 per ton would attract significant acreage and present increased risk to buyers.



Since passage of the '96 farm bill, peanuts have been able to thwart off occasional (few) political attacks during budget reconciliation hearings. Likely, the peanut program will be again be subject to forces for further changes or it's elimination as the next round of farm bill debates begins in earnest in 2001 and 2002.

The major challenges ahead for the industry are : 1) Improving demand, 2) Reducing costs of production per ton, and 3) Dealing with realities of trade agreements.

Further, consumption of peanut butter continues to be an industry concern. A recently approved check-off assessment for promotion and research is aimed at improving peanut demand. Imports of peanuts under the current GATT and NAFTA agreements has reduced the demand for U.S.-
grown peanuts. FTAA (the Free Trade Agreement of the Americas) would place Argentina
under very favorable tariffs and pose a serious threat to the US peanut producer given the current structure of the peanut program.



After years of generally down trending yields since the 1980's (figure 6), peanut growers now have the potential to reverse that trend. Improved crop rotation, shifts to higher yielding varieties and improved management to control tomato spotted wilt virus (TSWV) should help or even reverse the downward trend in yield and lower cost per ton of production.
 


Vegetable Enterprises

The U.S. demand for vegetables has slowed some from the 1980's, but is still relatively strong. Total per capita consumption of vegetables (excluding potatoes) reached 441 pounds (farm weight) in 1996, compared to 354 pounds in 1973. Over one-half of this amount is fresh vegetables. Georgia is third nationally in fresh vegetable acreage and fifth in income from these crops.

Vegetable acreage in Georgia has changed little in recent years - generally around 170,000 acres annually. Over 90% is for the fresh market - and the remainder for processing. Snap beans, southern peas and turnip greens primarily constitute those grown for processing.

But cash receipts for all vegetables in the state have increased significantly during the 1990's - from 6% of total farm receipts in 1993 to 8% in 1997. Much of this increase has been created by growing the crops under plastic ground cover. While this involves a greater expense, it also results in much higher yields. In 1993 only about 3,000 acres were planted under plastic. In 1998, this figure had jumped to more than 31,000 acres..

Watermelons, sweet corn, snap beans, dry onions and cucumbers constitute the majority of vegetable acres grown in the state (table 6). Together, they constitute 56% of the total reported acreage of 33 vegetables.

Onions and tomatoes contributed 19% and 12%, respectively, of vegetable cash receipts in 1997. However, their acreage, as a percent of all vegetables, was considerably less than the income they generated.
 

Considerations for Vegetable Production

When one is considering producing vegetables - or any specialty crop - they may get perceive the size of the industry based on acres produced. But profitability depends on the per unit cost of production and the market price received.

In the case off vegetables, production costs per acre are many times higher than for most field row crops (table 6). Further, the market is often a restricted market - one where the produce has a high value during a specific time period. And further, the demand for an item may be limited. A few thousand acres of one crop may satisfy the demand of a given market. But that market may not be sufficient to absorb any additional production -- such as a double or triple acreage.

The growth area on the next few years will most likely be in the food service sector and exports. This includes such items as precut vegetables which are experiencing substantial gains. Also, ready-to-cook. Especially microwaveable vegetables may be in a position to show gains.

Georgia's vegetable expansion in recent years has occurred due to the state's grower efforts to provide high quality , competitively priced vegetables. Georgia's cost of production, compared with adjacent states, is competitive. And expanding output of nationally marketed crops will be easier than for regional crops. We are now successfully growing nationally marketed crops of beans, corn, cucumbers, eggplant, onions and bell peppers.

Given that the crops are so expensive to grow, the technology for growing vegetables is constantly changing. All changes are concerned with quality and quantity of crop. A successful grower must keep up-to-date with all new cultural practices. One of the more recent changes is growing the crops using a plastic cover to cover the rows. This creates the need for a special irrigation system as well as adopting new cultural techniques.

With more international trade - both imports and exports are increasing. We must be in a position to reap some of the benefits from increases in trade. But competition will intensify. Our continues growth will depend on maintaining and improving our reputation for quality. And we must continue to try to reduce our production and marketing costs. Expansion is likely to occur, but it must be orderly and gradual.
 

