Dr. Michael Boehlje, chairman of Dept of Agriculture and Applied Economics U oh MN, discusses the farm problem in Minnesota, and its greater impact. Boehlje also answers listener questions.
Read the Text Transcription of the Audio.
(00:00:00) The problems in the farm economy were certainly among the most important stories in 1985 and probably will be so in 1986 as well some aspects. We all know very well the stories about low crop prices and high debt burdens forcing some Farmers out of business. The stories of suicides among farmers and murders in rural areas have been reported widely what maybe a little bit less clear is why these farmers are in such bad shape While others are relatively prosperous why the billions of dollars that the government spends on subsidies and Loans seems insufficient and what impact the farm problem is having or will have on the broader Minnesota and Regional economy to help answer these kinds of questions. Let me introduce today's Studio guest. Dr. Michael Bulger who chairs the Department of Agriculture and applied economics at the University of Minnesota. Dr. Volgy. Welcome. Thank you for coming in good to be here before. We open the listener open the line. For listener questions and talk about some of these broader kinds of questions that I mentioned. Let me ask you briefly to react to the news development that we just heard this morning that it appears agriculture. Secretary. John block is going to resign today. He's got a news conference schedule till one o'clock and speculation is that he will be on his way out. This this resignation is not completely unexpected to speculation has been around for actually quite a while. There's certainly been a lot of in the last two to three months that once the 1985 farm bill was signed and put into place that he would move on to other things. There are a lot of speculation that he will stay in Washington in some kind of capacity with one of the an organization that's based in there one of the lobbyist groups or one of the trade associations. I quite frankly don't think that this is going to have a significant Major Impact on policy. The law is in place now and the secretary does have discretion under the law to To implement various phases of the of the law particularly to make decisions about how much additional reduction in prices will occur in terms of loan prices Etc. But I fully expect that that the administration will follow through with some of the earlier commitments and they'll choose a secretary of agriculture that will say have the same philosophy and implement the same kinds of philosophical points and programs that are part of the law and are part of the the overall Reagan administration. I think John block has been perceived by many to be a strong supporter of farmers and kind of one of their own although in recent months with the with the administration's proposal and the financial stress problem. I suspect he's been somewhat Enid and isn't viewed quite as being quite as popular as maybe he was when he first went into that office. So this is probably not too much of a is not too much of a surprise, but probably won't have any significant impact on policy. Well back to The subject of our more immediate concern here this new in the farm crisis in our area. How bad is it? Do you think we hear of course how accurate are The Impressions that we get through much of the reporting that we see? I think that the the crisis the financial crisis in agriculture is as bad as much of the numbers suggest. We have fully one-third of our Farmers carrying two thirds of the data and that's the fundamental problem. It's not a necessarily a problem of too much debt and agriculture too many farmers with too much debt. It's a problem of too few Farmers with too much debt. We've got a lot of this debt stacked up on a small group of farmers and a and a small amount of assets. And so those assets that are highly leveraged and those Farmers that are excessively in debt are in very serious financial trouble. You'll hear different types of percentages of farmers that are going to have to make major adjustments in their businesses all the way from ten to fifteen percent that will have to exit the industry. Up two numbers of 25% that will have to exit the industry my assessment is that the the 25% is quite frankly too high. That doesn't mean that 25% might not have to make major changes and adjustments and and in their operation, but we do see increasing evidence of some of the phenomena of recycling where farmers will exit if you will and one fashion, they will change dramatically their operations, maybe even sell out of their current ownership position, but move back into a into a position of operating the farm as a tenant or as a renter and so they haven't technically exited the industry. They restructured their business in our recycling back in a different fashion for that group of farmers and financial stress and the numbers range probably from 15 to 20% The problem is very very severe and for some of those the problem will not be solved short of having to consider other other sources of income and other Nations now certainly that is a tragedy for them at least for the ones who do not want to restructure or go into some of the kind of business, but does it really make that much difference to the rest of society? Whether these people are forced out of the jobs that they are currently in. I think this is a misperception that many people have that this successively leverage group of farmers this 10 to 15 percent or whatever number you want to judge is the right number can be walled off from the rest of the farm population or from the rest of our economy and their problems can be solved without the rest rest of the farmers of the rest of the public paying part of the price and I would suggest that that's an erroneous assumption this problem of financial stress in agriculture. Will the cost of this problem will be borne by more than just financially stressed Farmers. We talk in terms of waves of the problem the first wave of cost in the first wave of people that will be impacted our are those farmers in financial stress, and they certainly will For significant losses not only in wealth because of declining asset values, but in terms of employment opportunities employment potential they also will suffer in terms of just the human and personal drama and stress associated with the problem. But as that group of farmers try to solve their problems and as the lending Community tries to work through the financial stress that they will encounter because of this the losses they will encounter the problem becomes transferred is transferred in the cost is transferred to the to the remaining Farm population is transferred through two ways one is declining collateral values as farmers and stress try to sell their assets that depresses the land values and other asset values further and therefore results in reduced credit worthiness of the remaining Farm population and secondly in