Eugene Paul of the National Farmers Organization has commented that "Economists are good on predictions and short on solutions other than following the trends". He further states that "Economists and policy makers center discussions on issues that divert farmer's attention away from the real problems at hand"!

But often the analysis of a trend can identify the cause of that trend, and show what needs to be changed to alter this trend - if we want it altered. I will admit to having been "guilty" as accused on many occasions - as have we all. After all, folks with problems want a solution - not a discussion.

This discussion consists of looking at data - and trying to interpret what it means. We may not arrive at an acceptable, workable solution to our problems. And yes, we do have problems - for without them most of us would be without a purpose in our profession.

But I would point out before we start, that Mr. Paul does a good job of massaging data in his presentations, and one answer to the farm problem is simple - higher prices for our commodities.

I'm reminded of a statement made by John Holt at a lenders school that, when asked to identify educational programs needed , farmers would respond like: "We need help with marketing", which translates into, "We need higher prices". Or they would say something like, "Costs of production are high", which translates into, "We need lower interest rates".

...Low prices for most of our major crop commodities. But don't tell that to the farmers growing animals because it means low cost feed for them - and currently the cattle and hog business is pretty good.

For many of us in the South, the weather is the current concern. Georgia is several inches below normal rainfall this year, and experienced below average precipitation the past two years. Some of our farmers have been watering crops since they were planted, as they have had no rain since planting.

With an estimated fuel cost of $3.00 per acre inch for applying irrigation water - and with 6 - 8 applications already on the ground -- these folks have already incurred $18 - $24 per acre of additional production costs. They may well incur costs for 12 - 15 inches application before the crop is made - if the water supply holds out.

The record $22+ billion in farm assistance last year filtered down to our state. Georgia's farmers received nearly $400 million in crop assistance plus about $135 million in crop insurance payments. With our value of crops in 1999 being about $1.5 billion, this means government payments plus insurance was an amount equal to about 1/3 the value of the crops. And it looks as if more assistance will be coming in 2000.

This will help and will be necessary to keep a lot of folks in business. Farm lenders tell us most of their 1999 operating loans were made with government payments.
 

...come to mind when we start trying to visualize what agriculture will be like in 5 - 10 - or 15 years.

Industrialization can be described as "a realignment in the food and agricultural system". We see, hear and read about industrialization, of which firm mergers is a part. Terry Barr says that "minds close up immediately" when an audience see the term.

Industrialization is occurring in a lot of industries. Do we understand what is driving this change?

The impact of mergers began to hit home last summer at the annual meeting of the Georgia Plant Food Education Society. A representative of the fertilizer industry commented that ten fertilizer companies in North America produced 50% of the fertilizer market in 1980. Today, three companies control the same proportion of the market. Nitrogen, in 1980, was produced by seventeen companies, providing 70% of the market. Today eight companies control this market.

Why the concentration? There are several. In the south, there is limited use of nitrogen, as we generally don't produce a lot of grain. This is in addition to regulators having concerns about nitrates in water sources - which may, or may not, be accurate.

Further, fertilizer companies are trying to get a larger share of the consumer's food dollar. Given the industry structure, the companies look for mergers in the food chain. And the companies, seeking to satisfy stockholders, look for ways to increase sales. But this is becoming more difficult as the broiler industry continues to expand and produces litter for fertilizer, which cuts down of fertilizer materials sold. The companies find it is less expensive to acquire a fertilizer plant than to build a new plant - as much as 50% less expensive.

We hear frequently how agri-business firms are combining. The best data we could find on this is in the table below, showing the concentration of marketing for the four top firms in agri-business in 1998. Compare these with the average market control by the top four firms of all manufacturing industries in the U.S. which is close to 40% of the market.
 

Market Concentration of Four Largest Firms of Agribusiness (in 1998)
	Market Concentration (%)
Grains & Oilseed Processing
Flour Milling	62%
Soybean Milling	83%
Cottonseed Milling	62%
Malting	65%
Biotechnology and Seed Processing
Corn	69%
Soybeans	47% +
Wheat	36%
Cotton	87% ++
Meat Packing
Hogs	54%
Steers & Heifers	78%

Source: James McDonald. ERS-USDA

+ An estimated 25% of soybean seed are farmer saved
++ One company in this market.
_________________________________

There may be even more concentration today as mergers and rumors of mergers continue.
 

