Lifetime of lessons: Agricultural engineer stirred controversy in farming, business world.
These descriptors may not fit the stereotypical cautious agricultural engineer. But they fit agricultural engineer L. Eugene Smith, whose life serves as a poignant example of a life filled with successes and failures. Smith died at 55 in June 2001 and has been labeled by some as the United States' most envied -- and hated -- farmer.
Smith received a bachelor's degree in agricultural engineering from Purdue University in 1968, then began farming in Indiana with almost no investment capital. In 1969, he received a master's degree, also from Purdue, and in 1971 purchased 100 acres (40 hectares) of land using $44,000 borrowed under a U.S. government program.
Smith soon began using the leveraging techniques he learned in college and when land values increased in the 1970s, he used his on-paper assets to buy more farms on credit. He once bought 16 farms in one month.
By 1981, Smith owned 17,000 acres (6,900 hectares) and rented another 4,000 acres (1,600 hectares), during a time when the average Indiana farmer owned 140 acres (57 hectares). His capital sources included a $20 million loan from Prudential Life Insurance. This new wealth also attracted proposals for non-farm investments, such as a potential to buy the Indiana Pacers professional basketball team, which he refused.
Smith then began using the engineering skills he learned in college. He consolidated his farms into larger, more efficient units. Soon, he had more employees removing fences and ditches to create larger fields than he had to produce crops, mainly corn and soybeans.
Land consolidations have been common throughout history and agricultural mechanization in the United States in the 20th century allowed many farmers to expand. But Smith is viewed as the undisputed expansion king of the 1970s.
To achieve high labor efficiencies, he bought the largest equipment available. When he needed more than manufacturer's could offer, he designed and built his own innovative equipment. In 1975, he built a folding 24-row corn planter, which overshadowed the largest on the market -- a 12-row planter. He also manufactured and sold some planters to other farmers.
Beginning of the end
Increasing interest rates finally caught up with Smith as they spiked to 21 percent in 1980. He soon began losing $1,000 in equity per hour, 24 hours per day. If he had sold out in 1980, he could have retired with $12 million profit in the bank. But he chose to stay in the game and by 1982 filed for Chapter 11 bankruptcy.
Smith began rebuilding his empire with money from the government's payment-in-kind program. He invested it in the futures market and turned it into $1 million. However, the tide turned again when Smith lost $800,000 within two weeks. He returned to farming and by 1988 had filed for Chapter 7 bankruptcy.
Lessons to be learned
Bankers lent Smith large sums of money partly because of his quick wit, public persona and accuracy with figures. Unlike other farm empire builders, he enjoyed publicity and could be counted on to provide a good story for newspaper and magazine articles.
Smith became a lightning rod for the the agricultural media on the issue of bigger is better. But his theories sometimes prompted controversies. For example, Smith suggested that purchasing farmland is a better investment than remodeling the farm family home. This idea triggered a flurry of letters from upset farm wives.
Some hated Smith because he became a public symbol for the end of the small family farm and rural way of life. Others may have been jealous of his financial success.
In early interviews, Smith denied any interest in politics but in 1986 he accepted the Democratic nomination for U.S. Congress to represent Indiana's 7th District. He based his political platform on minimizing market influence on government farm programs. He lost the election to Republican incumbent John Myers.
Although the United States portrays itself as a capitalistic society, government is intertwined with agriculture.
Smith's expansion plans could never have succeeded without help from government programs. He also used government money to ensure cash flow. One year, Smith received more than $1 million in government payments, being the only farmer in the midwestern United States to receive such funding.
But government involvement in the economy also hurt Smith as high interest rate policies enforced to cut inflation hastened his financial demise.
Another lesson comes from the unpredictability and nonlinearity of production agriculture. Smith's agricultural engineering classes taught him that if he doubled his acreage and tractor size, he would cut per-acre labor costs in half. But his operational efficiencies failed to shelter him from other economic concerns.