the most direct transfers through higher interest rates Farm Credit system banks have raised interest rates to offset the losses of there. Up, highly leveraged Farmers commercial banks have not lowered interest rates to Farmers as fast as the cost of money has gone down. And so the entire Farm population will pay part of the cost here the cost transfer doesn't stop there though. It's transferred to the local communities in the form of reduced retail sales activity reduce purchasing and economic behavior in terms of rural communities. So real businessmen will pay part of the price and there is even a study that suggests that if we have large enough losses somewhere between twenty and thirty billion dollars of written off debt in agriculture that the lending Community as a whole not just rural Banks, but Urban banks will respond by raising interest rates. And so there is a study that suggests that even consumers in the Twin Cities will pay part of the price through higher interest rates on their Consumer loans. So the cost will not be contained in our judgment just with financially stressed farmers and the problem is of importance to all It's not just to that group of people. It is eight minutes past 12:00 o'clock might bulgy is in the Studio's today. He heads the University of Minnesota's Department Of Agricultural and applied economics. If you have a question about the farm problem in our region, you're certainly welcome to join the conversation by calling us in Minneapolis and st. Paul at 2276 thousand 2276 thousand for Twin Cities area collars. Those of you outside Minneapolis st. Paul can use our toll-free number 1-800-695-1418 six five two nine seven zero zero and if you listening in one of the surrounding states call us directly at area code 6 12 and the Twin Cities number two two seven six thousand. Here's your chance to find out more about the farm economy and the farm crisis that we've all been hearing and reading so much about The farm activist groups such as Groundswell are pushing for a number of things but Chief among them at this point is moratorium on mortgage foreclosures. What is your view on this as a solution to the farm crisis? Well, the moratorium on foreclosures is clearly a one option that we have available to to solve the financial stress problem in agriculture. I think a basic presumption or Assumption of a moratorium is that is that the the world will change by the end of the moratorium? And therefore the problem will be resolved. They're our guests are two approaches to solving the financial stress problem in agriculture. One approach is to say that that the economy at large needs to return to the 1970s or get itself straightened out or change in some fashion that that the environment should adjust and that farmers in financial stress if they can have time to if the economy will adjust or the environment. We'll adjust if they can buy time until at adjustment occurs. Then then at that point, they'll be okay again, in other words, the philosophy here is that if we could have a moratorium on foreclosures by time through that vehicle for the economy to turn around for demand to pick up or interest rates come down that that the economy will right itself and then we can continue on with our operation after that period of time the that that presumes that that approach presumes that in fact, we will get some significant turnaround in the economic conditions facing agriculture within that period of a year or whatever period of time we're having a foreclosure moratorium, the other approach it seems to me is to presume that that the environment will not change dramatically that will continue to be in a condition of of relatively low incomes for agriculture of continued cost price problems continued excess capacity that demand although it will pick up some will not pick it up pick up dramatically. And so that the what the the Won't change significantly and so if we're going to have a long-term solution, we need to have an adjustment on the part of individual businesses Farmers need to adjust to the new environment rather than waiting and expecting the environment to try to adjust to their economic condition. And so it depends I guess to to a significant degree as to the effectiveness of a moratorium on which of those sets of assumptions you believe my own assessment is that it will be difficult for the economy to turn around the environment is not going to change dramatically and if that is the case then the moratorium once it's once it's over you have a fundamental question. Do you reinstate it again, or do you do you have a changes that have occurred or have you bought time for those changes to occur and have farmers during this period of time made the kind of adjustments that they need to make I think that the the mediation activity that the governor has Recommended and is suggested in his we're in the process now of trying to implement basically presumes the alternative. It presumes that farmers and lenders and everybody needs to adjust to the new environment. And what we need to do is facilitate that adjustment process in Courage that adjustment process and in that recognize that everybody has some blamed to take and everybody has some cost to bear and that we figure out how to share those cost and we sure would like to have some public sector sharing of those costs as well. But in case we don't at the federal level we still probably will have to absorb it in the private sector. So we figure out how to do that. And in that process have a financially stable firm and financially stable sector after we've gone through those adjustment processes. So I think the key thing on a moratorium is fundamentally. What do you believe the future is going to look like will it really solve anything if we buy six months a year of time to get to a new Environment if the new environment isn't going to exist and I'm going to be much different it may not have solved anything at all. We have a lot of listeners with questions about the farm crisis today for Mike bulgy from the University of Minnesota. And your first go ahead please (00:13:03) good afternoon. This is John Robertson Minneapolis. And my question has to do with energy petroleum the costs of fuel running tractors and machinery and also the cost for chemical agriculture. What do you think? This has to do with the future and paying off the bills and survival of these little farming towns? Thank you. I'll hang up and listen for your answer. (00:13:28) Well clearly the issue of the cost side of the Agricultural sector is a fundamental part of the current income problems in the sector during the 1970s operating costs in the form of energy fuel seed chemicals fertilizer increased dramatically, but quite frankly the costs that The most significantly during that period of time with the capital cost the cost Associated the depreciation and and other costs associated with buying machinery and equipment and livestock facilities and fundamentally the interest cost on Capital