Category Archives: Agriculture

The Midwest Feels the Sting of an Extended Agricultural Downturn

On November 29, 2016, the Federal Reserve Bank of Chicago will hold a conference to examine the agricultural downturn in the Midwest and discuss future directions for farming, concluding with a panel discussion on the evolution of agricultural lending. (Check https://www.chicagofed.org/events/2016/ag-conference for more details on the conference, including the agenda, and to register.) Experts from academia, industry, and policy institutions will explore the implications of the downturn for both the farm sector and the broader regional economy. The goals of the conference include understanding key trends in farm income, product prices, and input costs; assessing the primary factors behind the sector’s downturn; examining policies that provide support to farm operations and promote risk management; and discussing the role of agricultural lending under these challenging circumstances, as well as in the next phase for agriculture.

Bountiful harvests since 2012’s drought have replenished crop stockpiles to such an extent that supply has outstripped demand, leading to significant reductions in crop prices for midwestern farmers (see charts 1 and 2). Moreover, livestock product prices have tumbled in recent years (see chart 3). Depressed revenues for crop and livestock operations have translated into lower profits as costs of production have been slower to adjust, particularly for crop farms. This downturn in farm profitability followed on the heels of historically high levels of real net farm income[1] (see chart 4). In addition, diminishing income for farm households and operations negatively affected businesses on the Main Streets of towns across the Seventh Federal Reserve District (all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin).

This latter point was reinforced through a special question included in the Chicago Fed’s latest Agricultural Land Value and Credit Conditions Survey, to which banks responded during October (results were recently released in AgLetter). Bankers were asked: “Is a weakening agricultural economy leading to weaker Main Street business activity in your area?” In all five states of the District the consensus answer was “Yes,” with varying degrees of certainty—30% said definitely and 43% probably, while only 12% did not agree with this take on current business activity in their areas (15% were not certain of any impacts). Based on these observations, the downturn in farm country appears to have slowed the economy of the rural Midwest on Main Street as well.

As for farm households and farm operations themselves, the U.S. Department of Agriculture (USDA) forecasted real net farm income for 2016 to be $64.3 billion, a decrease of 12% from 2015 and the lowest result since 2009 (the most recent reading that was below the median of $66.9 billion from 1950 to 2016).[2] In 2009 dollars, net farm income for the U.S. averaged $95.2 billion over the previous five years, dipping down from the prior five-year period ($95.7 billion, a level that was the highest since the period from 1949 to 1953). With farm incomes even higher than during the 1970s farm boom, the just-concluded era of high farm incomes looks likely to have set the bar quite high for the current generation of farmers.

Furthermore, looking at the District, farm incomes were even bleaker. Real net farm income for each state is available through 2015. Using these USDA data, we estimate that the net farm income for the five states of the Seventh Federal Reserve District was $9.1 billion in 2015, a decrease of 31% from 2014 and the lowest outcome since 2003. The District’s value was also below that of the median year from 1950 to 2015 of $12.8 billion. District states accounted for only 12.4% of U.S. net farm income in 2015, after hitting 22% as recently as 2013.

The spillover impacts of farm income declines on Main Street activity in the region can be attributed to the relatively large role played by farmland rentals in the District—39% of net rent received by non-operator landlords nationwide. Such rental transactions provided $5.5 billion for non-operator landlords in 2015, down 27% from a peak of $7.5 billion in 2013 (adjusted for inflation). These payments lift the direct economic impact of agriculture on the District, although some landlords reside elsewhere. Also, $3.1 billion in 2015 was paid out to hired labor by farms in the District (down 8.8% from $3.4 billion in 2014). Additionally, District agricultural operations spent $23.5 billion in real terms on purchased inputs that did not originate on farms in 2015 (declining 10% from 2013’s peak of $26.1 billion), implying that farms reduced their purchases from cooperatives, equipment dealers, and other businesses. These negative effects on income and business activity reinforce a pullback in spending by farm households. Hence, the economic fortunes of agriculture radiate out into communities and the businesses of the District, which are sharing the pain of the current downturn.

At our conference on November 29, the first session will dig deeper into the impacts of the agricultural downturn, especially on farm operations and rural economies. The second session will explore trends in agricultural financing, with a particular focus on bankruptcy research. Following the keynote address by Bill Northey, the Secretary of Agriculture and Land Stewardship for Iowa, there will be a session devoted to the role of farm policy during the downturn and potential directions for future legislation. Finally, a panel discussion will look into the evolution of agricultural financing as distress in the sector builds, as well as innovations in response to the changing farm environment. These sessions should enhance our understanding of the agricultural downturn and provide clues about potential changes that will affect the sector’s future. Visit https://www.chicagofed.org/events/2016/ag-conference for more information and to register.

Chart 1.

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 Chart 2.

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 Chart 3.

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Chart 4.

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[1] Net farm income is a standard way to measure the size of returns from agricultural operations. Basically, net farm income equals the value of agricultural production and net government transactions minus purchased inputs, capital consumption, and payments to stakeholders. See www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances.aspx for details.

