Drabenstott, Mark

English

Research Papers in Economics

Agricultural  Outlook  Forum       For  Release:  February  24, 1998 
 
 
AGRICULTURE IN A NEW CENTURY: 
WHAT ROLE FOR USDA INFORMATION? 
 
Mark Drabenstott 
Vice President & Economist 
Federal Reserve Bank of Kansas City 
 
 
Information is a critical issue for the future of the U.S. Department of Agriculture.  While 
the Department has always played a critical role in providing information on U.S. agriculture in 
the past, this role will, if anything, be more important in the future.  Many would argue that 
agriculture is moving into an information age, where information becomes the crucial ingredient, 
supplanting seeds, livestock, and markets.  Just as the role of information is changing, however, 
so too is the type of information that everyone from farmers to processors to policymakers needs. 
 Therefore, the question before this session is a very important one: What role will the USDA 
have in providing information to changing agriculture of today and tomorrow? 
 
My goal today is to provide a broad framework for assessing the USDA information role. 
 It is not within the scope of this brief session this afternoon to bring forward a detailed list of 
what information should stay, what should go, and what should be added.  Rather, it may be 
more useful to offer a framework from which these details might be addressed. 
 
Three questions define this framework.  First, how has the world of agriculture changed? 
 Second, given those changes what are the new information priorities?  And third, what is the 
USDA￿s information niche in light of the above? 
 
Stated briefly, my conclusions are these.  For more than a century, the Department of 
Agriculture has been writing the book on U.S. agriculture, commodity after commodity, chapter 
upon chapter.  But the actors in the agriculture of the 21st century no longer use all of this book. 
 Instead, they need a broader web of information that spans the farm gate to the dinner plate, the 
fruited plain to the distant port.  And even as business decisions have become more complex, so 
have the policy decisions.  For businesses and policymakers, the Department of Agriculture still 
is the only author for key pieces of information.  But the times call for a new web, and to do so 
probably means giving up some chapters in the old book.  
HOW HAS THE WORLD CHANGED? 
Before describing the agriculture of today and tomorrow, it is useful to recognized where 
we have been.  The agriculture of yesterday focused on: 
C  Government programs; 
C  Commodities; 
C  Commodity markets; 
C  Family farms; and 
C  Domestic markets. 
 
There was an information assumption attached to this general structure of the industry.  
The assumption was that if the Department of Agriculture supplied unvarnished information on 
commodity markets, then family farms would flourish, and rural America would prosper.  A less 
explicit, if no less important, assumption was that if farmers respond to a barrage of commodity 
information, then consumers will be happy.  Both assumptions are now in question because the 
very nature of U.S. agriculture has changed so dramatically. 
 
With dramatic change in agricultural markets, agricultural policy, and the structure of the 
industry, the agriculture of tomorrow will focus on different things.  Specifically, the focus 
seems likely to shift to: 
C  Market signals; 
C  Products, less on commodities; 
C  Contract markets, less on spot markets; 
C  Farm alliances, not homogeneous farms; 
C  Domestic and global markets; 
C  Rural America; and connsumers. 
 
The shift in focus is evident in a number of changes underway in U.S. agriculture.  First, 
producers are becoming much more responsive to commodity market signals.  In the wake of the 
new farm bill, farmers are clearly no longer wedded to Washington commodity program signals. 
 In the Heartland, for instance, Kansas farmers were quick to respond to high soybean prices and 
the loss of their wheat base by boosting soybean plantings sharply in 1997 (Chart 1). 
 
 
 
 
  
 
 
 Thousands of acres
1990 1991 1992 1993 1994 1995 1996 1997
 Chart 1.  Soybeans in Kansas
 
 
 2400
 
 
 2250
 
 
 2100
 
 
 
1950
 
 
 
1800
 
     Second, lines are blurring in the food system as farmers shift to new generation products. 
 Historically, U.S. agriculture has been marked by sharp lines of distinction between production, 
processing, distribution, and retailing.  Increasingly, farmers view themselves as participants in 
other segments through such innovations as identity preserved products, which transcend 
traditional lines.  Thus, the very concept of a food marketing bill, a standard chart of the old 
agriculture, may need to be rethought (Chart 2). 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Third, industrialization promises to be a powerful force bringing more change to U.S. 
0
100
200
300
400
500
600
1980 '82 '84 '86 '88 '90 '92 '94 '96
Chart 2. Food Marketing Bill
Billion dollars
Farm Value 
Marketing Bill
Consumer Expendituresagriculture.  Contract production is spreading to more and more commodities, and the share of 
total production under contract is rising rapidly in some cases, such as hogs (Chart 3).  This trend 
gives few signs of abating.  Indeed, in a new market era, contracting seems likely to increase as 
producers find new ways to manage risk. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Broilers
Chart 3.  Production Under Contract
0
10
20
30
40
50
60
70
80
90
100
110
120
Percent 
1993-94
1960
Turkeys Hogs Vegetables Feedgrains
 