during the 1970s. The there are some studies that show that the cost of the capital cost per unit of production increased by somewhere around four hundred percent when you include the the almost doubling of the capital input Capital requirement per unit or Capital input per unit of output and the almost doubling of the interest rate that's very easy to understand about a 400 percent increase in in the capital cost per unit of production and although seed chemical fertilizer other costs also increase during this period of time not as rapidly as that cost. We expect that in the in the in the longer run in the future that that there will be some reduction in seed fertilizer and chemical costs. Maybe not so much from Price declines, but from more efficient utilization of Those in other words the cost of fertilizer per bushel of corn will and bushel of wheat will reduce because will be more effective in the placement of that fertilizer. The utilization that fertilizer will be able to get the same yields by using that fertilizer more effectively and efficiently may be some reduction in prices of fertilizer and seed and chemicals but not a lot. I think one of the solutions to the financial stress problem and agriculture is to control cost and to reduce costs. I wish I could be optimistic about the fact that that's going to happen through having seed costs go down by 20 30 or 40 percent or having fertilizer costs go down by that much. I quite frankly don't think that that's going to happen in those cost reductions will have to come through more efficient use of the input and better management about those Capital costs going up so much what's happening with them? Well, certainly the capital costs have come down dramatically for those that are buying in at today's prices. And that's one of the one of the significant Changes that has occurred. Pardon me the cost of buying land the cost of buying machinery and other inputs is down dramatically interest rates have not come down as much as we think they need to in the long run to have a financially stable sector. We are concerned how about interest rates, their their reduction is a function to a significant degree of the not only the cost of money which has come down for the lending institutions, but again the losses and as long as the lending institutions the Farm Credit system and the commercial banks have the sizes of losses. They have it's going to be very difficult for them to reduce their interest rates and maintain any reasonable profit margins. There are some that I understand that it would say it. Well most of the banks that are making agricultural loans their customers or lose are losing money. How should how come they should be making profits when their customers are losing money and that I think is why the banking institutions are going to be willing to To cut deals this year and to recognize that they are probably going to have to take some of the losses as well more listeners with questions for Mike bulgy on the farm crisis. Go ahead. You're next. Hello. (00:17:02) Dr. Rapid crawling. I had this question. I wonder if the support supporters of the 85 Farm Bill are not in a dream world regarding increasing Farm exports by depending on Lower support and Target prices. (00:17:21) Like I said, very good question. And I think that those that expect a significant increase in market share of exports and a turnaround in our export business because of lower support prices and because of the 1985 farm bill will be disappointed. I think that fundamentally we have a worldwide Surplus problem. And as long as we have worldwide surpluses competitors, in other countries will will match the decline in the dollar that's occurring by lowering their prices and will match our reductions in our loan rates to maintain their market share. In other words. We will should not expect in the short run to regain a lot of volume and market share because of the change in the farm programs or because of quite frankly declines in the dollars the the value of the dollar the fundamental question on the farm program though, I think is more of one of do we provide increased? Price protection for other countries to continue to expand their production. I view the adjustment in the 1985 farm bill of loan rates to reduce them to to be a signal to other countries that we will no longer provide you a price umbrella so that you can continue to build up your production capacity in Brazil or in Europe or other countries and build it up knowing that we will provide you a guaranteed price for your product. So I see the the issue more of a long-run issue than of a short-run issue. I think what we have done is we've given the signals to other countries that we will not provide the price protection for you. So you need to be careful to expand production you be careful too to not bring new lands into production under the presumption that you're going to have the u.s. Guaranteeing you a price for your product. So short run. I don't think we're going to get the kind of response in the international markets that a lot of people would like. I don't think we're going to get a Up dramatic pick up in exports in the long run. I think what we've done is we've told other countries you better be careful before you increase production because you can't expect us to guarantee you a price and I think that's very important to solve our long-run excess capacity problem 20 minutes past 12:00 o'clock. Mike bulgy who heads the University of Minnesota Department of Agriculture and applied economics is in the Studio's today as we talk about the farm crisis in our region. We have some listeners waiting also some lines open again at 2276 thousand for Minneapolis st. Paul area listeners, in other parts of Minnesota. The toll-free number is 1-800-695-1418 about the effect the farm crisis may have on you. This is an opportunity to talk to one of the people who's done some thinking and writing and research on the subject. And here's a listener with a question. Go ahead please you're on the air. (00:20:12) Yes. I'm calling from Minneapolis Mike US state the first few minutes of this program that the major problem of the farm. This is that one third of the farmers have 2/3 of the debt. I just think that's kind of oversimplifying the crisis. I feel that the crisis goes a lot deeper the overuse of pesticides and fertilizers as mentioned by previous caller and the status of soil erosion, which is at the level of some fifty years ago when the US soil and conservation service was set up with one dump truck of soil passing New Orleans every second into the Gulf of Mexico. The question is what what is going to be happening. What is the response of our governmental leaders when more and more banks are failing when more and more Farms are being foreclosed when more and more farmers are out of desperation either killing themselves, or killing those around them all hang up and listen. Thank you. (00:21:19) Well, certainly the the other Of the Agricultural