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Agriculture faring better than overall economy

Agriculture faring better than overall economy

The economy is still out of gas, struggling to find relief. Agriculture is faring considerably better than the rest of the economy. The latest USDA figures project that net farm income will increase this year to $77.1 billion, the fourth highest level ever. Fertilizer and fuel costs have stabilized for farmers, with prices lower than they were in 2008 in the middle of the recession.

The 18-month U.S. “great recession” ended a year ago, according to the federal government.

Nevertheless, no one told the economy. Since the proclaimed end of the recession a year ago, the economy has been like a lost marathon runner searching for the finish line and recovery after completing the 26-mile, and 385-yard course. The economy is still out of gas, struggling to find relief.

John Penson, Jr., regents professor and Stiles Professor of Agriculture at Texas A&M University, told the 29th Annual Agribusiness Management Conference in Fresno, Calif., that many economic indicators are worse now than they were when the government declared the recession over in December 2009.

“Things are a little bit better than the last time I was here (a year ago),” Penson told attendees at the conference sponsored by three departments at California State University, Fresno and Bank of America.

Fortunately, agriculture is faring considerably better than the rest of the economy. The latest USDA figures project that net farm income will increase this year to $77.1 billion, the fourth highest level ever.

Agriculture is being helped along with low interest rates and a falling value of the dollar, which is boosting exports.

This is particularly helpful to California agriculture, which exports roughly 25 percent of what it produces. Exports are also being bolstered by growing foreign economies like China and India, although those two have slowed a bit lately.

Fertilizer and fuel costs have stabilized for farmers, with prices lower than they were in 2008 in the middle of the recession.

Milk prices are also improving, another positive sign, particularly in California, the nation’s No. 1 dairy state.

“The ag economy is definitely coming out of the recession faster than the general economy,” he said.

That is saying something, but not much, after listening to a litany of depressing economic indicators.

Benson even suggested the U.S. could be looking at another recession right around the corner in 2011-2012, unless the economic situation improves.

The Obama administration’s stimulus package has not made a significant impact on the economy. At best, it is a “fragile recovery,” he said.

Many small businesses are hurting; foreclosures are high; most states are struggling to achieve a balanced budget and the list goes on.

A faint economic heartbeat

“While the economy is said to be growing, you have to struggle to hear its heartbeat,” Penson said.

Unemployment is 9.6 percent. It was 5 percent at the start of the last recession in December 2007.

Businesses continue to pare costs to make a profit.

Eight million people have lost jobs since the end of the recession.

8.6 million people are under employed — ”college graduates flipping hamburgers.”

Consumers are not spending because of continued economic uncertainty. Debt is still high, but consumers are working it down. 45 percent of households have cut back on expenses, and half of the population is pessimistic about the economy.

23 percent of homeowners are upside down on their mortgages and more foreclosures are coming, Penson said.

Interest rates are low and that is good news for banks, but financial institutions are being stingy with loans. Although 275 banks have folded since Washington Mutual went under in 2008, Penson said other banks are showing their best profits in three years. Consumers, corporations and banks are hoarding what they have.

The Fed has announced it will be buying $600 billion in government securities to encourage banks to lend and consumers to buy. “There are no guarantees it will work,” Penson said. This likely will do nothing more than give Congress the excuse to avoid making critical tax and spending decisions to improve the economy.

The overall problem, Penson said, is not liquidity, but a lack of confidence that things will improve any time soon among the people and businesses. “We do not have a supply problem. It is a demand problem."

What is needed to turn the economy around is “transparent” economic policy rules from Washington.

However, Penson expects “little to happen” to improve the situation. The only change, he predicts, will be more television time for politicians to offer insight.

California water situation

The lousy state economy and the growing annual California state debt derailed a proposed $11 billion state bond issue scheduled for a referendum vote this year. It has been postponed until 2012.

Although the bond issue won a two-thirds vote from the state legislature to get on the ballot, there were no guarantees it would have passed. Unless the package is changed dramatically, it will not have full agricultural support in 2012, according to Ron Jacobsma, general manager of the Friant Water Authority.

Two-thirds of the bond package needs changing, he says. The often repeated criticism of the package is that it contains too may perks or pork barrel projects. However, take those out and there is less chance of it passing.

Kings County, Calif., farmer Jim Verboon told the agribusiness conference audience that the issue is not developing new water, but reliability with existing water supplies.

Most of the debate about California’s water crisis has focused on “fixing” the Sacramento/San Joaquin Delta to improve the state’s water supply and repair the rapidly degrading Delta ecosystem. This usually implies building a canal or pipeline around the Delta to ensure a more reliable downstream water supply for the majority of California water users.

The water bond, Verboon said, “does not specifically address many of the problems directly affecting the Delta, its environment or its fisheries.”

The problem is, as Verboon sees it, the continual degradation of the Delta from growing use of upstream flows by Bay area cities and towns.

“Most of the upstream water diversions are from tributaries of the San Joaquin River,” he noted.

Urban users getting water from the Tulumne, Mekolumne and Stanislaus rivers continue to draw more water each year, reducing the flows to the Delta export pumps, which deliver water to the south state.

These upstream fresh water diversions, combined with downstream partially treated wastewater discharges, have concentrated pollutants in the Delta, said Verboon.

Dilution is no longer a long-term solution. “The wastewater treatment must be improved, otherwise the volume of pollutants will continue to concentrate the toxicity of the Delta.” Utilizing modern tertiary treatments to clean up the pollutants is the solution to the problem, Verboon said.

He calls for state funding to create those plants, as well as funding new water projects.

“We need to have a specific, long-term plan for the Delta and not just throw money at it."

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