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Specialty crops: major player in Western agriculture’s future

Harvested pistachios
<p> Harvested pistachios.</p>
In the next 20 years, Western agriculture&rsquo;s economic success will be tied more to specialty crops and less on traditional crops including cotton, wheat, and corn. Cal Poly agribusiness lecturer Steven Slezak&rsquo;s prediction is based on an insatiable demand globally for more food and how specialty crops are the best niche fit for Western agriculture.&nbsp;

In the next 20 years, Western agriculture’s economic success will be tied to expanded specialty crop production and fewer acres in traditional crops including cotton, wheat and corn.

This picture painted by agribusiness lecturer Steven Slezak of California Polytechnic State University is based on insatiable global demand for more food and how specialty crops are the best niche fit for Western agriculture to help meet that worldwide demand.

Simply stated, the skyrocketing world population needs and demands more food, Slezak says. Worldwide food output must increase by 70 percent to meet the world’s projected 9 billion population in 2050. The current population is 7 billion.

“There is a greater demand for food worldwide,” Slezak said. “Exports are important to Western agriculture and will play an even more important role in the future to meet foreign export demand.”

Slezak, who grew up on a cattle ranch in San Luis Obispo County, Calif., shared his forecast during the 2011 Western Plant Health Association Annual Meeting held in Scottsdale, Ariz., in October.

Western agricultural exports are rising sharply. In 2009, California agricultural exports topped $986 million; that is nearly $1 billion, according to California Department of Food and Agriculture (CDFA) data. From 2008 to 2009, California farm exports grew a whopping 34 percent.

Top California farm export markets in 2009 included Canada, Europe, China and Mexico.

CDFA reports the fastest growing California crop exports, above $15 million in value, include walnuts, almonds, pistachios and lemons. The fastest shrinking California farm exports, above $15 million, include dairy, beef and cotton.

“These are historic times we live in with globalization and increased foreign competition,” Slezak said. “This will have a significant impact on the agricultural sector across the United States.”

Slezak is with Cal Poly’s College of Agriculture, Food, and Environmental Sciences.

“China and Brazil have large middle classes who want to live middle-class lifestyles,” Slezak said. “They want to buy American goods including agricultural products and they have the money.”

This is where the highest demand for U.S. farm products will come in the next five to 20 years. Competitors to the U.S. to supply the newfound demand include Mexico, China and others.

With the startling global demands for food, there is good and bad news for Western agriculture.

The good news is farm income and fertilizer demand will increase, but so will costs. Pesticide demand will become flat or slightly increase.

“Economics 101 says increased demand causes prices to rise and increased production,” Slezak said. “This is good news for farmers as they should earn more. Commodity prices should increase until supply starts to catch up with demand but that will take awhile.”

Changing how farms operate

Tension between costs and revenues will change how farms operate. To remain competitive, Slezak says farm consolidation will continue in the West. Smaller to mid-size farm operations will continually be absorbed by larger farms trying to economically compete in the world market. Small citrus operations in the 160-acre range are among the best targets for consolidation.

CDFA reports the total number of California farms has fallen about 2 percent — from 83,100 farms in 2000 to 81,500 farms in 2009. The average farm’s tillable acreage has decreased 10 percent since 2004 — from 347 acres to 312 acres.

To meet the increased demand for U.S.-Western farm products, agriculture must jump several major hurdles to supply more food and fiber: land, water, and fertilizer. Land and water availability will become more limited. Fertilizer is the only component which could expand.

Water supplies are tight and subject to greater regulation. Improved water and land efficiency must occur. Chemical and fertilizer production can grow but are subject to cost constraints including rising energy and phosphorus costs.

“The bottom line is creating greater efficiency in operations and innovation from farmers and the industries which supply agriculture,” Slezak said.

Working through these challenges mandates agricultural creativity — developing innovation and adaptive strategies throughout the food chain.

“Farmers will see their business change and grow in ways they had not anticipated. It will be up to the supporting industries to take advantage of that or not.”

Slezak expanded on particular trends in Western agriculture; particularly the ongoing shift from traditional staple crops to specialty crops.

“If your farm is based on traditional crops, this will change,” Slezak said. “Since the costs of workforce, water, and regulations are going up, margins must increase and specialty crops offer larger margins to help offset those costs.”

Agricultural producers will focus more on the ‘competitive advantage’ — producers finding a production niche to excel in production, lower costs relative to revenues, and better manage margins.

Volatile financial markets will lead lending institutions to expect farmers to better manage margins.

"Instead of having a specific revenue target, one of the prerequisites of good credit worthiness will be maintaining a margin within a safe zone,” Slezak said. “Farms will have to manage revenues and be more cost sensitive in the future.”

Chemicals and biotech

For the agricultural chemical industry, the trend is for slightly increased pesticide demand and a higher demand for fertilizer. More fertilizer will be produced domestically with an emphasis on innovative products and methods. Higher prices will not necessarily result due to competition from less expensive imports.

“The agricultural industry could be squeezed due to higher input costs including phosphorus and energy,” Slezak said. “It could be more difficult to raise prices to pass along increased costs. Efficiency will be a large issue.”

The average margin in the agricultural chemical industry is 3 percent to 5 percent, Slezak says. To maintain that level, the industry needs to better manage margins, increase efficiencies and productivity, share economies of scale with customers, and improve risk management.

Producing more food and fiber per acre will be critical to meet growing food demand. Slezak says the world population is growing at the rate of 1 percent per year. Yields need to increase 1.5 percent annually.

Agricultural biotech is one solution to help farmers achieve higher yields and efficiencies. Biotech has generated the highest yields increases in corn than any other crop.

“Ag biotech will also provide environmental benefits including increased carbon sequestration (no-till methods), reduced pressure on farm land and expansion, weed control and abatement, and farming more productively with fewer inputs.”

The worldwide economy is learning to adapt to increased demand for a wide range of products. Increased innovation is the key.

“We need to make it work for us,” Slezak said. “Research, development, and innovation will take an increased amount of time and resources in agriculture.”

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TAGS: Management
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