problem you indicate are important Dimensions the excess capacity and excess production. We have has contributed to has been a significant factor in the low prices we have which has contributed to the financial stress and Agriculture and clearly problems of maintaining our our productive capacity. The soil erosion issue are important issues and I don't want to suggest that they aren't important issues. They on the other hand are our only are only contributors in are not in my judgment the main contributors to our current short-run Financial stress problem in agriculture. They do have some longer run implications, which I think are very very important with respect to the issue of the public sector response to to the agricultural problem there. One of the fundamental issues we have is is the public sector has responded and some people may judge that that response has been addict inadequate. There has been response and let me just talk briefly at at the federal level and then at the state the public response responded in three ways at the federal level to the financial stress problem. Number one. It passed a farm bill which has a very high price tag compared to what at least the administration wanted it to be some fifty two billion dollars over the over the period of the program one above the limit that the president said which he would veto the bill. He decided not to do that. That's a that's a pretty major public sector response and public sector commitment again, some people judge it may be inadequate but it is more than we've spent for a large part of the history of the US on agriculture programs. Number two, the administration hand the legislative process at the federal level has responded with an expanded Farmers home Administration program to facilitate the restructuring of Bank debt additional amount of money put into that. Program through the debt adjustment program and the guaranteed loan program the third response at the federal level has been a program to provide the mechanism for financial assistance for the Farm Credit system, if that if that system needs that financial assistance, and although there is not any money allocated for that at least the mechanism has been put in place at the state level. There are obviously a been responses the state to interest rate diet by down program of last year the mediation service. The question of were debating now or I shouldn't say we are but we'll debate. I'm sure in the legislature of a moratorium. There's been a lot of discussion of bonding proposals at the state level to facilitate the to carry the excessive debt and the quote bad paper Etc. So there has been public sector response. One of the fundamental issues at the federal level to return to that a second is that is the question of what additional response for those that feel that Sponsors been adequate inadequate what additional response might be possible one of the deals cut by the banking Community with respect to the Farm Credit assistance act which only only focuses on the Co-operative Farm Credit system. One of the deals they cut is that they would not oppose that if there was the opportunity after the first of the year early in 1986 to have introduced legislation that would be broader and focus to assist all borrowers and all farmers and all lenders in the in the agricultural community. So there will be a debate coming up very soon. It seems to me about what kind of additional federal assistance will be provided my own assessment is that it's going to be difficult quite frankly to get additional federal assistance. I'm not judging we shouldn't I'm just saying it's going to I think it's going to be difficult. You have a Congress that has the the gramm-rudman bill facing them in terms of trying to figure out how to reduce their budget exposure and budget expenditures. They've already spent more than than some people at least on the administrative side of and the Republican side of Congress field. I already spent more than they should have on the farm bill. They have already passed a special piece of legislation for the Farm Credit system. They have a program for the Commercial Banking sector in the former Farmers home Administration. I think legitimately and logically somebody in Congress going to say when I wait a minute. I haven't we done enough. How much more do you want? I'm not saying it's right, but I have a feeling that those who want additional support in agriculture are have three very important hurdles to jump to convince Congress that they ought to do more talking with Mike bulgy today about the farm crisis in our region. He has the University of Minnesota's Department of Agriculture and applied economics. Here's another listener with a question. Hi, you're on the air. (00:26:06) Good afternoon gentlemen, I'd like to roll this scenario by you. I am a family of the Oil Business 40 years in your business and in 10 years time on at latest gasoline shortage deal. They squeeze me out of the business now it might contain Not there's a very direct direct correlation between the oil business and the farming business I'm saying that Nicaragua is a pretty good example here that regardless of what we want to do on a basis of Communism as against democracy. We we cannot put money into these economies like like Nicaraguan do not achieve our goals. So that on the other other way around is to buy what they can produce and I'm talking about you take France Australia Brazil Argentina. In other words are you could come out of Mexico or the your control of the market? And so I'm saying that they are going to achieve a goal over period of 10 years time in in get them out of the get them out of the farming business. And with that I just thought I'd roll up Brian. Thank you for your time. (00:27:25) Well, I think that the if you're concerned about the issue of concentration in the agricultural sector and moving a lot of farmers out of Agriculture and having a concentrated industry, I don't know that that is is a corporate agriculture. I think that that is not necessarily going to be a problem in today's economic environment. I do agree with you that we need to if you're suggesting we need to have international trade to develop markets for our products. I think that that is quite frankly part of the whole economic system wherein today we're in an international market not only in terms of commodity markets but financial markets and all products and I think quite frankly that that that's a market that unless were willing to or that's that's an environment where unless we're willing to put a lot of burdens and borders around the Us and other countries that we're going to have to continue to be in that market. You mentioned a few things at the state of Minnesota has already done. Talking in response to an earlier question. There is of course talk about a special session before the regular session in February 3rd, what could the state of Minnesota reasonably expect to do what can the legislature reasonably expect to pass in