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        Knowledge for the CommonWealth

Virginia Farmers Adjusting to the 1996 Farm Bill:
Highlights from the Conference

Farm Management Update, December 1996

By Karen Mundy of the Department of Agricultural and Applied Economics, Virginia Tech

Those who attended the November 15th conference in Williamsburg were presented with, as Jim Pease phrased it, "some challenges and some opportunities." For those of you who were unable to attend, there will be a proceedings available, hopefully in January. The farmers, extension personnel, industry leaders, and various governmental agency personnel felt that the information presented was necessary and valuable enough to suggest that the conference be repeated in different locations throughout the state. Since doing so would be prohibitively expensive, it is necessary to rely on you as Regional Farm Management Specialists to make the material as widely available as your region permits. Following are some of the key points of Ron Trostle's, Jim Pease's, and Lou Swanson's talks. These talks were the most general.

Ron Trostle, Chief, Trade Analysis Branch, USDA/ERS, "1996 Farm Bill: A World View"

Background Assumptions

Projections based on background assumptions

Table 1 identifies the potential impact that various supply, demand, and other factors are likely to have on price variability.

Table 1. Potential impact of factors likely to affect year-to-year price variability.

Potential impact
Supply side   
Global grain stocks and stocks-to-use ratio will remain low++ 
Government stockholding   
    Significantly lower stock levels projected, mostly in the US
    Less chance of destabilizing use of public stocks (dumping, embargoes, stockholding during shortages
Private sector stockholding   
    May increase because costs are lower and potential for return to risk
    Private sector stocks more accessible for market stabilization
Possible importing country withdrawal of subsidies for stockholding+ 
Yield variability may increase as production intensifies (fewer, more specialized varieties increase risk of pest outbreaks)+ 
Global warming and climate change may have greater impact on year-to-year variability than on the trend in global output? 
Demand side   
Former Soviet Union is a smaller and less destabilizing world grain trader  --
Chinese grain trade likely to be more volatile in future++ 
Speculators can shift huge financial assets into world commodity cash and futures markets + 
Feed use
    Increasing % of total grain use is fed to livestock and can be diverted to human consumption if prices rise
    Vertical integration in livestock sector diminishes link between feed use and prices
Other factors   
Producers, consumers, and governments will respond more quickly to spikes (and to low prices)   --
Market information more comprehensive, up-to-date, and accessible   -
Improved transportation and handling infrastructure   -
Quicker and better international contracting and financing abilities    
In countries becoming more market oriented, less intervention in supply controls, stock management and price stabilization, may increase price volatility within the country, but reduce it globally  --
"++" and ACA = significant impact. "?" = uncertain impact.

Jim Pease, Associate Professor, Department of Agricultural and Applied Economics, Virginia Tech, "1996 Farm Bill: A Virginia View."

As a result of the 1996 Farm Bill some major changes to existing programs occurred:

Of the acreage eligible for enrollment for transition payments, 98.3 percent was enrolled and Virginia will receive nearly $20,000,000 in payments in the first year (Table 2), but lest that seem like a great amount, Texas will get $456,000,000.

Table 2. Virginia 1996 transition payments.

Crop Acres enrolled
1st year payments

In Virginia, four of the ten top agricultural producing counties are located in the Valley. Along with producing agricultural crops, seven of the ten counties are also projected to show increases in population (Table 3). This increased population will provide challenges to agriculture as the people moving in compete with agriculture for land. More services such as schools, garbage collection, water and sewer, police and fire protection, will be need for the increasing population as well.

Table 3. Agricultural sales for 1995 and projected population changes, 1995-2010

($ million)
Population change
* Numbers in parentheses indicate loss of population.

Not only are there shifts in population, there are also changes in the age of farmers: from 1982 to 1992, for farms with sales over $10,000, farmers 65 and older increased from 18 percent to 28 percent and farmers 34 and younger decreased from 13 to 8 percent. That raises the question of where are the farmers coming from to replace those who are retiring? In addition to these challenges, there will be continuing environmental concerns, cost/price squeezes, local research challenges (the 1996 Farm Bill extended Title VIII--Research, Extension, and Education for two years to evaluate the funding for these programs), water quality concerns, and more. With these pressures on agriculture and the farming communities, it will become more and more imperative that information be made available to help farmers and other rural community residents make appropriate choices.

