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Value-Added Agriculture and Rural Development Prof. Maureen Kilkenny Dept. of Economics, Iowa State University for the Council of State Governments 57 th Annual Midwestern Legislative Conference August 20, 2002 Fargo, North Dakota
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outline 1. what we SAY are rural development problems 2. what we DO 3. why value-added agriculture? 4. critique 5. ideas for the future
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rural housing & infrastructure non-farm jobs & income reward land stewardship priority issues:
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USA’s Priority: rural poor and non-farm enterprise over farmers, consumers, or environmentalists
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What we Do: only 13% of USDA’s budget is directed to rural poor and rural enterprise:
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Federal Rural Development agency spending, however, matches priorities:
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USDA-RD budget: mostly loan guarantees so that private lenders are willing to extend credit:
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1. Business and Industry Direct Loans The Business and Industry (B&I) Direct Loan Program provides loans to public entities and private parties who cannot obtain credit from other sources. This type of assistance is available in rural areas (this includes all areas other than cities or unincorporated areas of more than 50,000 people and their immediately adjacent urban or urbanizing areas). Eligible applicants include any legally organized entity, private or public. The maximum aggregate B&I Direct Loan amount to any one borrower is $10 million. 2 Business and Industry Guaranteed Loans The Business and Industry (B&I) Guaranteed Loan Program provides guarantees up to 90 percent of a loan made by a commercial lender to a rural enterprise for working capital, machinery and equipment, buildings and real estate, and certain types of debt refinancing. Assistance under the B&I Guaranteed Loan Program is available to virtually any legally organized entity. The maximum aggregate B&I Guaranteed Loan(s) amount that can be offered to any one borrower under this program is $25 million.
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What states DO:
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Midwestern States do more
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More than a dozen states’ policies are explicitly for rural development
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ND Financial AssistanceOR Marketing AK Revolving Loan Fund HI Product Promotion ND Ethanol Promotion
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State policies goals tacticsmeasures farm income rural employment prices profits # jobs stimulate demand marketing labeling new product development reduce costs R&D/extension biz & tech assistance increase investment subsidize credit
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programs not exclusive to value-added agriculture At least 37 States offer financial assistance midwestern states offer more than one program
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Why target Value-Added Agriculture? What is value-added BY agriculture? TO agriculture? Who does it? farmers, ranchers on-farm small towns urban areas Where? farms, ranches farmers coops small businesses large factories
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Livestock: traditional value-added BY agriculture
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Wet Corn Milling: traditional value-added TO agriculture
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Value added TO agriculture = 80%
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so farmers always want more plants Farms closer to factories adding value TO agriculture enjoy higher farm-level prices
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old mills close industry over-capacity inefficient scale new mills open near markets e.g.: 10/8/98: Cargill expands capacity at San Bernardino, CA But the sustainable numbers, sizes and locations of processing plants are determined by market forces outdated/costly technology high-cost location
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direct link (1) 1sector (2) between 2 sectors (3) between non-food Ultimately, almost EVERY sector adds value to agriculture
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Critique of Value-Added Ag Policies: rural employment not rising grant programs undermine self-sufficiency ‘State’ label adds little value subsidy only for a few sectors farm prices still low Fair? Unbalanced? Unnoticed? Effective? Unanticipated Side Effects? -VA-Ag is urban -rural multipliers are near zero
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VA-Ag employment is urban. Are VA-ag capital owners also urban?
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Total additional rural jobs (‘multipliers’) are low because there’s excess capacity in rural service sectors.
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Why haven’t programs been more successful at promoting rural development? rural credit isn’t the problem, the problem is low demand for food and kindred products food and kindred processing is urban even if it is materials-oriented 1 new rural job = 1 new rural job because of rural surplus capacity
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Ideas for the future: be inclusive, not exclusive –value is added to agriculture by all kinds of businesses –rural businesses are small –support for rural entertainment and service sector businesses also raises rural quality-of-life and increases place competitiveness use small, lump sum grants help defray sunk costs of market research, product development no sector restrictions ONE-TIME ONLY help with critical needs –business planning & marketing skills are competencies that inexperienced entrepreneurs lack
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end of presentation Thank You for your time and attention Please let me know your research needs
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26,401 establishments 1.4 million employed 33 creamery butter 61 wet corn mills 65 cereal mills 105 soy mills 393 flour mills 576 milk/dairies 4,000 meat packers 10,000 bakeries 247 tortilla mfgs 63,000 nursing & care 67,000 landscaping 192,000 restaurants 210,000 fast-food 400,000 estabs 10 million employed Traditional vs modern VA-Ag:
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Example: E-commerce business directory adds value to the industries that add value to agriculture
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example 2: alternative agriculture organic agriculture direct marketing buy local ** but need only 5 average-size U.S. counties to grow all the vegetables currently grown in the U.S. today 3.7mil acres = 6,000 mi^2 avg co.=1,150 mi^2
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Banks are the most important source (63%) of short-term credit : NSSBF data:
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Loans are denied by banks when the business is unlikely to be viable:
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Small loans are harder to obtain:
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