Table 6. Major Vegetable Acreage in Georgia;

Yield, Prices and Production Costs

Production Costs per Unit

Vegetable
1998 

Acres

5-yr Average Price, '94 - 98
Unit
1998 Yield Pre-harvest Variable Total *
Watermelons 33,430 $7.01 Cwt. 420 $1.82 $4.13
Sweet Corn 19,356 $6.30 Crate 325 $1.60 $6.10
Snap Beans 15,443 $12.14 Box 140 $2.46 $7.86
Onions, Vidalia 15,071 $13.57 Bag 385 $3.22 $8.42
Cucumbers 9,244 $11.12 Carton 270 $1.67 $6.88
Tomatoes 8,050 $7.95 25 lbs. 860 $1.81 $5.49
Cabbage 7,924 $5.51 Crate 595 $1.56 $4.51
Cantaloupe 7,840 $11.27 Cwt. 140 $3.00 $5.19
Yellow Squash 7,667 $10.75 Carton 265 $1.17 $4.77
Collards 7,360 $5.60 Carton 325 $1.03 $4.55
Southern Peas 6,490 $8.50 Bu. 115 $2.23 $7.37
Turnips 5,034 $5.63 Carton 345 $1.03 $4.55
Other 23,643
Total 166,552

* Costs are exclusive of land costs.
 

Georgia's Livestock and Poultry Sector

Agricultural income from livestock and poultry represents more than 60% of all Georgia agricultural income according to the last census of agriculture. Livestock and poultry enterprises are "value added" in nature, converting forages or grains into meat and milk. Due to the value-added aspect of livestock production along with the nature of animal care, the effects of livestock production on rural economies are larger in magnitude than from most agricultural enterprises.

In addition, meats have been one of the fastest growing sectors of all agricultural export commodities, increasing at an average annual rate of more than 10% during the past ten years (figure 7). The U.S. is considered to have an economic advantage in producing and processing meat. Due to increasing world wide income levels and thus improved diets along with reductions in trade barriers, meat exports are expected to resume their growth rate over the next five years provided world economies improve. This is important to Georgia since animal and animal products represented about 35% of the 1997 value of Georgia Agricultural export products.

Livestock income is generally less variable from year-to-year than is income generated from crops. Georgia livestock income had about half the income variation of crops during the 1980's and 90's. For this reason, livestock/crop farms tend to have a more stable farm income than do specialized crop farms (although the average profits may be lower overall). One main reason for the stability of livestock income is that livestock enterprises are less dependent on favorable weather during the summer growing season.

Georgia's animal production advantage likely lies in the production of forage consuming animals. Due to the long growing seasons and wide choice of forages in the state, Georgia can be competitive with most areas of the country in forage production. As compared to other regions of the country, grain consuming animals and feedlot situation are not as well adapted to Georgia's climate and high feed cost. Due to the extensive infrastructure already in place, Georgia's poultry production will continue to grow as total U.S. production expands - provided undue environmental restriction are not placed on poultry producers.


Environmental concerns stemming from concentrated animal feeding and animal/human conflicts are likely to be limiting factors on production both in the U.S. and Georgia over the next five years. The very low animal and human concentrations in the rural areas of Georgia combined with the crop nutrient demands (some of which could be supplied by animal manures) in these areas make them among the best situated areas in the South and perhaps the U.S. to sustain increases in animal agriculture. Reasonable, scientific based environmental regulations based on Georgia's animal concentration will be critical if Georgia is to capitalize on its potential to increase rural income through growth in the animal agriculture sector.
 

Poultry

Poultry income - primarily broilers - constitute 43% of Georgia's cash farm receipts. Georgia ranks first nationally in the value of broilers and all poultry produced.

While only a small percentage of the value of broilers goes to the individual farmer (less than 15%), the broiler industry is a major economic player in many parts of the state. It provides employment, which creates an economic multiplier in these localities. About all broilers are grown under contract, where the integrator provides the chicks, feed and a market for the grown birds. The grower owns the broiler houses, and provides the utilities and management labor.

The increase in broiler production means new broiler houses have been built in recent years. While North Georgia has traditionally been the primary broiler-house location, these houses and processing plants are becoming more common in South Georgia.

