The Last Word
Farm Business Management Update, June/July 2003
By David M. Kohl
Powerful and persuasive forces are impacting agriculture and rural communities throughout North America and globally. These same drivers of change are transforming the landscape of agribusinesses and academic institutions serving the industry. Recently, I was invited to address the 75th Anniversary meeting and celebration of the Agricultural and Applied Economics Department at Virginia Tech. The title of my presentation was "Mega Trends in Agriculture: Implications for Academics."
The trends and visions developed in this discussion rely on observations and anecdotal evidence based on 5 million miles of travel and work with the agribusiness industry over the last 25 years. The discussion is designed to encourage people to think about the future of agriculture and rural communities and the missions of Colleges of Agriculture and Departments of Agricultural Economics across the country.
A strategic planner for the future of agriculture and rural communities must examine the drivers of change. In the next 10 to 20 years, domestic and global consumers of agricultural products will be the central focus. They will expect products, services, information, and education that meet security and safety requirements, convenience, and lifestyle aspirations.
The eight drivers of change include the domestic and global economy; biotechnology; information technology; global competition; government policies; environmental, water, and natural resource management; passporting and traceability; and finally, the uncertainty of a blue sky incident such as 9-11.
The industry and its supporting structures will be faced with an uncertain economy that can range from boom to bust in a short period of time. Deflation, consumption moderation, balance in work and lifestyles, and quality of life will be key words in the market and work place.
The United States is in stage one of the globalization concept. The first industries to experience global competition were the manufacturing and textile mills as more production migrated off shore. Agriculture is currently in the midst of the global pressures. In the next few years the white-collar workforce will be directly experiencing the impact. Pundits would say that the unemployment statistics don't verify this. However, some evidence suggests we are trading one high-paying job for two or three jobs at Wal-Mart pay rates.
Biotechnology and information technology will be tremendous drivers of change. Up to 60 percent of the world's population will accept bio-altered products in the next two decades. Third world countries such as India, China, and African countries will utilize the technology to meet consumer needs at the lowest cost.
On the other hand, the 20 percent of the world's population with 80 percent of the wealth and income will demand and expect food and fiber that meets their safety, convenience, and lifestyle needs produced with environmental stewardship. Traceability, i.e. following the embryo or seed to the plate, will be a requirement, not an option.
Government policies are currently designed to keep producers in agriculture through direct payments. Future farm bills will reflect a voter attitude toward natural resources, conservation, and stewardship. By visiting Europe, one can predict that their programs could be a vision of our future. Finally, any strategic planner must plan for the unexpected. Whether the unexpected is terrorism, weather, war, or natural disaster, consolidated agriculture and clustered urbanization, rather than dispersed rural population, is very vulnerable to terrorist attacks.
Agriculture and Rural Communities
Frequently, I am asked, "Is the family farm dying and are we observing the end of American agriculture?" Agriculture and those servicing the industry are experiencing an evolution based upon the preceding drivers of change. Agriculture is splintering into seven business models, which are difficult to find in USDA statistics or a specific definition of a family farm.
Model One: The Super-Commodity Model
This will be the multiple farm family unit investment. They farm or ranch 10,000 to 50,000 acres, produce up to 100,000 head, and generate $3 million and above in revenue. They will range from the large greenhouses to hog integrators and dairies on the East and West Coasts to the large grain row crop agribusinesses in the Great Plains and Farm Belt.
Model Two: Traditional Operation
This business is the past image of the family farm. It will generate $150,000 to $600,000 in revenue. Economies of scale and profits will be a major challenge. However, the biggest challenge may be whether the son or daughter wants to return to the farm because of the rural community's lifestyle offerings.
Models Three and Four: Vertically Integrated and Contract Agriculture
These two models are prominent in the Mid-Atlantic, Southeast, and West Coast. They attract younger producers because of parent companies' technologies, the diversified mix of enterprises, and contracts that offer economic stability. Strategic alliances and negotiated contracts are very important for success.
Model Five: The Lifestylers
The lifestyle producer will encompass approximately 70 percent of producers but will generate less than 10 percent of total farm revenue. Ninety percent of these producers will locate within close proximity of a strong school and hospital system, will have infrastructure that provides ease of transportation and information, will be near a natural amenity and within 45 to 60 minutes of a shopping mall. In the globalized economy, a "reasonable" cost of living will be critical. The goal of these people will be to maximize rural lifestyle within a vibrant rural community.
