State of the agricultural industry (part 1 of 2): trends and policies that affect the agricultural industry will have an effect on the lives and livelihoods of farmers equipment dealers, manufacturers and all their suppliers.

The AgExecutive Forum, sponsored by the Association of Equipment Manufacturers, is an annual review of trends and policies affecting the agricultural industry. Such information--what has happened, what is happening and what is expected to happen in agriculture--can be utilized for decision making by many of the industry's segments. The following is Part 1 of my report on the topics presented at the most recent Forum on July 12.

Sound economics for 2007 Farm Bill

* Barry Flinchbaugh, Ph.D., Professor, Agricultural Economics, Kansas State University--Anybody who has ever heard Flinchbaugh speak knows that he doesn't mince words and won't be surprised that he said: "It's time for another farm bill ... time for the media and pundits to scare the hell out of farmers again."

"The budget is irrelevant to farm programs because there is absolutely no correlation between the federal deficit and what is spent on the farm program," he said. "The legislators come back to the rural areas and say there's no money for farm programs. They go back to Washington and miraculously 'find' the money for the farm program, and they return to the farm a hero."

In addition to farmers, Flinchbaugh said lenders, machinery manufacturers, dealers, input suppliers and others whose lives and livelihoods are involved in the agricultural industry also have a stake in the new Farm Bill. If government agricultural programs were eliminated, farmland prices would decrease about 30 to 45 percent (Chart 1). He said although net income for farmers in the high plains has sometimes been solely the farm payments, farmers still have political power.

Flinchbaugh predicted that the 2007 Farm Bill would redefine the "family farm," that energy plans would be funded, and that rural development would be supported but starved without sufficient funds provided.

"The Farm Bill is supposed to be a safety net for farm income, with minimal distortion to the market." Referring to Chart 2, he said, "Based on economics, if we are going to have a workable bill, we have to base it on the facts, not on emotions. Sound economics will move the new Farm Bill to the right."

New vision needed

* Sara Wyant, President, AgriPulse Communications, Inc.--FB2007 will be much different from FB2002, mostly known for its focus on commodities and conservation, according to Wyant, whose weekly newsletter AgriPulse provides indepth coverage of farm policy issues. She identified six reasons Legislators will have to consider changes in the new bill: changing demographics (Chart 3), farm prosperity, disconnect between farm payments and rural prosperity, outside forces applying pressure, world trade and the next generation.

Referring to the top ten cotton growers who received 61 percent of the payments for that commodity sector, Wyant said, "It is this kind of disparity that adds to the debate about why larger groups get so much of the total. We need to have payments that don't upset the markets."

Wyant pointed to the huge impact rural America had on the 2004 elections, with "disparities that are glaring," and to the increasing gap between the prosperity of small towns and large farmers. She said legislators need to hear that the "status quo" is no longer acceptable for the new Farm Bill.

"We need to do something to make land accessible to beginning farmers who can't afford to buy or rent," she said. "I'm hopeful our lawmakers will continue to have a long' term vision."

China's grain production

* Alan Tracy, President, U.S. Wheat Associates--"The big news is China's re-emergence in the world wheat market," Tracy said.

Although China's per capita GDR which is the figure derived from purchasing power parity estimates, is far down on the list, the country's 1.3 billion people put its total buying power near the top. This makes China's real GDP about 9 percent, according to Tracy.

Because of this large population, China consumes one-fourth of the world's steel, one-third of the world's coal, and one-tenth of the world's oil. The country consumes one-fourth of the world's soybeans and one-half of the world's pork. In 2004, China was the second highest importer of US wheat.

Despite it's own increasing wheat production, China is not able to retain adequate reserves and will remain an importer of wheat (Chart 4).

Tracy predicts that during the next five years, China will drive the demand for basic grains. "This bodes well for farmers and farm suppliers," he said.

"On behalf of the children in China and the US, it is important that we get this relationship right."

Global opportunities

* Phillip Shull, Senior Service Officer, Foreign Agricultural Service of the USDA, knows first hand that agriculture has a political value beyond its monetary value. His departmental goals are to expand US agricultural export opportunities and help alleviate world hunger and food shortages. Currently, he is concentrating on countries the FAS has identified as "key" markets: China, Brazil, Russia and India.

On the positive side, these countries have in common a great deal of dynamism and modernization, according to Shull. Negative roadblocks to meeting the FAS agricultural goals include cultural resistance, problems with corporate governance/rule of law, and great power of local officials. Successful foreign markets have people who want products, who have money and who have access to goods.

China--"In China, Communism is still very much in control; there is no private land ownership," Shull said. "Land is leased from the government, and most 'farms' are no more than one acre in size."

Shull's figures show China has been a growth driver, accounting for almost half of the overall US export increase during 2002-2004. Now a $10 billion net ag importer, China is the US's fifth largest ag export market, after Canada, Mexico, Japan and the EU.

In turn, China has become the sixth largest foreign supplier to the US. The US imported 28 percent of China's exports in 2004. Chinese agricultural production has improved enough to make it the world's fourth largest producer today. Ag mechanization, post-harvest treatment and distribution have improved. Ag processing and facilities have been upgraded. Biotechnology is high on the priority list.

Russia--Russia offers different problems and opportunities, Shull said. "If you do business in Russia, you have to know that business is done with the mafia somewhere in the marketing chain."

Despite having large amounts of crop land, many of Russia's farms are ill-managed and suffer from insufficient skilled and/or experienced farm workers. As in the West and other emerging countries, youth flight from rural areas into the cities exacerbates these people problems. "As a result, there is no way around the need for increased mechanization in Russia," Shull said.

Russia has imported about 10 percent of their farm machinery, much of it from the US and Western Europe. Although many companies have entered into joint ventures with Russia companies, Shull said there is still a lot of local fiefdom, corporate restrictions and national regulations to work with or overcome.

India--India is the world's largest democracy and the second most populous country. The country produces one third of the world's tractors--about 250,000 units, mostly under 40 hp because that's the size used most by Indian farmers. India has a 72 percent rural/ag population, and the average sized farm is 3.6 acres.

India's farm exports have doubled in the past ten years, partly due to the country's embrace and use of new production options and biotechnology. More than half of India's land is arable, used mainly for rice, wheat and millets (small cereals and forage grasses). Today, India has more land in cultivation than the US and the most acres of irrigated land in the world.

India is among the top three global producers of a broad range of crops, including wheat, rice, pulses (chickpeas, pigeon peas, lentils, dry peas, etc.), cotton, peanuts, fruits, and vegetables. India has the world's largest herds of buffalo and cattle, is the largest producer of milk, and has one of its largest and fastest growing poultry sectors.

Brazil--Brazil's need for markets makes it very competitive. It is the world's largest producer of coffee, sugar, frozen concentrated orange juice, tropical fruits and vegetables, and has the world's largest cattle herd. It is gaining last on the US in the production of soybeans. Currently, about 62 million hectares (153 million acres) produce agricultural products, with plans to change pasture into cropland by about 30 million hectares (74 million acres) in the next 50 years.

Shull said although land is cheaper in Brazil right now, there are other expenses to consider. The soil is poorer, there is not an adequate infrastructure for its agricultural production, the political climate is uncertain and the bureaucracy can be stifling.

(Editor's Note: Part 2 of the AgEquipment Forum report on the State of the Ag Industry presentations will be in the September-October issue of Implement & Tractor.)