The southern portion of the state may well be where most future broiler expansion takes place due to urbanization of North Georgia and lack of open land where the broiler litter can be used. Enterprise budgets indicate broiler production has a relatively low rate of return until the debt on the houses is retired. But adding a fertilizer credit for the broiler litter makes the enterprise more economically attractive.

But broiler litter has the potential for less runoff if it is applied to cropland where it can be incorporated into the soil, rather than spread on pasture where it is more subject to run-off. The incidences of foreign materials in surface and underground water has seldom been directly traced to farming operations. But given the general public's perception of pollutants, it may be easier to the farming community to accept some of these possible regulations rather than enduring long, costly legal battles.

It has been estimated that Georgia's broiler houses produce 1.4 million tons of litter annually. Most all of this is applied to cropland and pasture at a cost savings for fertilizer. Further, additional wastes are produced by dairy, swine and layer operations.
 

Beef

The 26,000 beef cattle producers comprise the single largest group of commodity producers within the state. Production is spread relatively evenly throughout the state with production in every county of the state. Beef production is typically not the major source of income on individual Georgia farms, but as a commodity it represented the 6th largest single source of farm income within the state in 1997 ($349 million).

Georgia beef cattle numbers declined from 1996 to 1998 by 5% in response to unprofitable prices. Beef cattle numbers will likely decline another 1-2% in 1999-2000 before expanding by 3% to 5% from 2000-2003.

Beef cattle prices will continue to improve over the next five years as U.S. beef
supplies are reduced although not by as much as the 60% price gain registered in 1997. As a result of more cattle in Georgia and higher prices, income may be up as much as 20% by 2003 over current levels. Production and income gains should be spread throughout the state in relation to current production.
 

Pork

Georgia hog production has declined by more than 50% from its high point in the 1980's in response to a highly unstable local hog market. As in the U.S. industry as a whole, producers have become larger in size and fewer in number. The lack of a major deep south packer/processor market is chiefly responsible for Georgia hog producers receiving about 7% lower prices than in other major U.S. markets.

The future of the state's pork production industry will be dependent on the development of the processing area. Given a stable local market environment and competitive national market prices, pork production in the state could return to the levels of the early 1980's. If the market situation remains unstable and market hog prices uncompetitive, Georgia hog numbers as well as the number of producers will drift further as the state moves to an industry producing pigs to be shipped to Midwestern states for finishing closer to the slaughter/ processing markets and in areas with lower feed cost. In the latter case, even if swine breeding herd numbers stabilize or expand, farm pork production income will likely fall 10 to 50% by the year 2003.
 

Dairy

The Georgia dairy industry was in a growth phase from the mid 1980's through the mid 1990's
reaching a peak of 1.56 billion pounds in 1994. However, since that time market conditions have resulted in a down turn in herd numbers, cow numbers and milk production.

Many factors have led to continuing declines in milk production in the Southeast. These factors include; 1) The average age of dairy farmers, 2) Other farming options, 3) Low and variable milk prices, 4) High feed prices, 5) Cost of renovation and expansion, 6) Availability of farm labor, 7) High land prices and 8) Uncertainty about future dairy policy.

Recent construction of new fluid milk processing plants has greatly expanded the processing
capacity in Georgia. The three new plants in the Atlanta area owned by Kroger, Publix and Dean

Foods require milk from about 75,000 cows to meet their daily fluid milk needs. These plants along with a projected growth of 100,000 people each year in Georgia guarantees an increasing future demand for Georgia produced milk.

The population growth in the state is centered around Atlanta and is affecting the traditional dairy production areas. The current and future expansion of milk production is in south Georgia. Currently 43 percent of the production in the state is south of Macon.

The passage of the Southern Dairy Compact should allow fluid mild prices to stabilize at a profitable level for good managers. This could reverse the decline in the industry.
 
 

Influence of Off - Farm Regulations

Water Availability and Use

The vast underground water aquifer in the southwest portion of the state gives Georgia a comparative advantage for irrigation water over many southern states . Crop irrigation is common in this area as the water table is relatively shallow compared to other portions of the state, making it relatively inexpensive to drill wells and pump the water.

