Review
of
The End of Agriculture in the American Portfolio*
(Steven C. Blank)
—by Neil E. Harl**
 
"Facts as such, never settled anything.
They are working tools only.
It is the implications that can be drawn
from facts that count, and to evaluate
those requires wisdom and judgment…"
—Clarence Belden Randall
 

It is the stuff of legends that even the learned look at facts and draw very different conclusions. That has always been the case and likely will continue to be even with all of the modern tools of analysis and projection.

And such it is with Professor Blank's book, The End of Agriculture in the American Portfolio. The title is provocative, probably deliberately so. The title conjures up images of sacred cows being gored, of cherished memories being shattered, of something in our past being defiled, of something precious being irretrievably lost.

Professor Blank's basic thesis seems to be that "…the production of food and other agricultural products will disappear from the United States because it will become unprofitable to tie up resources in farming and ranching." That could be the case for some land in the next several decades but hardly for all of agricultural land.

But before we wax too nostalgic about the dire message conveyed, and lament the passage of this feature of America that has characterized and typified this country more than any other facet except for our freedoms, let's go back to some of those facts derided by Randall a half century ago.

What will influence the location of agricultural production?

Perhaps Professor Blank's most trenchant comment, in all of the 196 pages of text, appears on page 165 where he states—

"Economics will rule and the market will allocate land to its highest and best use." This is not the command economy of the Soviets, where the central planners decreed that poultry production would take place in frigid Sverdlask (now Ekaterinburg) far from the lowest cost feed production and also distant from the major population centers. This is the United States where we worship at the shrine of open and free markets—even though powerful forces are constantly at work to diminish competition and eliminate markets as we know them. Beating in the breast of every good capitalist is the heart of a monopolist.

Professor Blank is correct in saying that the future of the agricultural sector will be shaped and determined by economic forces. But his extrapolation of trends at the margin is wide of the mark. Professor Blank looks at the margin and concludes that the entire sector will soon mirror the margin. That has never been the case and is unlikely to be the case in the future.

So his shrill conclusions about—

    • the demand for Montana trout fishing (which is true and well documented),
    • the availability of water in California and Arizona (which has been a problem for a century),
    • the conversion of land in Montgomery County, Maryland (which has been going on for more than two centuries), and
    • the disappearance of dairies in Los Angeles County (which has been anticipated for a half century)

should not be viewed as harbingers of doom for U.S. agriculture. Rather, those developments are expected consequences of changing demands for resources and the benefits resources produce. But those developments do not spell the death of U.S. agriculture.

The more relevant question is what are the factors expected to influence the location of agricultural production in the world and to what extent? Let me mention seven of the most important factors—

    • Certainly productivity of the soil is a major factor. Historically, it has been a dominant factor. Perhaps it will be slightly less of a factor in the future. The U.S. contains large areas of the most productive soils.

    • Second is climate. Combined with productive soils, climate has been a dominant factor. Global warming could challenge our assumptions about where that dominant combination of factors will mandate that agricultural production take place. But, in general, the moderate U.S. climate is highly favorable for crop and livestock production.

    • Third is availability of water, as we separate this vital resource from climate. Within limits, we can transport water but more likely we will develop crops with less sensitivity to water needs. Although the West and Southwest have experienced high levels of competition for water, and that competition is expected to intensify, much of the country has adequate water supplies for robust agricultural production.

    • Fourth is the availability of infrastructure—roads and highways, developed waterways, storage facilities, even governance. Certainly, the U.S. has the most highly developed infrastructure for agricultural production in the world.

    • Fifth is the skill level of farmers. Although there are at work forces that are calculated to diminish the importance of this factor, historically this has been a significant explanatory variable for the success of U.S. agriculture.

    • Sixth is the level of trade barriers. Trade barriers can effectively wall a country off from the rest of the world. In general, the U.S. has led the battle for demolishing trade barriers and has gradually lowered trade barriers for U.S. products.

    • Finally, the level of competition for land resources. At present rates of conversion, by my calculation in about 340 years, give or take a few years, agricultural land in this country could be all concrete, blacktop and rooftops. Like the much touted and feared spectre of running out of oil resources, this is not likely to happen—certainly not any time soon.

So how is U.S. agriculture doing?

A reasonably good measure of agricultural competitiveness, in a world of global markets, is the value of land. Land is likely to remain in farming until the value for competitive uses equals or exceeds the value for agricultural production. A theorem advanced by Leamer holds that, if capital is completely mobile, if technology is freely available everywhere and goods can move freely across boundaries, then wages and land rents will be the same everywhere for the same quality of land in terms of productivity.

We literally bid expected returns on land into land values. The formula is simple and well known, where V equals land value per unit (per hectare or per acre), a is the net return per unit in the ith year and r is the discount rate—

as n approaches infinity, it becomes

where a is the average annual net return per unit.

While U.S. land values have fluctuated in recent years, it is reasonably clear that producers in the United States are capitalizing part of the returns into land value. Non-farm uses may have an influence in some areas, notably around major cities and towns, but the great bulk of the farmland derives its value from expected profitability in agricultural production.