Similar to the lessons being learned by investors in today's stock and bond markets, Smith learned the hard way that land prices sometimes go down. Although some university research shows that risk aversion and preparation for unforeseen situations is possible, few such tools are available for individuals such as Smith.
The issue of farm size, and relative supports for small and large farms by the educational, research, extension and governmental infrastructures, is a worldwide concern. Large operation opponents view farmers such as Smith as rural society destroyers whose efforts lead to economic instability.
But proponents point to Smith as a pioneer of the large farms needed to provide low-cost food and improved farmer living standards. His down periods may be blamed on overextension and bad timing, but his efficiency concepts are strong.
A new approach
Smith continued his fun-loving ways to the point of getting arrested for pulling a prank in 1993. He bad inserted his truck, carrying an employee posing as singer Willie Nelson, into a parade. Officials failed to see the humor in this joke.
Smith also continued to be a workaholic but farmed with more caution. In his final days, he maintained high financial equity in land. He depended on flooding, instead of expensive fertilizers, to replenish his river island soil. He preferred using old equipment to buying the biggest, latest models. His newest tractor in 2000 was made in 1976.
Unreliable, old equipment required Smith's technology and engineering skills to keep it running. While working on a center-pivot irrigator's electrical system, Smith died of electrocution. His new policy of simple and cheap may have protected him from bankruptcy. But did it kill him?
RELATED ARTICLE: The Smith philosophy
The adventures of L. Eugene Smith made good stories, especially when spiced with some of his own outspoken remarks or with others' reactions. Here are some typical Smith quips published in various media articles:
"I really don't care how much money I have. I always wanted land -- 10,000 acres of it."
"I didn't know (Federal Reserve Board Chairman Paul) Volcker would turn the world upside down and shake everything out of my pockets."
"Bankruptcy helped. I see it as a way of keeping costs down."
"It's absurd what the government has to do to keep me in business."
"My whole strategy is still to bank on the government farm program and bet they'll keep saving the family farm."
"I like the peaks and valleys of this business, particularly the peaks."
"If someone came to me now and wanted to loan me millions of dollars, I wouldn't take it."
"It amazes me how many people really hate me. I never meant to hurt anyone."
A life chronicled in headlines
L. Eugene Smith was featured in many newspaper and magazine articles. This sample of headlines shows how public opinion changed with time:
"What makes Eugene Smith run?" Successful Farming. January 1975.
"Young farmer makes dollar leverage work." Prairie Farmer, Feb. 1, 1975.
"How the family farm can harvest millions." Business Week, July 4, 1977.
"24 Rows and Planting." Indiana polls Star, Oct. 1, 1978.
"Superfarmer: Full Steam Ahead." Journal and Courier, April 15, 1979.
"Go-Go Young Farmer Who Rode Prices Up is Laid Low by Debt." Wall Street Journal, March 11, 1982.
"Smith Goes from Riches to Rags in One Decade." The Farmers Exchange, April 16, 1982.
"Eugene Smith: Rising from the Ashes with PIK." Farm Future, March 1983.
"Country Slicker." Forbes, May 23, 1983.
"The 1983 Golden Cowchip Awards." Farm Journal Extra, January 1984.
"My Next 10,000 Acres." Top Producer, January 1987.
"Linton couple buy historic river island." Vincennes SunCommercial, Nov. 29, 1989.
"Parade-crashers arrested." Carmi Times, Oct. 12, 1993.
"Famed Farmer Makes Quiet Comeback from 1980's Loan Failures, Bankruptcy." Indianapolis Star, Nov. 28, 1999.
"Larger-Than-Life Syndrome." Top Producer, October 2001.
ASAE member John K. Schueller is a professor in the mechanical engineering and agricultural engineering departments at the University of Florida, P.O. Box 116300, Gainsville, FL 32611, USA; 352-392-0828, fax 352-392-1071, email@example.com.