Lou Swanson, Professor of Sociology, University of Kentucky, "Rural Development in the 1996 Farm Bill: What It Means to Your Farming Community"

To understand what rural development has to do with the farming community, it is necessary to start with three basic questions:

At one time Virginia's economy depended far more on agriculture than it does today. In 1991, farming accounted for 1.9 percent of the total Virginia employment and agricultural industries--processing, distribution, inputs--accounted for 7.2 percent, leaving 85.1 percent of the state's employment unrelated to agriculture. In rural areas, less than 9 percent of the population are farmers. That change from earlier years has profound implications for the relationship of farming to the community in ways that may not be very beneficial to farmers. There is a dynamic relationship between farming and rural well being as shown in Figure 1.




Farmers still have an important role to play in the rural community well being. They are among the wealthiest, best educated people in the community. Farmers provide a significant part of the labor force to the non-farm community. Part-time farming in Virginia is a permanent characteristic of Virginia agriculture--at least some member of the farm family is engaged in the non-farm sector. A lot of farmers, when asked what their occupation is, will answer they are farmers. But looking at their income flow shows that most of that incomes comes from the non-farm job.

What else do farmers do in the community? They pay property taxes, the basic form of revenue in these counties. And they pay the largest part of that burden. What happens in the rural community affects the schools, public safety, and the capacity of the community to help each other.

What should farmers care about in terms of rural development? First of all, they need to care about jobs because with the changes in welfare and block grants to local levels, the jobs have to come from somewhere. Second, they need to care about community services. Quality of live is critical. Studies show that rural communities in the southeast United States have characteristics similar to the inner city--crime rates and drug abuse is as high as in the inner cities. Educational levels are as low as those in the inner cities. Third, that while farmers may be engaged in a global economy, they live locally. Local communities are not homogeneous as media would suggest. They are diverse and becoming more so. Local society is important and public policy is just now becoming interested in local society once again. However, no one is more interested in the local economy than the people who live there.

There are three fundamental areas farmers and other rural residents should care about:

Most rural communities lack all three of these infrastructures.

Will the rural development provisions and the reorganization of USDA make a difference for rural Virginia? Most of the fiscal resources reside outside USDA in agencies such as Housing and Urban Development, Department of Transportation, Bureau of Labor Management, Veterans Administration, and others. However, there are provisions in the 1996 Farm Bill aimed directly at rural development and it is important to know about them and learn how to access the available funds. Rural Community Advancement Program (RCAP) is a restricted block grant program, consolidating former categorical grant programs which were primarily for sewer and water. It is administered by the USDA Rural Development Directors. These directors were the former Farmer Home Administration directors. While they were very good loan officers, they know little about rural development. RCAP requires a strategic plan for rural development that includes "significant" local input.

The second piece of rural development legislation from the 1996 Farm Bill is the Fund for Rural America which provides $300,000,000 over three years. It is a "slight of hand" transfer of Commodity Credit Corporation funds to rural development, primarily to protect the funds from budget balancing cuts in farm programs. It has three parts: 1. rural development, primarily to deal with the water and sewer backlog; 2. research for value-added agricultural commodities; and 3. Secretary's discretionary fund.

Will USDA reorganization and the 1996 provisions for rural development make a difference? MAYBE. USDA is not a non-farm rural development agency, but it is a step toward developing a new mission area that can directly help rural communities. The reorganization did not address the problem of consolidating existing rural development programs. The USDA programs do not address economic and social infrastructure. And they do not address how state rural development councils or cooperative extension will work together, even though the legislation requires cooperation.

There are two federal program initiatives that will directly affect Virginia's rural communities: welfare reform and the tobacco program. Welfare reform is important because the question is, "Can rural Virginia create enough jobs, provide the necessary social support for retraining, child care, transportation, housing with less money?" The tobacco program is based in 1938 permanent legislation and is, de facto, a rural development program. It is aimed at small farms and it provides a high multiplier effect, that is it generates additional income in the community for each dollar earned from the production of tobacco.

There is a third program that was recently published--telecommunications. If rural areas become connected through telecommunications and if the quality of life can be improved, then, according to most surveys, rural areas are a better place to live than suburban or urban areas.

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