By: Zulfiqar Ali Bhuttor
Agriculture has long ceased to be considered America’s major economic driver, even though large portion of the rural economy in the U.S. still depends on farming. The 46.1 million people in rural America account for 72% of total land occupancy in the country, yet represent only 14% of the total population. U.S. agriculture practices are among the most fruitful and safe in the world, and in the past 30 years agricultural productivity has increased by 50%. Furthermore, based on the study done by USDA, by 2050 the U.S population will increase by 400 million people, and with rising demand, the country’s rural economy is poised to grow. This economic expansion will greatly benefit family farms which account for 98 percent of farms and 87 percent of production according to USDA.
A strong agricultural industry is vital for the success of rural economy. Farmers invest in the community by employing workers, and purchasing inputs such as fertilizers, seeds, and farm machinery. The by-products are further used by grain elevators, food manufacturers, and converted into biofuel. Farm employment and the income produced by those jobs remain steady across ag-intensive regions of the United States.
With continuous innovation and diversification in agriculture, rural areas with higher concentration of farms have lower poverty and unemployment rates. For example, Western High Plains rural areas where jobs are heavily dependent on a cyclical oil market may find it hard to sustain economic prosperity compared to other regions of the Great Plains. Also, higher poverty rates and a lack of economic development exist in rural areas that are not agriculture intensive. For example, areas of the rural Southwest and Central Appalachia lack basic infrastructure, resources, and face high levels of poverty. Furthermore, states that are agriculture intensive have played a major contribution towards providing direct and value-added jobs.
According to the Appalachian Community Fund, “Extraction abuses by the coal industry, especially through mountain top removal, has destroyed more than 1,000,000 acres of forests, 500 mountains, and buried over 1,000 miles of streams in the Appalachian region.” Furthermore, 20% of the region lives under poverty. Wyoming is on a similar path where recently two mines closed down without any warming. To balance out the effects it has become a necessity to promote farming in these areas.
Farming: A Stable Source of Income for the Rural Economy
Net farm income, including ranching, is expected to increase by $5.2 billion for 2019, representing an 8% increase from 2018. Farm business average net cash farm income is forecasted to reach $75,000 representing a 9.3% increase from 2010. Over the long-term, gross farm income shows stability and sustainability, as featured in the graph below. According to the USDA, GCFI (gross cash farm income) has been relatively stable since 2016. Gross farm income is expected to be $428 billion for 2019 compared to $326 billion in 2000. The data show low volatility and steady trends in all regions.
Driving Growth & Sustainability For Farmers
The main factors driving growth in agriculture include strong local and global markets. Although it could be argued that 2018 was period of uncertainty due to trade tension between the U.S. and China, statistics demonstrate, U.S. exports still had a strong and growing presence in the international market over the long run trajectory.
Furthermore, farmers will continue to benefit because the US continues to have one of the highest productivity yields and this productivity gives farmers a competitive edge. According to the 2018 Global Agriculture Productivity Index, “for the fifth straight year, global agricultural productivity growth is not accelerating fast enough to sustainably meet the food, feed, fiber and fuel needs of nearly 10 billion people in 2050.”
Dissecting Agriculture’s Contribution Towards the Rural Economy
Most importantly, farm cash receipts are the driver behind GFCI, primarily due to increase in demand for agricultural products in domestic and international markets. The charts below break down the agriculture revenue generated from 2010 to forecasted period of 2019. Based on data from USDA, meat animals are projected to increase by 9.87%, dairy by 3.17%, and poultry by 13.47% for 2019 compared to 2010. On the crop side, food grains are forecasted to increase for 2019 by 7%, feed crops by 4%, and cotton by 1% compared to 2017. On the other hand, tobacco is expected to decline by 10% for 2019 compared to 2010.
However, it should be taken under consideration that drastic changes in supply and demand can create abnormality in revenue from cash receipts, for example drought in the West, E.coli virus outbreaks, and lower inventory caused prices to skyrocket. Similarly, food grains experienced 30% jump in cash receipts, feed crops increased by 43% and tobacco increased by 23% compared to prices in 2010. It was a combination of tight supplies, droughts and volatility in commodity prices.
How the 2018 Farm Bill Could Revive Rural America
Since the previous farm bill of 2014, U.S. legislators introduced major overhauls that greatly benefits American farmers. The new bill has eliminated the dairy premium, and introduced better insurance protection against natural disasters. Furthermore, to help farmers tap the local food market, the new bill increased Value-Added Producer Grants (VAPG). Though a major inclusion for the 2018 Farm Bill is the legalization of hemp, helping farmers diversify and tap into a high potential market.
Investors Can Contribute to the Rural Economy
By looking at the above statistics, agriculture is not only sustainable but can also be a source of steady income and economic growth in America’s rural regions. Investors recognizing the strategic value of agriculture towards the rural economy can step up efforts towards the sector.
About the Author
Born and raised in Pakistan, Ali Bhuttor came from a family of farmers. As a teen, he moved with his family to the U.S. Although he left his farm behind, his love for farming and natural curiosity towards the field of agriculture never stopped, and motivated him to study Agribusiness at Texas A&M. With the combination of college and previous internship experience, Ali realized that his skillsets are best suited towards evaluating the business and financials. When he came across Harvest Returns, he was inspired with the vision of the company; creating a platform for investors and farmers to connect and generate wealth.