a special session. That would actually do some good. Well, I guess I have to be honest. I'm not enough a student of the politics in this state to be able to decide whether a special or regular session would be the focus or should be the focus of any type of program here. I think that in terms of what the state could do whether it be in a special or regular session would be to look at the current interest rate by down program. It has that program by some measures and some people would suggest the program has not been all that helpful or successful. I guess quite frankly. I take a different view point of that the latest reports I've in I've seen indicated that in excess of 2,000 Farmers have participated. In the program. I think that's a significant number of farmers. There have been complaints that the program has has not provided enough assistance to some Farmers that may be the case. So we probably ought to take a look at and whether the program should be modified to provide additional assistance and be available on a broader base. Maybe we need to look at the dollar amounts that are part of the program that are eligible for for interest rate relief and and expand those recognizing that when we do that that provides additional budget exposure for the state and that's that's where we as at the federal level where we run into some fundamental problems. Well that was on a budget exposure is not going to be that bad. But that's one of the possibilities and that's certainly a fundamental issue is how much money Want to spend on this problem versus other problems. I do think I do think that at the federal level particularly and at the state level there are two ways to to obtain funds one is through clearly tax increases which which nobody really is too excited about and I understand that because I'm a taxpayer as well, but there is the opportunity for reallocation and so you can obtain funding for certain activities. If you're willing to give up funding for other activities. I'm not saying and targeting particular things that the state government ought to give up to to assist Farmers, but what I am suggesting is that so that's a way that we can obtain funding for this problem. If in fact we think it's on the priority list more important than others. I think that realistically we need to recognize that the problem is big enough that the state state governments have limited potential to solve it. That's why I agree with the approach that has been taken in this state and Most states of saying this is a big enough. Album that we need federal assistance. We need some kind of federal program to assist with the problem that it's bigger than most States budgets can handle and it's certainly not a program problem that's confined to a particular state or two particular States. It's a nationwide problem. And so we need Nationwide attempts at sharing the cost. I think that that the the issue that a special session might consider of a moratorium is an issue that that will be a key issue to discuss. I quite frankly it would like to see what kind of success or lack thereof we have from the mediation activity. I am alive. I am concerned that by that we may have changed people's expectations. Basically mediation quite frankly. If you are a farmer who is in financial difficulty considering mediation, if you are continually being told well, we may end up with a moratorium on foreclosures. You have less incentive to be involved in mediation. So we may be quite frankly. Doing and doing a disservice to our mediation activity by by holding out the carrot or holding out the opportunity or holding out the potential for a for a moratorium. We may actually find that it wasn't successful as as it could have been if we hadn't provided that potential option and resulted in a disincentive to be involved in any mediation activity. I think that we need to recognize that for some Farmers adjustments will have to occur and that we need to encourage those adjustments. And so I happen to be a supporter of significant amount of mediation activity because I think it facilitates adjustments. We have a lot of listeners waiting with questions. So we'll move on to our next caller. Hello. Mike bulgy is listening. (00:33:01) Yes, I would like to ask Mike. Do you know if during the 70's when so many farmers expended themselves disastrously were there any voices or organizations or individuals at that time who counseled moderation in caution? I'll hang up. (00:33:22) That's a very good question. And that's one of the things that we in the in the academic environment and university community always get asked and I think legitimately so that maybe we were part of the problem and contributed to the problem because we weren't giving the right kind of advice. I think that we need to share the blame along with everybody else that we didn't anticipate the future very, well. We need to recognize that during the 1970s the economic rules of the game encouraged very very massive uses of debt. We had during that period of time a period of very very low interest rates. And in fact by some calculations negative interest rates negative interest rates do very strange things to economies. They encourage encourage you to borrow a lot and that's a very much and that's exactly what happened in the u.s. It happened and we aren't the only ones in Farmers aren't the only ones that behaved in this fashion. You just have to look at the worldwide expansion of government debts. In other countries to understand what low interest rates due to to the incentives to borrow money consumers in this country. Did it Farmers? Did it? Businessman? Did it government's did it? Everybody did it now the unique thing about agriculture I think is that we're as much of the money in other Industries is borrowed on a short-term basis and when interest rates went very high and the demand for their products fell off since they were financing inventory. They would they didn't need as much inventory so they could reduce their borrowing that's not the way either culture is a lot of our money is is capital expenditure money long term money. And so we couldn't respond the same way by reducing our borrowing when interest rates went up very high and when when the demand for our product fell off because it was long term money already committed for machinery and equipment in federal and long-term loans like land. So I would suggest that that part of the problem is that we Different financing our industry everybody responded we weren't able to turn around and respond to high interest rates in agriculture, like like many other Industries have I think that we did not anticipate the future very, well. I have to be honest and that I think that that most people Farmers businessmen Bankers University professors academics government people government bureaucrats didn't really believe that things could turn as fast as they did in 1979 and 1980. I mean, they knew that things were going to turn they knew that inflation would the state