Georgia currently has an estimated 1.4 million acres under irrigation. This is approximately 40% of total cropland harvested. Many of these systems are in southwest Georgia. Other areas also have irrigation, but their water sources are more often surface water or more expensive deeper wells.

But these state's growing appetite of fresh water is causing water regulatory authorities to begin looking at water sources, the amount of water pumped, and how this water is used.
 

Public Use and the ACF Basin

When dry weather makes water scarce, most of the attention turns toward public use and ways to conserve water. The Apalachicola-Chattahoochee-Flint River (ACF) basin consists of some portion of these three rivers running from north Georgia, along the Georgia-Alabama border and into Florida. Georgia has 89% of the estimated population in the ACF basin (4.1 million in 1995). Consequently, the state places huge demands for water on these bodies of water.

At the same time, many Alabama and Florida residents depend on the river for water and contend that their access to the water should not be used before it flows to them. So it stand to reason that total water availability to these three states and quantities used are a hot topic during dry weather.
 

Water Uses

When we consider all the primary uses of water, municipal (and home use) gets the most attention because this affects most residents. Water is used not only for consumption but in some degree to accept affluent from municipalities.

Several estimates of total water use are available, but the difficulties measuring all uses and amounts of use makes these estimates different. One estimate places the single largest user of water to be thermo-electric. While this water may be used, it is not generally consumed, and returns to the flow.

Other major water uses include, recreation, municipal needs, industrial needs, navigation - and finally power production, and agriculture. Residents are affected by available water in many ways.

If we exclude power production, municipal use is the largest user, followed by agriculture. One estimate of agricultural use is 26% of total water use. Another estimate is 35% of total.
 

Agricultural Use

Drought paints a gloomy picture for agriculture when no water is available. But in recent years, southwest Georgia has been getting water needed for irrigation from groundwater, which is the Floridian aquifer.

But water in the aquifer flows into Florida. Excessive groundwater withdrawals would not only reduce the amount available in Florida, but could cause the area to develop sinkholes due to the absence of water normally providing stability within the ground.

Should sinkholes begin to occur, the region would most likely have some type of irrigation water restrictions. All preliminary proposals for controls have some type of water use restrictions over agriculture use during times of drought.

Any restrictions on water for irrigation would have adverse effects of farm profitability. Given that 40% of the state's cropland is under irrigation, and that irrigation is necessary during droughts to achieve crop yields, loss of any irrigation water would mean lower yields and less income for farm operators.

Generally irrigation is used on crops with the most income potential - higher valued crops and crops with higher production costs. Given the additional costs of providing irrigated water, some crops do no more than break-even during drought. But without irrigation water during drought, yields are so low than a loss is usually assured. So irrigation, in effect, permits a grower to pay the bills during dry times, and survive to farm another year. Non-irrigated farms don't have this option.
 
 

Consumer Demand vs Farmer Costs

Domestic consumers have a safe food supply, and spend the lowest percentage of their disposable income on food of any developed nation. Farmers contribute to this by continuously becoming more efficient by lowering their per unit production cost.

But farmers must make a profit to stay in business.

Southern agriculture operates in a hostile environment. The warm weather and humidity supports a high level of insects and diseases. Further, the area is prone to frequent droughts, which has a quicker adverse effect due to the high summer temperatures. But higher risks and erratic (or lower) farm profits apparently have little effect on farm land values when we consider that every Southeastern state has a higher farmland value than the national average.

We found out during the passage of the 1996 farm bill that the general public apparently favors a free market for agriculture. And we also found out they favor environmental regulations - such as the CRP and EQIP, which were designed not for income support but to correct environmental problems which may have been caused by an agricultural production system.

Thus, farmers are being forced toward vertical integration as one means of managing risks. While these production systems don't afford access to the market highs that occur from time to time, they do afford a level income as long as the system stays in place. These means are in place instead of past government safety nets.

But, there's a catch here. Much of the bio-technology available (bt-corn, Round-Up Ready soybeans and bst-milk), are looked on by many consumers with suspicion. While we may be able to grow soybeans in the future with changes in oil quality, and provide farm commodities at a lower costs, why do we have to store harvested seed using these qualities separately, and haul them separately. Further, some of the EU countries are balking at taking our commodities grown under these conditions.