...a phrase we keep hearing. When farmers hear this, they feel like the world has turned on them.

But given the amount of further processing of agricultural commodities, and the number of new food products coming onto the market each year (15,000 in 1998 compared to 2,000 in 1980), it's obvious the food industry is highly competitive.

To show how much we as food consumers are spoiled, look below at how much we consume annually. And all this is paid for with only 11% of our disposable income - with 50% eaten at home and 50% eaten away from home. Further, four firms control 50% of the restaurant sales. They are: McDonalds, Pepsico (incl; KFC), Burger King and Wendys.
 

U.S. Food Spending and Major Items Consumed
Amount Spent for Food 1998 (bil. dol.)	$650
Amount Spent for Food 1980 (bil. dol.)	$500
Amount Consumed Annually
Milk (per capita)	22 gallons +
Cheese (per capita)	28 lbs. ++
Fresh & Processed Fruit (per capita)	295 lbs.
Commercial Vegetables (per capita)	416 lbs.
Grains (per capita)	200 lbs.
All Meat (per capita)	200 lbs.
Carbonated Soft Drinks (per capita)	54 gallons

+ 30 gallons in 1975.
++ 10 lbs. in 1970

In a further illustration to show how the restaurant business is changing, consider McDonalds, which began as a California drive-in restaurant with curb service. (How many of us remember curb service?) It was purchased by Ray Kroc who decided the way to higher profits was to get the young couples with children out of the car and into the restaurant.

Today, these couples are approaching retirement and demographers tell us we will before long have the most affluent-ever group of folks in rocking chairs. No doubt McDonald's management if figuring how to get their operations into retirement communities?
 

There are several definitions of this. One that makes a lot of sense suggests the U.S. is in the process of turning making things over to the third world. After all, isn't about three-fourths of our economy today associated with service? How long will it be before the transition is complete?

Is this a real projection? Dave Barry has a theory on this; The DOW is calculated by taking the average stock price of 30 major companies. Many contend this is the old economy, because most of these companies actually manufacture some type of product. This involves capital and labor, the latter item being in short supply if it has manufacturing skills.

In contrast, the NASDAQ is a part of the new economy. Buying stock in NASDAQ companies is a better option, because these companies are new technology - they provide vital information. They are a part of the internet, which powers today's economy.

This may be taking things are bit too far, especially given the land resource we have for production of food and fiber. But the transition in the food and fiber industry is real. Further, one of our presidential candidates when asked about the low crop commodity prices and the farm financial problems, responded something like "I can visualize the U.S. importing a high percentage of its' food within 15-20 years" Really?.
 

Final agricultural output in thirteen Southern states in 1998 was $68.5 billion (page 6). This is about one-third the total U.S. farm output.

We find it hard to believe the black soils of the Mid-West will ever lie idle. And while most of the southern U.S. doesn't have the same type soils, the south has a unique climate, and infrastructure in place that won't be completely removed. But we suggest there will be further changes.

Four of these states list income from cattle and calves as the major source of income. Given that this type income originates with calves grown on pasture, we can't believe hundreds-of-thousands of acres of pasture will lie idle. Further, much of this type income is from feedlots, which purchases these calves grown on pasture.
 