[2] See http://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-us-and-state-level-farm-income-and-wealth-statistics/ for data.

Upcoming Chicago Fed conference: Labor Issues Facing Agriculture and the Rural Midwest

On November 17, 2015, the Federal Reserve Bank of Chicago and the Upjohn Institute will hold a conference to explore labor issues affecting agriculture and the rural Midwest. The conference will be preceded on November 16, 2015, by the performance of a play that deals with immigrant experiences in agriculture, followed by a policy discussion. Visit www.chicagofed.org/events/2015/annual-agricultural-conference for more details and to register. Feel free to contact David Oppedahl at 312-322-6122 with any questions about these events.

Concerns about population losses, work force vitality, employment skills, health issues, and economic growth that lags that of urban areas have persisted for years in the rural Midwest and throughout the U.S. This has led to much discussion of a rural/urban divide in the nation (see an example from Governing).

Manufacturers often complain that a skills gap prevents them from expanding and hiring additional workers. Agricultural businesses also face challenges to meet their labor needs, and sometimes rely on immigrant workers. There are implications for rural areas not only due to a shortage of U.S. workers, but also to matters related to worker compensation (see, for instance, a recent Department of Labor ruling). Moreover, non-farm employment can be vital for the livelihood of many agricultural families, even as farm employment remains a key component of rural income in the Midwest. In addition, health insurance coverage continues to be a critical factor for farm households and rural workers.

At the upcoming conference, experts from academia, industry, and policy institutions will discuss work force trends, labor challenges, and ways to improve living standards in the rural Midwest. The goals of the conference include understanding key issues related to rural and farm labor; describing the effects of labor challenges in rural areas; examining policies that affect rural and farm jobs; and discussing possible strategies to position the midwestern economy and agriculture for a prosperous future.

In the final panel discussion of the day, moderator Bill Testa will provide an overview of trends in skilled worker location. As skilled workers, especially younger workers, gravitate toward large metropolitan areas and their central cities, smaller metropolitan areas, towns, and rural areas increasingly struggle to develop, attract, and retain the skilled work force they need for existing and new businesses and investment. And from an individual worker’s perspective, the choice to work outside of a large labor market area may result in a narrower set of career and skills acquisition opportunities, as well as a loss of wage income. The panelists will address: (1) how communities can best address these challenges; and (2) how workers can choose a smaller town or rural location without unduly sacrificing career opportunities and high wages.

 

The Contrasting Fortunes of Crop and Livestock Producers—A conference takeaway

On November 17, 2014, the Federal Reserve Bank of Chicago held a conference which examined the role of farm income in the Midwest economy. (Check https://www.chicagofed.org/events/2014/agriculture-conference to see the agenda and download presentations.) The conference explored both the decline in agriculture’s role over the longer term and the marked increase in the level of agricultural income over the past decade. Within this context, an interesting aspect of the composition of farm income has been the battle between crop and livestock producers for the larger share of the value of agricultural production.

Over the past decade, there has been a shift in the relative balance between the crop and livestock sectors of agriculture. In only two years from 2002-13 did the production value of the livestock sector exceed that of the crop sector (see chart below). Yet, during the previous era, the sectors regularly traded places—every several years, if not annually— as the biggest source of production value for U.S. agriculture. Even earlier, until 1974, livestock producers held sway for decades as the top contributors to farm output.

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What disrupted the long term hegemony of the livestock sector? In the periods of crop ascendency from 1974-77 and from 2007-13, there were sharp drops in the per capita consumption of meat and poultry in the U.S., as shown in a chart from Chris Hurt’s presentation (available from the conference website). The starts of these periods coincided with relatively deep recessions in the overall economy, which resulted in shifting food consumption patterns as household budgets shrank. In particular, the restaurant industry tends to suffer during recessions, pulling down meat consumption as well. Moreover, changing perceptions about the health of animal products has impacted meat consumption, particularly in recent decades.

Hurt, from Purdue University, went on to illustrate the see-saw effects of high feed costs on the livestock sector. Since feed is the largest cost of animal agriculture, sharply higher feed costs contributed to a decrease in the meat supply, as producers exit or trim their herds to minimize costs. With lower availability of animal products, the prices for these products move up over time to bring markets back toward equilibrium. This process was triggered around 2007 by the rising demand of corn for ethanol production and higher exports, particularly of soybeans to China. Of course, higher prices for corn and soybeans also pushed up the production value of crops, even as the production value of the livestock sector was dipping.

The most recent period of crop supremacy was also extended by drought. Persistent drought in certain regions of the country battered the livestock sector, especially cattle operations. With longer gestation times, cattle take longer to rebuild herds than for other animal breeds. The livestock sector was forced to cut output, not only from the lack of water but also from the subsequent spikes in feed costs (made worse by the drought of 2012 that impacted key corn and soybean production states in the Midwest). Soaring crop prices boosted their production value, even as crop output was cut due to drought. The crop sector was riding high from 2007 to 2013, but the bumper crops of 2013 and 2014 ended the ride.