The farmer today finds himself in a minority and having less influence on political issues as he makes up only about 2% of the population. Some have asked if "the family farm is becoming an endangered species"? While larger industrialized farms have the ability to produce food at less costs, family farms are competing with these larger farms and a higher concentration of both sellers of farm inputs and buyers of farm commodities.
 

Can The Trend be Reversed?

Currently there is no evidence that Congress will reopen the 1996 farm bill. Any financial aid will most likely be in the form of annual disaster appropriations. These amounted to about $6 billion in 1998 for all U.S. farmers. Disaster payments to Georgia farmers are projected to total $92 million. Payments equal to 50% of the Agricultural Marketing Transition Act payments were $39 million - making a total of $131 million. Adding the original AMTA payments of $79 million, we have $210 million paid to the state's farmers in 1998 and early 1999.

Congress will likely provide annual emergency funding during periods of low commodity prices or inclement weather. But it is unlikely that the " agricultural free market" will be put back into the bottle and we go back to supply control of major farm commodities. In this case, any further aid will have to come from individual states. What Can Georgia Do?

Various proposals to support farming in rural areas have been mentioned.Georgia currently has a preferential land assessment for agricultural lands that reduces land taxes as compared to taxes assessed on land values. While this is minor, it reduces - in a small amount - agricultural land taxes. Some other proposals are:

An incentive to transfer farm lands to younger farmers. A program of this type is being implemented in Iowa. It is designed to promote younger farm operators to enter farming. Public funds can be used to pay capital gains taxes in the instances where: 1) A farm is sold by an older operator; 2) The parcel is bought by a young operator; 3) The intent is to assist younger operators in getting started in farming.

Some restrictions are: 1) The new operator must live on the farm; 2) They must farm for an indefinite period; and 3) The type farm must be specified, that is, it cannot be purchased and planted in trees.

The purpose here is to keep land in farming. In such an instance, the selling price would be reduced by the amount paid in capital gains taxes.

Assist farms get a higher percentage of the wholesale / retail market value.

Considerations for a state board to be established with authority to issue bonds to assist producers obtain facilities to further process farm commodities. Any proposal would have to be submitted for review and would have to be economically feasible, i.e., pork processing, canola processing, or carrot processing. This would not be a grant, but a loan which would have to be repaid over a period of time.

A proposal to use some of the tobacco settlement funds to purchase quota owned by non - producers and allocate this quota to current growers. This would give non-grower quota owners funds to invest so they could have a return similar to that currently realized. And the quota would be in the hands of those who grow the crop.

Use state monies to assist Georgia producers with the purchase of crop insurance. By providing a state subsidy, producers may be able to buy higher levels of insurance. This would provide Georgia crop farmers with a more stable crop farm income as well as possibly decrease the need for irrigation (and thus lessen farm water demands).

Crop insurance has not been a viable option for most Georgia farmers due to erratic yields of dryland crops. While major crops in the mid-West are subject to year-to-year variation, it is not as extreme as in the Southeast due to more frequent droughts and a drying summer climate. This has reduced the historical average yield, making the level of production available from crop insurance too low to offer much assistance. Proposals to increase coverage have been mentioned, but this comes at a higher cost. The current insurance program does little to protect Southern farmers from losses.

Any type of additional expenditures for disposal of poultry and livestock wastes must be borne by the individual producer. Given the low profit margin for most of these enterprises, any additional expenditures without an accompanying increase in income will force some producers out of business.

If the public is serious about keeping poultry and livestock farms in operation, it would seem that the state would provide some (or all) of any new animal waste management expenditures required exclusively for Georgia producers. The rationale for state expenditures is that family animal producers in Georgia will be at a competitive disadvantage to other state's animal producers if additional requirements are placed on them. Since the presumed advantages of clean water accrue to the state public at large, the state should consider funding such expenditures in order to maintain Georgia's competitive balance in poultry and livestock production.
 
 

Summary and Implications

The farming structure is constantly becoming one of fewer but larger operations. This has been occurring for decades - and has resulted in more food produced at a lower cost. The profits from this production during cycles of low prices has traditionally been supported by government programs.