Major Agricultural Enterprises in Thirteen Southern States - 1998
State	Final Agric. Output	Major Animal Enterprise		Major Crop Enterprise
	(Bil. Dol.)		% of Total Receipts		% of Total Receipts
Alabama	4.0	Broilers	55%	Cotton	6%
Arkansas	5.9	Broilers	39%	Rice	15%
Florida	7.0	Dairy	6%	Oranges	20%
Georgia	6.3	Broilers	44%	Cotton	11%
Kentucky	4.5	Horses/Mules	20%	Tobacco	27%
Louisiana	2.1	Cattle/Calf	8%	Sugar Cane	18%
Mississippi	3.8	Broilers	40%	Cotton	17%
North Carolina	8.9	Broilers	20%	Tobacco	14%
Oklahoma	4.3	Cattle/Calf	47%	Wheat	12%
South Carolina	1.7	Broilers	22%	Greenhouse	12%
Tennessee	2.7	Cattle/Calf	17%	Tobacco	10%
Texas	14.7	Cattle/Calf	44%	Cotton	12%
Virginia	2.8	Broilers	21%	Tobacco	8%
Total	68.5

Source: ERS-USDA

Further contracting or vertical integration may be in the cards for beef production. But the consumers desire for beef - whether it be hamburger or steak - won't be totally satisfied by imported beef.

Broilers are the largest single source of agricultural output in these Southern states. Seven states (over ½ of the states listed) report broilers as the major source of farm income. Three (and almost four states) have poultry income accounting for 40% or more of farm income.

Overall, annual farm income from broilers in the Southern states listed is nearly $14 billion -- approximately 20% of total. While this supports a lot of economic activity in the processing

sector and in the feed industry, it overvalues the amount of monies going directly to the farmer-contractor. Given the current payment for pounds gained of broilers, we estimate the actual cash income to farmers in the South from broilers is approximately $1.4 billion - or about 10% of the stated market value.

But the demand for poultry meat has been increasing for several years and broiler numbers are increasing in many of these states. However, we question if profitability of farming will be maintained should crop and/or livestock production decline in the future and be replaced with vertically integrated operations -- broilers and other agricultural sectors. What will be the effect on rural economies? And don't forget that much of our pork production is in vertically integrated operations.
 

Much of the south is hot. And as much of it traditionally receives a lot of rainfall, frequent lack of rainfall is hard to endure. Whether the soil be clay or sand - or even loam - dry weather takes its' toll.

Much of this region is not suited for growing soybeans or corn unless we have market prices well above traditional price levels. Cotton is generally well suited for this climate, and we have seen a resurgence in cotton acres in recent years. But it is relatively expensive to grow. It involves one-dimensional harvest equipment, and cotton gins don't have alternative uses. Given the type programs in place for cotton (AMTA, LDP, etc.), the crop is a relatively profitable enterprise.

So farming in many of the Southern states has "existed" on program crops - primarily peanuts and tobacco - and cane for sugar. These crops are generally more profitable than other crops.

To illustrate: An "Excellence in Tobacco Program" is in place in tobacco growing states for the younger growers (<40 yrs.). One question on the application is "Why do you grow tobacco"? Nine answers out of ten will be something like "It provides enough profit to let me grow other commodities to help feed the world"!!!
 

It is the guess here the traditional supply/control mechanism for the remaining allotted crops will be treated the same way as programs for major grains, oilseeds and cotton. This will take out a lot of profit for southern farmers.

So what's left? Cotton has a comparative advantage in parts of the south, and Georgia, Texas and Virginia do a good job of growing peanuts. But peanuts may be grown in the future under a different arrangement. Contracting for tobacco is not far away.

Losing programs for traditional southern crops means losing money that cannot be replaced. For example, our calculations show it would take either seven acres of cotton (@ 70 cents/lb), or 67 acres of soybeans (@ $6.25/bu), both irrigated, to equal the profit from one acre of tobacco. Twenty-one acres of dryland cotton would be needed to replace this amount of income. We would need 88 acres of dryland peanuts (@ $450/ton), to replace tobacco profit from one acre.

Some of these commodity programs will go the way of programs for major grains and cotton. Congress has shown a willingness to provide funds to help endure low prices and natural disasters. Our guess is these types of assistance will continue for some time, although more likely in a reduced role.

Receipts from vegetables in Georgia has tripled in the past fifteen years. When we speak of vegetables we refer to as many as 25-30 different enterprises. There is a limit to the amount that can be consumed. This means prices for vegetables have a tendency to have some wide fluctuations. While we can't count on vegetables to solve the entire problem, we have seen several farm operators do well growing vegetables. And if one can find a niche market - such as the Vidalia onion - they can do very well.
 