Another measure of how well the U.S. is doing, competitively, is in exports. As Figure 1 shows, agricultural exports again have fluctuated in recent years but exports have comfortably

Figure 1.

exceeded imports of agricultural products. If one were to focus on just the last few years in pork and beef and veal exports, one could conclude that the U.S. was indeed very competitive. The recent past experience with corn, wheat and soybean exports conveys quite a different picture. This juxtaposition reflects important changes in the technology of shipping fresh meats to distant markets and in the economics of transportation. We are simply exporting more of our feed grains and proteins in value-added form.

Another measure of the success of U.S. agriculture is that the sector is in deep economic trouble for producing too much, not too little. If agriculture were in danger of moving elsewhere, we would surely see some signs of reduced output. That is not the case.

Professor Blank admits that U.S. farmers are "quantifiably the best" (p. 176). That is hardly a prescription for agriculture in the U.S. to crash and burn, economically.

Problems with the way the message is packaged

The book may come to be viewed not so much by the message as by the way the message is packaged.

Some statements simply boggle the mind—

    • "Farming will fade away and agribusiness will flourish." That assumes raw products would be returned to the U.S. for processing after having been produced elsewhere. That outcome seems far from assured.

    • "The Ogallala Formation…has lowered the water table by more than 100 feet in recent decades." While it is well documented that the recharge rate is low and the aquifer has dropped in recent decades, the decline is substantially less than indicated.

    • "In the 1980s, foreclosure forced one in five out of business nationwide." In my book, The Farm Debt Crisis of the 1980s, I discuss at length the economic woes of the sector in that era but there is no support for that statement.

Some statements exhibit a mixture of arrogance and confusion about the sector—

    • "America doing agriculture is like a Ph.D. doing child's work—we can do it but it is a waste…" (p. 18).

Some statements exhibit what appears to be a deep antagonism to agriculture—

    • "[agriculture]…is not a highly desirable occupation…everyone wants to get out as they move up" (p. 7).

Some statements are impossible to fathom—

    • In the 1980s, "…about 20 percent of farms were sold, but total acreage in agricultural production did not decrease by nearly that amount" (p. 24).

Surely no one would expect failure of farmers to lead necessarily to land moving out of agricultural production.

Some statements are wide of the mark in terms of what is known about supply and demand response—

    • "Higher land prices add to fixed costs and lower the return on assets for the owner/investor who purchases the land" (p. 25).

For more than a century, it has been accepted that land values are price determined, not price determining. As noted above, land values reflect the discounted values of expected profitability. Land values are high only because supported by expectations of profitability.

Some statements vastly overstate the situation.

On page 86, Blank discourses at length about the adverse impact of death taxes. In fact, a husband and wife, together, with minimal planning, can pass roughly $4 million of asset value with no federal estate tax. That is several times the average farm net worth in this country. Moreover, many states have totally eliminated state death taxes; those with such taxes impose tax at a relatively low rate.

Numerous factual statements are made with no clue as to where the statement or fact could be located for checking—

    • "A Federal Reserve Bank economist…"—no date, no page, no identity of the person, only that it appeared in the Omaha World-Herald (p. 146).

    • "A Des Moines Register columnist…"—no cite, no page, only that it was in 1995.

    • "An economist in Ohio…"—no cite, no identification (p. 193).

    • Cites to a "Los Angeles Times story in 1995" (p. 171).

What little research data appear are not cited so that sources could be checked.

    • Table 6-1, p. 67, lacks explanation of the sample and the statistical basis for conclusions.

    • Table 6-2, p. 70, does not reveal what lenders were interviewed.

Some statements, repeated frequently, are jarring and wearisome to the reader—

    • "Big Bucks"

    • "Big Money"

    • "Big Bite"

    • "Big Handouts"

    • "King of the Hill"

Problems faced by the agricultural sector

Without a doubt, the agricultural sector faces serious problems.

    • The over production problems in basic commodities pose problems of economic and financial stability. The irony of a highly efficient sector, providing low cost food to the world, being in financial trouble over too much production is beyond easy understanding. And matters will likely grow worse. The problems of over production, particularly in crops, have been exacerbated by a steady stream of output increasing technology over the past 70 years. And the problem is likely to grow worse in the future. Those at the leading edge of crop breeding tell me that the maximum possible yield on corn is somewhere between 350 and 550 bushels per acre. Taking the lower end of that range, if the genetic determinants of yield are manipulated over the next few years to reach that level, and there has been little pick up in demand, we would need about one-third of the acres now in corn production to produce the needed corn crop. This is an indication of the squeezing that is in prospect for U.S. producers, not because production is leaving the American portfolio, but because fewer producers will be needed.

    • The longer term problems of concentration in input supply (particularly in seed) and in output processing and handling constitute an enormous problem for policy makers as the sector is vertically integrated from top to bottom with a near revolution in the role of producers.

    • The lack of consumer acceptance of genetically modified organisms promises to cause huge economic problems for producers and crop handlers, not to mention processors.

In conclusion

What all this adds up to is that one of America's most productive and most successful sectors, by global standards, faces enormous challenges. But leaving the American portfolio is not among them.

 

References
Harl, Agriculture in the 21st Century, Iowa State University, 1999.

Harl, The Age of Contract Agriculture: Consequences of Concentration in Input Supply, Journal of Agribusiness, forthcoming.

Harl, The Farm Debt Crisis of the 1980s, Iowa State University Press, 1990.

Leamer, Theory of International Competition, Ch. 1, MIT Press, 1984.