Things Aren't the Same Down on the Farm
For Washington farmers to be competitive in today's global market, they need to be innovative and get support from government and the private sector, veteran agriculture economist Desmond O'Rourke said Tuesday.
"Business as usual really won't work," he told an audience of about 100 at the fifth annual Economic Outlook Conference at Central Washington University. "We can't look at the last two years as being a recovery period."
O'Rourke described the mountain of challenges facing Washington's agriculture industry, and what must be done to return to the "happy, prosperous lifestyle it once knew."
In 2001, O'Rourke said, agriculture in the state hit near-record lows. The question was: Will good times ever return? Last year, agriculture showed signs of recovery, but it was unclear how significant it would be.
"Now we are into the second year of a recovery in 2003," he said.
Crops such as potatoes, wheat and barley have shown price recoveries, while the prospects for milk, dairy cattle and asparagus are poor, he said.
A number of short-term factors are affecting the health of agriculture. The U.S. economic recovery has been helpful, "but food sales have been generally sluggish," he said.
Currency exchange rates have been favorable to Washington agriculture. In the 12 months ended in September, Australia, Canada, New Zealand, the European Union and South Africa have seen the value of their currency increase against the U.S. dollar. This pulls up costs for these countries, making them less competitive with U.S. producers.
At the same time, Mexico and Japan, two major markets for Washington agriculture, have lost purchasing power by 5 percent and 8 percent, respectively. This drives up the cost of U.S. goods in those countries.
In the longer term, myriad trends are dramatically changing the picture for Washington agriculture.
With a good growing climate, abundant rainfall or irrigation water, plentiful labor and arable land, Washington has a substantial advantage.
"As a state, we really have a great starting point to get our groove back," O'Rourke said.
But agriculture is facing rising costs for labor, energy and water. It's being yoked with greater regulations, such as pesticide buffer zones around rivers and streams, and heightened requirements related to homeland security and bioterrorism.
Large retailers, especially those in Europe, are demanding documentation on where and how of food is produced. There are growing layers of mandated "best practices" producers must follow, which differ from market to market. "The record keeping itself is a major additional cost for farmers," he said.
The role of intellectual property in agriculture presents another hurdle, especially for smaller growers.
"More and more of agricultural genetic material now is being controlled by patents or trademarks," he said.
For example, New Zealand firm Enza owns the rights to the Jazz apple, which carries a registered trademark. The company selects only the best growers to produce this boutique product. It then charges a fee to plant a Jazz apple tree, a fee for each pound produced and another fee to market the product, O'Rourke said.
"The intellectual property ... will be tightly limited to try to control the supply and keep the price up," he said.
The combination of pressures on producers has helped change the structure of agriculture.
O'Rourke sees three major models for modern farms: Lifestyle farmers don't draw the majority of their income from farming. Smaller farms are typically struggling and have sales between $150,000 and $600,000. "Super commodity" farms have at least 10,000 acres of grain or 1,000 acres of intensive crops and sales above $3 million.
These mega farms are integrating with packers and processors to gain leverage against retailers such as Wal-Mart, one of the 10 largest, which together sell one-third of the world's groceries. They want fewer, bigger suppliers who can provide a variety of products all year, he said.
Consumer demand for agricultural products is changing significantly, too. As America grows ever more racially and ethnically diverse, consumer tastes in food and drink are changing.
This has fueled a tripling in fruit imports, mostly of tropical and subtropical varieties, to the U.S. in the last 10 years, O'Rourke said.
Meanwhile, the face of the world's consumers is changing. Developing nations are steadily growing wealthier and gaining a substantial middle class with incomes sufficient to purchase imported goods.
A recent forecast by Wall Street investment bank Goldman Sachs predicted that by 2040, the combined gross domestic product of Brazil, Russia, India and China will exceed that of the U.S., Japan, the United Kingdom, Germany, France and Italy.
This change is becoming apparent in the arena of international trade negotiations.
"I think we've seen a historical shift in the U.S.'s ability to push for free trade," O'Rourke said.
His prescription for success in agriculture includes partnerships with the large retailers; coherent, long-term strategies; support from state and local government and the private sector. O'Rourke said the state needs to develop more value-added products that can be sold in a variety of foreign markets.
"Washington needs to rediscover its zeal for innovation,"
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