that level but they didn't think it was going to go down as fast as it did they didn't think interest rates would Skyrocket as fast as they did. So I think we all knew it couldn't continue, but we just felt we'd have five to seven years to straighten ourselves back to get our house back in order again and instead we had to do it in a year and a half to two and it didn't get done more listeners are waiting and your next go ahead. You're on the (00:36:16) air. Thank you. It seems to me that one of the solutions for industrial difficulties is the introduction of a new product in perhaps one of the at least short-term solutions for the agricultural difficulty would be the introduction of new cash crop. Although the one I have in mind is actually an ancient one and that would be to reintroduce the large scale cultivation of hemp which serves as an excellent source of fiber for paper textiles. In fact much more efficient in terms of production. Then Timber another which is our basic source for paper now and it also is a valuable oilseed crop so you could get to cash crops from one field. And if the government in its wisdom were to repeal the prohibition against hemp cultivation, then we would be able to give the farmers that shot in the arm that Immediate short-term supply of cash which would serve in some measure to overcome this debt problem. Now, of course problem we have with hemp is that it's also known as marijuana and ironically now in it's illegal status a farmer who plants one marijuana plant and harvest it and sells it because of the price demand for marijuana can actually make more money than if you were to plant a hundred acres of corn is in terms of its net profit. All (00:37:53) right, Mike Moser you want to comment on this one? Well, I certainly think there are a number of other non agricultural issues associated with the question of hamper marijuana production, which maybe not at all related to the question of agricultural crisis, but I think the fundamental issue that the caller raises of alternative crops is an issue that we ought to talk about letter that alternative crop be crammed be or whether it Some people are suggesting some of the other oilseed crops or whether it be him. I think that the the expectation that we're going to solve the short-run financial crisis in agriculture through the development of alternative crops is an unrealistic expectation. I think there is in the long run some potential for diversification of Agriculture into alternative crop and livestock products. I think it's important. We consider that and move in that direction. But but there are some real serious impediments in the short run one of the most significant impediments is that quite frankly. I don't know of any alternative crops that we have out there in the next two or three years that have the kind of demand potential that we need to have a significant number of farmers move to their production and and use them as a source of cash income illegal crops. I guess I would say at and secondly is that even some of those that look like they have potential to develop the practices the herbicides the Close the support system. If you will that will result in us getting reasonable economic yields as well as the the resistance on the part of the seat itself to all the pesticides and all are all the pests and all the the drought and other weather problems like we have in corn and soybeans is not a short-run problem. Just look how long it took to develop the soybean to the point where it in fact was a had the yield to potential in the viability it has today. So as a short-run solution, I don't see it as a very viable solution to our financial stress problem. There is pardon me. There is some long-run potential here which we ought to consider. But again, I think we need to recognize that fundamentally the issue is going to be driven by the demand and if we have Commodities and products that that aren't in demand or have limited markets which is the case, for example for some of our hold Horticultural crops. Then we have to be realistic about how major and significant they will be as a solution to the problems of the Agricultural sector. They may be very important. For individual farmers and very important for local communities, but they may have difficulty solving the financial stress problems or the long-run economic problems of Agriculture as a sector. It's about 20 minutes before one o'clock talking with Mike bulgy about the farm crisis in our region. Here's another listener with a question. Go ahead please. (00:40:35) Hello. Yes. My question is this can you give me names of anybody or throughout the country that are forming little colonies to pick themselves up by their own bootstraps as individuals who have been broken and farming with say like the English have you know, you don't have to be religious. So what you're just getting forming together to start their own little place the land and other local housing and so forth and so on and forgetting about trying to get anything from government or from politicians or from whatever. (00:41:18) I quite frankly not in a position to give you any names of people in that situation. There are there are some in some parts of the United States. There are communities like this where there are Cooperative efforts on the part of a group of farmers many cases their they show up in the form of operating individual Farms but collaborating in their marketing and other strategies some of them particularly the Amish are classic example where there's a lot of sharing of work and sharing of economic activity. I'm not aware of a major development in this economic environment of the type you indicate in a movement back to that. There are I think quite frankly there are support groups developing in many rural communities, but they're more for personal support systems not for developing economic business Enterprise. Here's another caller with a question. Go ahead. Mike bulgy is listening. (00:42:21) Okay, the first thing I should say, I don't know if anybody else has first. It's been an excellent program. There are a few things. I want you to comment on you're talking about diversification does wondering what there any possibility of besides things like gas home else like comment on the US Imports such as how much beef we get from Australia us companies buying grains from other countries, and the third thing we're a small business goes under it doesn't get much publicity. But when a small farm goes under it seems to get more publicity. I'll hang up. (00:42:56) The issue of diversification you raise is a separate issue from what I mentioned earlier and I think I'm glad you raised it because I think it is an important one and we have perceived in the agricultural sector that our product is primarily a foodstuff in an input into the into the nutrition food process and it's interesting to travel in Europe and in some other countries South America as well and find that they see agricultural products as the raw