Fourth, globalization may be an even more powerful force.  Many of U.S. agriculture￿s 
institutions--whether market institutions or policy institutions--were designed for a domestic 
industry.  While many of those institutions have evolved and adapted to a more open sector, the 
fact remains that globalization will continue to have a major impact on information needs as the 
tide of sale abroad keeps rising (Chart 4). 
 
 
 
 
 
 
 
 
 
 Chart 4. U.S. Agricultural Exports
 
Billion dollars
60
65 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Fifth, the economic character of rural America has undergone sweeping change in recent 
decades.  Agriculture was once the dominant economic base for most of rural America (Figure 
1).  The same can simply not be said today.  The number of rural counties where agriculture is 
the primary source of income is a mere fraction of what it was forty years ago.  Many rural 
communities have diversified their economies, in many cases going well beyond agriculture to 
industries like services and manufacturing.  As a result, we need a much broader set of economic 
indicators than just agricultural ones to track the performance of the rural economy. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  1950
Figure 1. Farm-Dependent Counties 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In short, several shifts in the agricultural and rural economies suggest that information 
needs have changed radically from the time when many of the Department of Agriculture￿s 
information systems were first put in place.  Given the fundamental nature of those changes, a 
useful first step in designing new information systems is to establish new information priorities. 
 
WHAT ARE THE NEW INFORMATION PRIORITIES? 
There are probably many ways to think about new information priorities for 21st century 
agriculture.  Nevertheless, five core needs seem likely to rise to the top of the discussion 
regardless of one￿s starting point.  Those five are: sector performance, commodity and contract 
benchmarks, global market developments, retail market outcomes, and rural economic 
conditions. 
 
Sector performance 
  As in the past, sector participants and policymakers will both be interested in the overall 
performance of the agricultural sector.  The problem will be defining the ￿sector.￿  How should 
the sector be defined as it undergoes an integration process that by its very nature blurs 
traditional lines of distinction between producer, processor, and retailer?  While a clear-cut 
definition may be impossible at this stage of the sector￿s transformation, there is no doubt that 
structural change will broaden that definition. 
 At a minimum, two current performance measures will need improvement.  Better farm 
income measures will be needed to track the performance of producers and value-adding 
segments beyond the farm gate.  Such changes will also force a more realistic line of what 
constitutes a farm.  Today￿s definition, many would argue, simply includes too many producers 
who are not viable as commercial enterprises. 
 
Better balance sheet measures will also be needed.  Historically, we have viewed a farm 
balance sheet as resting on farm real estate (typically about three-fourths of total farm sector 
assets).  Yet in the agriculture of tomorrow, real estate may be a much less important asset as 
producers utilize information to add value to traditional production enterprises.  Partnerships and 
relation-related assets, meanwhile, will be more important and will need to be accounted for. 
 
Commodity and contract benchmarks 
This is the information area most people probably associate with the USDA, and it will 
remain important, although in an altered way.  The relevant question, it seems, is this: What 
information do 21st century ￿markets￿ need from the Department of Agriculture?  Three types 
of information seem likely to be important: (1) benchmarks for spot transactions; (2) benchmarks 
for contract transactions; and (3) benchmark contracts. 
 
The forces of industrialization notwithstanding, commodity production is not likely to 
fade away anytime soon in 21st century agriculture.  There will remain a need for a solid 
foundation of supply, demand, and inventory information for basic commodities.  But the slate of 
commodities for which such information is needed will be shorter than in the past.  In deciding 
which commodities to keep and which to cut, consideration should be given to the extent to 
which the commodity has been ￿industrialized,￿ and the extent to which private sector 
alternatives for public information are available and at what cost. 
 
Similarly, even as some commodities shift to contract production, producers and 
processors will still need basic benchmark information for such contracts.  For example, more 
and more corn producers may shift to special use corn grown under contract instead of #2 yellow 
bulk corn.  Even so, the underlying bulk corn market probably will provide useful information in 
setting contract terms.  Again, some care will need to be taken in deciding which underlying 
commodities will serve as benchmarks for contracts, and thus which commodity information 
programs need to continue. 
 