While we have seen low-price cycles in the past, the current scene is the first since the Freedom to Farm program was implemented. While Congress has responded with emergency financial aid, there is concern - in Georgia and nationwide - that farm numbers will drastically decline and rural economies suffer from the decline in farm cash receipts.

Of further concern is the apparent trend of mergers of farm supply firms and of commodity
purchasing firms. Many industry watchers see these mergers as input suppliers seeking partners in the food chain. They are viewed as trying to gain more of the consumers food dollar through the merger process. While the farmer's share of this food dollar is down to $0.22, and labor for processing and distribution has risen to $0.35, others are fighting for the remainder of this dollar.

Then another concern is about possible environmental regulations that may be on the horizon. Concern by the general public over food safety and protection of the soil and water is likely to force further regulation on farm operators. And the costs of these regulations usually must be borne by the farm operator.

Continued change in the structure of Georgia agriculture is likely. The problems of market risk, yield variations, world markets, water allocations, environmental regulations and the concentration of agribusiness firms all must be fitted into the puzzle that will determine the industry's future.
 

Appendix Table 1. Trends in Georgia Crop Production, 1979-98 **
-------------------------Time Period------------------------
Commodity I.

1979-83

II.

1984-1988

III.

1989-1993

IV.

1994-1998

% Change

I. To IV.

----------------------Average Yield Per Acre--------------------
Corn (bu.) 49 74 87 96 +96
Cotton (lb.) 472 650 673 677 +43
Peanuts (lb.) 2,821 2,840 2,326 2,682 -5
Soybeans(bu) 21 22 23 25 +19
Tobacco(lb.) 2,092 2,247 2,229 2,165 +3
Wheat (bu.) 36 34 37 43 +19
Hay (T.) 2.2 2.2 2.0 2.5 +14
------------Annual Average Market Price------------
Corn(/bu) $3.09 $2.52 $2.63 $2.95 -5
Cotton(lb) $0.641 $0.578 $0.620 $0.711 +11
Peanuts (lb) $0.237 $0.269 $0.302 $0.291 +23
Soybeans(bu) $6.67 $5.69 $5.77 $6.23 -7
Tobacco(lb) $1.61 $1.68 $1.68 $1.74 +8
Wheat (bu) $3.40 $2.84 $2.97 $3.33 -2
Hay (T.) $61.30 $63.80 $62.9 $61.50 0
----------Percentage of Acreage Irrigated---------- 
Corn 10 to 15 25 to 30 30 to 35 35 to 40 +308
Cotton 5 to 10 10 to 15 20 to 25 40 to 45 +600
Peanuts 25 to 30 30 to 35 35 to 40 45 to 50 +174
Soybeans <5 5 to 10 <5 <5 - 0 -
Tobacco 95+ 95+ 95+ 95+ - 0 -
Wheat <5 <5 <5 <5 - 0 -
Hay <5 <5 <5 <5 - 0 -

** Data assembled by John Woodruff, Professor Emeritus.
 
 

Appendix Table 2. Estimated Revenue, Expenses and Net Returns

for Medium Size Tobacco, Cotton, & Peanut Farm, Georgia, 1999

Farm Commodities Produced
Tobacco Cotton Peanuts Corn Total
Acres Grown, (Irrigated) 50 300 75 75 500
Projected Yield 2,200 lbs. 1,000 lbs. 1.75 tons 150 bu.
Market Price per Unit $1.70 $0.62 $610 $2.70
Estimated Gross Receipts $187,000 $186,000 $80,062 $30,375 $483,437
Estimated Production Costs (excl. land & quota)
$138,200
$167,700 $51,750 $35,950 $392,600
Net to Land & Quota $48,800 $18,300 $28,312 -$4,575 $90,837
-- Percent of Net Profit 54% 20% 31% -5% 100%
Net to Land & Quota w/ 

$1.40 Tobacco


$15,800
$18,300 $28,312 -$4,575 $57,837
- Percent of Net Profit 27% 32% 49% -8% 100%
Variable Expenditures:
Lime & Fertilizer $4,910 $18,348 $3,560 $7,132 $33,950
Chemicals $16,675 $29,625 $12,375 $2,584 $61,259
Labor (hours) 3,892 1,080 414 187 5,573
Fuel (gallons) 13,530 4,200 1,125 555 19,410

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