material from a much broader perspective as a raw material into chemical production as a substitute for petroleum and many Fashions not not necessarily in terms of a lot of commercial production today, but expectations of agricultural products playing a broader role in the future as raw materials in the manufacturing process as well as a as a food stuff. So I would I would concur with your suggestion that that we consider the demand for agricultural Commodities from a broader perspective than the demand is as As a food input although quite frankly again. I think we need to be realistic about the long-term nature of that consideration. I don't think we're going to see a significant industrial demand for agricultural Commodities. We do see increased demand from the sweeteners industry. We do see the some potential in the in the chemicals industry for as a petroleum substitute. The ethanol thing, although the ethanol thing is to a large degree of function of the way. The tax system has been structured and without those tax incentives. It's not clear how much ethanol we would have be producing in the US but I would agree that in the long run. We need to broaden our Horizon with respect to agricultural production and what the use of those products is the second issue of of the Agricultural Imports is also an interesting issue. I should note that we need to recognize that the trade is a two-way street and that if Want to maintain international access on the part of our Commodities, we need to recognize that that may require us to to also be trading partners. I suspect quite frankly that right. Now the key question in terms of international trade in terms of imports is the pork industry and the pork issue the Canadian movement of Canadian Hogs into the US. That's something that is being discussed at high levels of government in terms of how to how to monitor and control that so it doesn't have the the the impact on the u.s. Pork industry that it had in nineteen early 1985. There is some residual concern about beef. Although it's not clear that we have a real problem there the importing of grain into the u.s. Or the alleged importing of grain into the u.s. I think was clearly a signal being sent by the international grain companies that we need to recognize that. We're in a World Market and that grain can be acquired in many. Suzanne if it can't be price competitive produced in this country. It will be obtained elsewhere and I think they were very effective in making that point. I'm not sure they ever would have imported it. But it certainly that that was the seems to me as the is the purpose they had in mind and I think they made the point very well now with respect to the issue of our response to the financial stress and other Industries. I think you raise a very very useful issue there as well. We I think have a focus on Farm firms as being part of the social structure of many rural communities. And so the the demise of the farm firm is not only a demise of a business, but it's a demise of a social structure as well. And that's why I think quite frankly the issue receives more attention than than the the financial failure of a of a automobile dealer or of a of a furniture store of a row of a gas station in a rural community. I think that we sometimes Don't realize that the human trauma of a machine or dealer going out of business is just as important for that machine read either as it is for the farmer going out of business, but I think that at least Society or has perceived rightly or wrongly that there is something unique about the social structure associated with small farms and that his doesn't necessarily transfer to the social structure related to gas stations and furniture dealers more listeners have questions about the farm crisis today for microalgae and will take you next. Go ahead, (00:47:30) please. I would like to get a point in for Supply Management Programs. I know that back in the 1600s. There was a supply program for tobacco Farmers, but that time each tobacco farmer could only plant 1,000 plants that tobacco to control the supply. Of course. What my question is. I have two of them first. I understand that we have around two million farmers in the United States and a peach farmer produces enough food for himself and seventy eight other people to make it easy figuring. Let's say 80 people and we multiply that by 2 million I come up with About a hundred and sixty million people. That's what our food produced the capacity is and we have 250 million people in the United States the words the food coming from to feed the other 50 60 million people we have in the United States. And then also is there a need to import red meat and dairy products to feed our people here in the United States. (00:48:50) All right. I think Professor bulgy is addressed the import question just the previous caller. But what about the first part of that? Well, I guess I haven't gone through the mathematics that this gentleman has gone through in terms of the number of people that we feed with the the number of farmers Etc. It is it is clear that that most of our agricultural Commodities most of our most of our consumption of food products is produced domestically in this country. There are most of the Imports into this country are of the form of Specialty Products that aren't We don't have a comparative advantage in producing now. Certainly that's not true with some of our gain of our pork products and that type of thing but we even if we even if we the mathematics would suggest that that we have more people here that then the numbers he's suggesting that we need to feed it. We have to also worry about as we do in the international market the issue of effective demand and the amount of borrowing capacity that individuals and people have worldwide. That's one of the fundamental problems we have is we have a nutritional demand that may be different than our effective demand in terms of ability of income income and ability to consume. And so that's an important issue in terms of looking at this question of our productive capacity in our supplies and our ability to produce and as you pointed out earlier, the real problem is one of excess Supply not that's exactly right. So, I don't know how those numbers work out. But anyway, we will move onto another listener with a question. You're on the air. Go ahead, (00:50:22) please. Yes. I'm on the air. Yes doctor. What's your name? Bolger bulgy bulgy? Oh, I heard it earlier listener comment on higher oil prices as being a cause and I think you responded with that. You also said Capital causes were that's yeah. Well, I wanted to make the point that great reason indirectly of cause of he's interactively paying for higher oil prices through his higher Capital cost because oil we import 70 billion dollars a year of foreign oil and it's it's a deficit that we run in order to do this in order to keep it deficit going. We have to keep the interest rates high. So that oil higher oil prices are actually showing