Exports - Value Added

The economic literature tells us that, in the absence of supply controls, the market will determine the amount of resources that remain in agriculture. And the resources required in the future will largely be determined by the export market as gains in productivity usually outstrip the U.S. population increase.

This is borne out by data in the graph on the next page. While we see lots of efforts of expand trade (and farm exports), actual trade of bulk farm commodities has been relatively flat in recent years. In contrast, value added exports have expanded.

The type of these exports that effects the south is beef and poultry. Some of the marketing specialists tell us several cents of the magnitude of beef prices is due to export demand. And poultry exports from Georgia has more than doubled since 1993.

Given the past trends of corporate mergers and vertical integration, we suggest there will be a continuation of the trend. The majority of farmers are not experienced with adding value to a raw commodity. Currently this is best done through vertical integration.

Looking at the tendency for further processing and more food products, it seems to logical to think southern farmers may well fit somewhere in one of the following options:

1) The vertical integration process; 2) Growing specialty (niche) commodities; or 3) Producing traditional commodities but only if they are as competitive as producers elsewhere.
 

Change Benefits Different Interests

The folks in the forestry school tell us much of our land is better suited for pine trees than for crops. They are correct for some locations. But they forget to point out there is no positive cash flow for 15-20 years when one plants pine trees. It apparently is a good investment if one has debt free land and has other means of financial support. But this type farming takes a toll on local economies. We recall a county agent in a major crop producing county frequently using the term "Pine Trees and Poverty". There are no (or few) annual inputs sold to grow pine trees. Farm equipment dealers and input suppliers live a hard life in these type localities

These comments may appear to be less than optimistic, but past happenings and trends can often foretell what is likely to happen in the future.

We're skeptical that all the income lost from farm program removal can be replaced. There is frequently someone who contends they have an profitable new enterprise that can be produced. Sometimes they do, but more often, those who sell equipment or inputs to produce these items are the ones making the most profit

Many commercial row crop farmers contend that farm operators who work with vertical integrators are "hired workers for larger corporations". Granted they don't have the opportunity to benefit from large commodity price increases. But at the same time, they don't have the risk a totally independent operator will incur -- although there is a degree of risk

At the risk of having Eugene Paul say we're typical economists who manipulate numbers to draw farmers attention away from their problems, we will have to say there doesn't seem to be any force(s) on the horizon that will divert the movement from more concentration in the food growing-processing-marketing business. Vertical integration gives the businessman a mechanism to provide a consistent product for the market by controlling all steps of production. It works for several of the industries and we see no cause for it to change.
 

Barr, Terry. "Industrialization of Agriculture or A Realignment of the Food and Agricultural System", National Council of Farmer Cooperatives.

Barry, David. "Taking Stock of America's New Economy", Athens Banner Herald/Daily News, Athens, Georgia, May 14, 2000,

Givan, William. "Here's How to Compete in Industrialized Agriculture", Better Crops, Phosphate and Potash Institute.

Givan, William. South Georgia 2000 Crop Enterprise Cost Analysis, Agricultural & Applied Economics, The University of Georgia, AGECON94-010-S-Revised, November, 1999.

McDonald, James. "Concentration in Agribusiness", Agricultural Outlook Forum 2000, ERS-USDA, February 24, 2000

Paul, Eugene. "The Realities of Agricultural Policy - A Producer Perspective", National Farmers Organization.

Putnam, Judy. "Major Trends in U.S. Food Supply, 1909-99", FoodReview, ERS-USDA, January-April, 2000.

Scott, Robert. "Exported to Death", Economic Policy Institute Brief.

U.S. State Fact Sheets, ERS-USDA.

1.  Respectively, Agricultural Economist, and Agronomist and Water Quality Coordinator, College of Agricultural & Environmental Sciences, the University of Georgia. For presentation at the annual meeting of the Southern Extension Public Affairs Committee, June 12-14, 2000.

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