Wednesday, March 15, 2017

Taylor OP-ED

Guest opinion: Growing Idaho agriculture, growing Idaho’s economy

Moscow—On Feb. 7, USDA forecasted a drop in 2017 U.S. farm income of close to 9 percent, half that earned in 2013. This is the fourth consecutive year of income decline, the sharpest since the Great Depression. The economies of the Corn Belt states shutter and tax revenues fall. Idaho ranks fourth in farm contribution to state gross domestic product, behind the Corn Belt states of South Dakota, Nebraska and Iowa, respectively.

Is farming an industry upon which Idaho’s economy pivots? Should Idaho be similarly concerned?

Since returning to my native Idaho over 15 years ago, my colleague Ben Eborn and I have witnessed and perhaps even altered the narrative regarding Idaho agriculture. Idaho’s 21st Century economy was predicted to be high-tech manufacturing and professional services. Farming, while big, was fated to an inexorable decline, along with Idaho’s forestry and mining industries. The narrative was abetted by the farmer’s whine — “This may be the last year I’ll be farming.”

Propelled by strong export and ethanol markets, the first decade of the 21st century was christened as the “Golden Age of Agriculture.” Idaho agriculture is on different trajectory than the corn- and soybean-dominant U.S. agriculture.
Idaho’s trajectory stems from Idaho’s agricultural portfolio. In 2016, close to 60 percent of Idaho’s cash receipts came from livestock — 32 percent from milk, 24 percent from beef and 3 percent from trout and other animals.

Livestock feeds, hay, feed grain, beet pulp, silage and the like constituted another 15 percent. Famous potatoes have dwindled to 12 percent.

Since 1997, Idaho livestock real cash receipts, adjusted for inflation, have grown 2.3 times, while real crops receipts have flat lined. In comparison, U.S. real cash receipts have increased 1.6 times.

Ben and I forecasted 2016 net farm to drop by 13 percent, or $1.6 billion. The high was set in 2011 at $2.2 billion.

Farming has always been boom or bust. In 2009, the year of Idaho’s dairy depression, Idaho net farm income dropped by 53 percent, followed by two consecutive years of over 70 percent increases.
Absent government price floors on commodities, the same forces that shape growth increase volatility. This volatility is reflected in tax revenues and farm credit. As one farmer remarked, “Every year, my banker pretends he doesn’t know me.”

Gross domestic product (GDP), or value added, is the broadest measure of prosperity. Since 1997, real GDP created by Idaho farmers has increased 2.4 times, outstripping the state growth of 1.6 times.
In other words, farmers are adding value to Idaho’s economy twice as fast as the economy as a whole.

Like income and cash receipts, farm GDP is likewise volatile.

The rule of thumb defines recession as two consecutive quarters of negative GDP. The Idaho economy underwent four consecutive quarters of negative GDP during the Great Recession. Since 2007, farm GDP in Idaho experienced five farm recessions, dropping by as much 16 percent in a single quarter.
During the Great Recession, farming was one of the few bright spots in Idaho’s economy. Many of Idaho’s farm dependent economies, such as the Magic Valley, with near full employment had little empathy for Canyon and Ada counties.

In the years since the recession, farming has been the third most robust sector, following finance and health care. For the booming first three quarters of 2016, unlike the Corn Belt, agriculture has been the first or second fastest growing sector in the Idaho economy.

The dollars spent at local businesses ripple through the local economy, creating sales and jobs and adding value to the economy.

When accounting for these multiplier effects, agricultural businesses — and the combined exports of farmers and food processors — are Idaho’s largest industry, creating about $1 in every $5 of business sales, 16 percent of the state’s jobs, and 14 percent of Idaho’s GDP.

Agribusiness impacts are much greater in farming communities. In the Magic Valley, exports from agribusiness directly or indirectly creates over half the jobs and close to 60 percent of the region’s GDP.

Paradoxically, the agriculture volatility has not battered Idaho rural communities. Cows cannot be mothballed when milk prices fall, hay has to be purchased and labor hired to keep milking. The input expenditures continue to ripple throughout the economies of local communities.

Agriculture has been one of the hinges upon which the gate of Idaho economy swings. The fact that Idaho is No. 1 in the nation in potatoes and third in dairy is an expression of the comparative advantage of Idaho agriculture.

The volatility in farm will certainly continue. The downside of having all-your-eggs in the farm basket is the vulnerability to a volatile world export markets, fraught with trade wars, famine, trade embargoes and port slowdowns.

— Economists Garth Taylor and Ben Eborn are in the Department of Agricultural Economics at University of Idaho. They frequently testify before the Idaho legislature on agricultural economic conditions.

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