up is higher Capital cost and much of the farmers problem is really just really it call is really stems from the worldwide oil shortage which care to comment on that (00:51:19) very very quickly. I've just would note that the higher interest rates. We have right now are really as I judge it more a function fundamentally of monetary and fiscal policy than they are of oil prices or other prices of Commodities and secondly is that we quite frankly don't have an oil shortage right now. We prices are reflecting at least a short run Supply excess supply of oil as reflected by Opex problems of maintaining their pricing policy and yet we see that that in spite of that prices of items like machinery and equipment and other Capital items have not come down dramatically. So I would although I don't don't disagree that energy prices are priced component in the manufacturing machinery and equipment and therefore have an impact. They aren't a major component of interest rates which are key issue and they are two major component of labor costs, which are very very important in the manufacturing of capital items. Alright, we shall move along now to another caller with a question for Mike bulgy. (00:52:18) Hello. Hello sure are okay. I've got a couple aspects of this problem. That I just can't get straight in my head. One thing. Is it the professor referred each individual farmer equivalent to say like a gasoline station or some other small business but in the 70s and the early 80s, why whole Industries in the United States were kind of more or less crippled like the steel and the textile and the shoes and nobody has gone through such a campaign to save these industries that have put people out on the streets living in doorways and stuff and I would like to have them address that issue. And the second one is if these farmers are in such dire straight, how come they don't incorporate themselves for about three to four hundred dollars and then sell shares on their Farm valuation and raise money to get themselves out of debt because other people do this they (00:53:21) incorporate. All right, let's get dr. Bolger. Response, well, clearly other Industries have faced similar adjustment problems as agriculture has faced and you mentioned some the steel industry the textile industry any industry that is capital intensive and export-based like agriculture has faced severe adjustment problems during the late 1970's and early 1980s. And so I think the question of what assistance are we providing to them is a relevant question in the relative assistance. I think this is a place where we do have some differentiation and that certainly other Industries have received some kind of protection steel and textiles have asked for additional protection in terms of the import side and the international competition side and furthermore the workers in those Industries have received various types of assistance. The same is true of the auto mode automobile industry in terms of unemployment compensation and other types of assistance adjustment assistance. This is one thing that we haven't been as effective with an agriculture. We haven't really focused. Co-star attention on how to help farmers in this transition period and that's where maybe again a state program has some Effectiveness and some potential is to assist farmers in the transition from one type of vocation or employment to another so I think it's a matter of relative assistance. Not a matter of their the fact that agriculture is unique and alone in terms of the adjustments is having to make with respect to the second issue of incorporating and using this as a vehicle of solving the financial stress problem. We have a very fundamental problem here in that is that there is there's just not a demand at the current time for or a market for shares of stock and farm corporations. In fact to to issue stock to go public in the stock market is a very very costly process. It's a process which some very large agribusinesses have tried or Farm firms have tried and found it's a very very costly process. We don't have the kind of volume or the kind of size to justify that and furthermore if you want to do it on a Basis you got to convince somebody that your investment is a reasonable investment and given the concerns many people have about agriculture. That's not the easiest thing to do right now. I would indicate that A variation of what has been suggested that of having farm properties change ownership by either other Farmers buying that buying that property or even in some cases some local investors is one of the solutions that is is in the real world happening that the Farm property is becoming an attractive investment for some people and so they are making buying property and rent it back to the original farmer and a variation of what has been suggested is what the market is really implementing right now. All right. I think we have time to squeeze in one or maybe two more listener questions. Go ahead. (00:56:07) Please should the farmers in for that matter of the workers be made aware of the fact that we have a capitalist economic system capitalist political system. We don't have a worker economic or worker. Political system and therefore by definition the emissaries raishin or the elimination of workers. Small farmers small business people is inevitable by definition. I'll hang on and respond to your reply. (00:56:44) Well, I am not sure that by definition that I agree with your definition. It seems to me that we have in the economy of the us as well as in the western world. And as far as that goes in economy of any system a mix of inputs Capital Labour in agriculture, we have a land input certainly there has been with technological advances in agriculture a significant substitution of capital for labor, but quite frankly, I suspect that that substitution which is occurred in the past. Although it may not completely reverse itself may as a matter of fact be certainly slowed down or come to a to a decline or a Out with some of the restructuring that's going on right now for many farmers. One of their fundamental problems is excessive substitution of capital for labor debt Finance Capital combined with specialization that resulting in very high Capital cost and and reduced flexibility or adaptability to adjust to changing economic conditions. And in the agricultural sector, I think that we will see this Capital labor substitution trend of the 1950s 60s and 70s. If not reverse certainly slowed down dramatically. I'm afraid we have no time for a rejoinder from this collar. And in fact, we run out of time completely Mike bulgy. Thank you very much for coming in and visiting with us today. It's been a pleasure. I'm sorry in the time remaining. We never got a chance to find out about parity or Target prices or some of those other very confusing terms that go along with agriculture. But anyway, thank you. Mike bulgy is Chairman of the Department of Agriculture and applied economics at the University of Minnesota.