An emerging but potentially highly valuable information need relates to benchmark 
contracts.  As more production goes under contract, producers and policymakers may want to 
know if the terms of the contracts are ￿fair.￿  Thus, there may be growing demand for sharing 
contract terms in aggregate fashion through a survey.  The questions is, who would conduct such 
a survey?  The private sector or the government?  There are few answers to these critical 
questions today.  They deserve far more study and debate. 
 
Global market developments 
As U.S. agriculture becomes even more integrated into a global market for food and 
fiber, the need to assess opportunities and risks abroad will rise significantly.  The current Asian 
economic and financial crisis provides an excellent case in point.  There is an immediate need to assess the impact of economic turbulence on U.S. exports.  There is an equally important need to 
also evaluate the degree to which long term prospects have changed.  In each case, detailed 
export sales information by commodity and product category and by country is needed.   
 
The implications are plain.  There is a growing need for timely, accurate export 
information.  Timeliness will be crucial, as the current Asian situation has shown.  In addition, 
better foreign investment information will be needed.  While trade is often the focus, investment 
is almost certainly going to become a more prominent feature of a global food market where 
alliances frequently cross borders. 
 
Retail market outcomes 
While farm level markets have been the primary focus in the past, attention will steadily 
shift to the supermarket, in my opinion.  The issue will be this: How to track retail market 
outcomes, especially ones that are of primary concern to consumers?  For the near future, at 
least, consumers are likely to have two primary concerns.  First, is the food safe?  And second, is 
a more concentrated food and agricultural sector leading to ￿unfair￿ competition and higher food 
prices? 
 
This issue suggests a considerable shift in attention.  Historically, USDA has devoted far 
more attention to farm markets than retail markets.  Yet consumers will probably not be satisfied 
with limited answers to burning questions.  The implications are than USDA will need to provide 
rules which clearly establish a ￿food safety trail.￿  And, more and better retail price information 
will be needed to monitor potential anti-competitive actions. 
 
Rural America 
Finally, more information will be needed on the performance of the rural economy.  The 
issue will be, How to track a rural economy which is far more diverse than in the past?  Rural 
America is now something of an ￿orphan.￿  As it has moved beyond agriculture, there is no 
longer a clear-cut case for making the U.S. Department of Agriculture its primary agency.  Still, 
there remain many logical reasons why USDA is still a good host for rural economic 
information.  Put simply, it is not clear any other agency is in a position to take on the 
responsibility. 
 
In the rural economy of the next century, there will be two primary implications for rural 
information.  First, public and private decisionmakers will need more complete and more timely 
rural economic indicators.  Currently, rural employment numbers are available with about a two-
year lag--a delay far too long to address many current policy questions.  Second, there will be a 
need for much better information on rural financial markets.  These markets are receiving a lot of 
policy attention in Congress, but information is scant, in part because researchers have 
historically devoted more attention to agricultural credit markets. 
 
WHAT IS THE USDA￿S NICHE IN SUPPLYING INFORMATION? 
The most important question, of course, is what niche should the USDA fill in the 
agriculture of the 21st century?  Before drawing some conclusions based on the above 
discussion, it is useful to take account of what the Department of Agriculture￿s comparative 
advantage may be.  What does the USDA do uniquely or best?  
There are clearly a number of information tasks that belong in the USDA.  While this list 
is not exhaustive, it does illustrate some of the types of information where USDA clearly 
dominates the field: 
C  Large surveys, such as farm costs and returns or the food 
consumption survey; 
C  Surveys on sensitive issues, such as chemical or pesticide use by 
farmers; 
C  Key market benchmarks, such as the World Agricultural Supply 
and Demand Estimates; 
C  Synthesis of foreign market developments, such as the Foreign 
Agricultural Trade of the United States. 
 
In light of its comparative advantages and the new priorities outlined above, what are the 
conclusions for USDA information programs.  First, as agriculture moves to a new industry 
structure, there will be less overall need for commodity market information.  Second, while 
demand will shrink overall, that does not mean there is no need for commodity information.  
There remains a great need for commodity benchmarks.  A major unanswered question is who 
will provide benchmark contract information.  Finally, a broader array of information will be 
needed on global markets, consumer market, and rural America. 
 
Agriculture￿s world is changing in dramatic ways.  These changes are decreasing the 
need for some USDA commodity information programs while increasing the need for new 
programs to provide better information on global markets, consumer outcomes and rural 
America.  To return to my analogy at the outset, the USDA has been writing the book on 
commodity agriculture, but the industry and policymakers now need a wider web of information. 
 Providing that set will likely require eliminating some of the old chapters on some commodities. 
 
 
 
 
 
 
 
 
 

AGRICULTURE IN A NEW CENTURY: WHAT ROLE FOR USDA INFORMATION?

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