Models Six and Seven: Emerging Agriculture
Models six and seven are the emerging agricultural segments. Outside the traditional government support belts emerge value-added and earned business models. These individuals exploit a location, production practice or service advantage. Marketing and people skills will be important in a growing natural and organic food market.
The newest player on the block is the agri-entertainer model. They market experiences, such as hunting and fishing or bed and breakfast getaways, and maximize returns by making people feel good in a stressful, technology-driven society.
Agribusinesses are in the process of altering their products and services to meet this changing agricultural landscape. Rural communities that do not possess attributes to meet the needs of the area or region will be destined to a slow demise.
Implications to Colleges of Agriculture and Agricultural Economics Departments
These structural changes will have a dramatic impact on the future of Colleges of Agriculture and Agricultural Economics programs nationwide. Also, the visions of the institutions' leaders and their agendas will alter the rates of change that will occur internally.
One can vision three tiers of Agricultural Economics Departments and, to some extent, Colleges of Agriculture emerging domestically and perhaps globally.
These colleges and departments are located in historically strong agricultural regions with historically branded names and reputations. The universities and departments throughout the colleges will be driven by the institution's desires to be top research universities. In strong agricultural areas, some agricultural economics departments will form alliances with the business school at their universities and focus on agribusiness. Others in less prominent agricultural regions will focus on natural resources or international agriculture with an economic slant.
Lecturers and adjuncts will conduct teaching at the undergraduate level, while professors with research agendas will focus on graduate education and grants and publications because of the reward and tenure structure.
These Tier One departments, approximately 20 in number, will be predominantly in the Big Ten or Big Twelve athletic conferences. The remaining will be scattered along the East and West Coasts.
Research will be the agenda at these schools because branding and reputation will attract top-level scholars just out of graduate school. Some academic stars from Tier Two and Tier Three schools will be heavily recruited. These schools will become more like farm clubs in minor league baseball. Publication in high-level journals will be rewarded and extension and outreach will be emphasized toward government and high-level agribusinesses rather than at the producer level. Top-level scholars will be measured by their ability to publish and succeed in dialing for research dollars.
At the opposite end of the spectrum the Tier Three institutions will emerge. They will be regional by nature, entrepreneurial, fast, and flexible. They will forge strong alliances with local or regional agribusinesses and producers.
Emphasis will be toward undergraduate education with an applied technical focus. These institutions will have an outreach rather than extension focus and will be driven by small grants and research projects. An academic at these institutions will be rewarded by innovative teaching and outreach activities, articles in trade publications and applied research. Schools in Tennessee, Arkansas, California, Wisconsin, and Minnesota are emerging as strong players serving the agriculture and rural communities.
These colleges and departments, like the traditional family farm, are in the Bermuda Triangle of agriculture and academics. They are struggling to redefine themselves. Like the traditional producers, the tenured academicians struggle with change and new agendas. They often lose outstanding faculty and graduate students to higher profile Tier One schools or, in some cases, Tier Three schools where lifestyle objectives are the faculty members' priority.
Many of these departments will be encouraged to merge with other units at the university, such as Economics or the Business School. Within a decade, the faculty who have stressed undergraduate education, extension, and applied research will disappear through retirement or tenure/promotion criteria that encourage higher level research and publication. The results will be that potential students will go to Tier Three or Tier One institutions and alumni who have supported these departments and colleges will become more disconnected over time. Extension in Tier Two schools will become non-existent from the specialist to the agent, driven by less support from state and local governments.
This evolution will take place in two rounds over the next decade. Round one has already occurred in many of the New England schools and is beginning in southern and some western schools. Round two could possibly threaten the remaining departments later in the decade and eventually some of the Tier One schools, depending upon global events.
This article is intended to provoke thought, whether you are a producer, agribusiness person, government worker, or an academician. Like the book, Megatrends, written by John Naisbett, it is not backed up by statistics and economic models but by front line observations and is designed to trigger critical thinking about the future of our institutions and industries.
This will be my last article in this newsletter as my retirement comes July 1. Here are 10 trends I see that will be fun to observe as I rewind to new career aspirations.
Editor's note: Dave Kohl has been a faithful contributor to the Farm Business Management Update since February of 1994, just 2 years after the first issue. His insights and understanding of management have been appreciated and will be missed by all. Thanks Dave!
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