The Harl forecast
According to Dr. Neil Harl, the Charles F. Curtiss distinguished professor in agriculture at Iowa State University, agriculture is not headed for a 1980s-like crisis, but there will be hard times for some farmers during the next few years.
Speaking to 145 farmers and ag businessmen on Thursday at the Farm News Ag Show in Fort Dodge, Harl outlined the financial factors that led to the 1980s farm crisis, and compared that to the current situation.
“There are uncertainties ahead,” Harl said. “There will be some problems.”
Although farmers are not as deep in debt as many were in the former crisis, Harl said two uncertainties are what the federal government will do for the future of biofuels, and if the 2014 Farm Bill’s safety net is adequate.
The most vulnerable farmers, Harl said, will be those who contracted for high land rents for multiple years, doing so thinking commodity prices would remain high. Now that those prices are below the cost of production, those high rents will be unsustainable.
Dropping land values?
Harl said he disagrees with many economists who think land values must be dropped to keep farmers in business.
“It’s idiotic,” he said, “to intentionally lower land values. Most people think land value is part of our costs, but they aren’t.
“Land values are price-determined, not price-determining.”
He called farmers “the world’s best economic citizens,” since they tend to drive high commodity prices back down by increased output, destroying their own prosperity.
“Long-term, the value of farmland is influenced by the supply and demand of farm commodities,” Harl said, “expected government payments and non-farm development potential.”
Intentionally devaluing farmland will take away farmers’ net worth borrowing power, he said, and make them less competitive with their foreign counterparts.
“In every country,” Harl said, “returns to land are heavily bid into cash rents and capitalized into land values.
“So non-land costs are what matters when it comes to international competitiveness.”
A farm bubble?
Harl conceded there may be a farm bubble in the economy, but said, “As long as investors are gambling with their own money, I have little concern. Land markets are free and open.”
His concern is that if land values remain too high for an extended period, it may lure those into land buying who are less able to handle the risk of a downturn.
He said if that begins to happen, public pressure may be applied to create land-buying restraint.
Otherwise, Harl said, “That can jeopardize the financial system and lead to widespread economic trauma as we learned in the 1980s.”
Feeding the world
Harl said he doesn’t buy into the current farming mantra that food production needs to increase substantially by 2050 to feed 9 billion people.
“The three most limiting factors to combating hunger,” Harl said, “is income, income and income, in that order.”
Without income, he said, people will continue to die of starvation in a world where food is vended in markets regardless of food supplies.
Using Africa as an example, he said many countries there don’t have working governments, much less be able to create economic development for new jobs and new income.
Besides, Harl said, “No one knows just how much more food volume will be needed.”
He compared trying to increase food production on an unspecified level by 2050 as similar to the failed ag policies in the Soviet Union with the collective farm system.
“This issue is best left to markets,” he said, “and to the price technology that will be spurred by price incentives.
“The one sure bet (is that) farmers respond better to economic incentives than urging them to increase production.”
Harl said that in the 1930s economists were arguing if there was room in the U.S. for a national food and agriculture policy.
“Today,” he said, “the issue is whether we should be moving toward a global food and agriculture policy.”
This debate is being spurred by expanding food demands in Third World countries, concerns for food safety and security, equitable sharing of germ plasm, rational resources use, free and open trade, and management of excess inventories.
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