Executive Summary

Recent spikes in commodity prices mask a stark reality for agricultural producers. If history is any guide, commodity prices are more prone to price deflation than inflation. Since World War II, advances in mechanization and crop technology have drastically reduced the manpower needed to produce an acre of corn, soybeans, wheat, rice or cotton. U.S. agriculture has benefited from constant technology innovation which has enhanced productivity and reduced cost to remain competitive. But the side effect of this technology treadmill is that it also lowers prices and forces Americans to produce a bounty of agricultural production at smaller and smaller margins.

Increasingly, economists are linking the commoditization of U.S. agriculture with a contraction in the number of full-time operators and depopulation in communities once dependent on agriculture. Pressure to curb farm price supports for budgetary reasons or compliance with World Trade Organization rules will only exacerbate this trend.

To revitalize rural America, agriculture needs a new focus—an emphasis on entrepreneurship versus entitlement. Hundreds of farmer-owned ventures have flowered throughout the Grain Belt since the mid-1990s. But more investment beyond production agriculture is critical, since future profits in commodity agriculture will grow only in nickels and dimes; upstream processors, many of which can be farmer owned, will capture the real dollars from value-added agriculture. The ethanol industry is a perfect example: Most private investors only locate in a 50-mile radius where they would consume 15% to 20% of the local corn and raise prices no more than 5¢/bu. Their goal is to make the plant profitable and enhance its resale value, not to boost returns for suppliers. To benefit from processing, value-added or branding opportunities, farmers must participate as shareholders in the industry, not as vendors. Ownership of the manufacturing plant, not the raw corn, will offer far better futures for farmers and their communities.

In an atmosphere where growers take more ownership in their futures, commodity producers will gravitate toward higher-value markets and business models where producers can participate in profits beyond the farm gate. For some producers, this means more vertical integration and alliances with processors, distributors and even retailers. For some, it could mean a technological advance that enhances product quality or enables speedier delivery or reduced handling or production costs. For others, it means ownership in multiple rural-based manufacturing facilities, such as boutique meat packers, ethanol processors or wind-generation plants that can recirculate profits within farm communities.

In many remote rural areas without scenic amenities, livestock agriculture remains the most logical route for value-added agriculture. If animal agriculture continues to move to other countries because of social and environmental concerns, grain production will quickly follow. This will have major implications for U.S. competitiveness and U.S. food security. Currently, livestock consume 56 percent the U.S. crop and 47 percent of domestic soybean production. Growers must continue to support livestock and poultry production and research, especially efforts to make it more environmentally friendly. Growth in U.S. animal agriculture is crucial to guarantee local markets for grain and ethanol plant byproducts. Without a healthy U.S. livestock industry, value-added agriculture, including soybean processing and ethanol production, won’t reach its full potential.

Evolution from a petrochemical-based society to one that relies on plant-based products for fuel and materials could significantly improve opportunities for rural-based businesses in the next decade. Biotechnology is already making some of this conversion possible, with new-age enzymes that speed bioreaction times and increase the cost efficiency of ethanol plants. But policymakers need to set new national priorities to fund such bio-based research and help agriculture broaden its mission beyond a raw supplier of food and feed.

Legal and tax obstacles also impede farmers’ ability to join forces in capital-intensive businesses, or to act with the nimbleness required as markets change. Some 35 states retain co-op laws first drafted in the 1920s, and they are largely inadequate for today’s new generation cooperatives that are neither supply or crop marketing ventures. Growers desperately need business entities that are tax efficient, raise capital with ease and offer investors liquidity.

In a market-oriented agriculture, no single business plan guarantees survival. The failure rate of some of these new enterprises may seem high, compared to the attrition in a government-supported industry. What’s important to recognize is that the transition to value-added agriculture can be enhanced if producers are willing to adapt, if public and private interests prioritize research on technological advances in plant-based fuels and materials and if state and federal governments remove barriers to rural business formation. Admittedly, the transition won’t be painless, but fostering a policy of self-reliance in Grain Belt Agriculture offers far greater benefits than risks.

Specifically, the Task Force recommends that policymakers and farm leaders:

• Elevate bio-based research and technology to a national priority.
• Encourage farmer-owned brands by removing legal barriers.
• Reform producer-owned business structures to improve tax efficiency, easily raise capital and offer investor liquidity.
• Foster and fund value-added education and rural entrepreneurship.