In order to estimate farm incomes, the revenues from crop and livestock operations get combined to provide the value of agricultural production. Net farm income is a standard way to measure the size of returns from agricultural operations. Basically, net farm income equals the value of agricultural production and net government transactions minus purchased inputs, capital consumption, and payments to stakeholders. 1 The latest U.S. Department of Agriculture forecast of net farm income for 2013 was $126.5 billion for the nation, but net farm income was projected to fall to $96.9 billion for 2014. 2 This decline stemmed primarily from a drop in crop revenue of $33 billion, as crop price decreases more than offset increased yields from the fall harvest. However, revenue from animal production was expected to rise by $24 billion from 2013 to set a new record in 2014, as prices for many animal products moved higher. This would result in yet the latest reversal in the continuing saga of the fortunes of the livestock and crop sectors of U.S. agriculture.

Given the opposite movements of production value for the crop and livestock sectors, this decline in net farm income will have disparate effects across the Seventh District. The importance of livestock production varies a lot across the geography of the District. From Hurt’s calculations, the 2012 portion of farm production value from animals was 16% for Illinois, 31% for Indiana, 37% for Michigan, 44% for Iowa, and 65% for Wisconsin. With these very different intensities of animal agriculture, the downturn in income from crop farming will be offset to a greater extent in areas that see a boost from an increase in livestock income.

For additional highlights from the Chicago Fed conference on farm income and its impact on the Midwest economy, see the conference summary.

Farm Income’s Impact on the Midwest — A Conference Preview

Agriculture is a vital building block for the economy of the Midwest, producing raw materials for food and biofuels manufacturing, as well as stimulating demand for farm equipment, trucks, and more. Income produced by agricultural operations is a key component of personal income in rural areas. This income from farm households supports businesses on the Main Streets of rural towns. However, there has been a decline in the number of farms over the decades,1 which raises concerns about the role of farm income in the future of the rural Midwest.

On November 17, 2014, the Federal Reserve Bank of Chicago will hold a conference to examine the role of farm income in the Midwest economy. (Check www.chicagofed.org/webpages/events/2014/agriculture-conference.cfm for more details on the conference, including the agenda, and to register.) The conference will explore both the decline in agriculture’s role over the longer term and the marked increase in the level of agricultural income over the past decade. This phenomenon contrasts sharply with the troubled fortunes of the broader economy of the Midwest during and after the Great Recession.

Net farm income is a standard way to measure the size of returns from agricultural operations. Basically, net farm income equals the value of agricultural production and net government transactions minus purchased inputs, capital consumption, and payments to stakeholders.2 The latest U.S. Department of Agriculture forecast of net farm income for 2013 was $131.3 billion for the U.S., an increase of 15% from 2012 and the highest result since 1973 (adjusted for inflation).3 In 2009 dollars, net farm income has averaged $115 billion over the past three years, a level that was previously exceeded only during the period from 1943 to 1948 (going back to 1929). Moreover, the latest decade has seen the highest levels of net farm income since the 1950s, even higher than during the 1970s farm boom. However, net farm income is projected to fall to $113.2 billion for 2014, as crop price decreases will more than offset increased yields from this fall’s harvest.

In addition, net farm income for each state is available through 2012. Using this data, one can estimate the net farm income for the five states of the Seventh Federal Reserve District.4 The District states accounted for 19.5% of U.S. net farm income in 2012 ($22.16 billion). Due to the relatively large role played by farmland rentals in the District, 43% of net rent received by non-operator landlords nationwide was in the District’s states ($6.7 billion). These payments boost the economic impact of agriculture on the District, although some landlords reside outside the region. Another $3.4 billion in 2012 was paid out to hired labor by farms in the District. Furthermore, District agricultural operations spent $26.9 billion on purchased inputs that did not originate on farms. So, the economic benefits of agriculture reach out into communities and the businesses of the District.

Net cash farm income is a somewhat different measure of agriculture’s cash flow.5 It provides helpful information to understand the financial positions of farm operations. Moreover, the 2012 Census of Agriculture provided data on net cash farm income by county.6 Combining this data with personal income by county7 allows computation of the share of personal income generated by net cash farm income. Using these sources to compute a total for just counties in the District, I find the District generated $23.9 billion of net cash farm income in 2012. This represented 1.5% of the District’s total personal income.

Also, one can categorize counties by how rural they are.8 For the nonmetropolitan counties of the District, $15.96 billion in net cash farm income represented 5.8% of total personal income. For the metropolitan counties of the District, $7.95 billion in net cash farm income represented 0.6% of total personal income. These numbers reinforce the greater dependence of nonmetropolitan counties on agriculture, as one would expect, yet they also demonstrate that even metropolitan counties have significant farm operations. The map below provides the spatial distribution of District counties in terms of the shares of net cash farm income relative to total personal income. Notice that counties in northwest Iowa tend to have the greatest dependence on farming operations, with four having over 30% of personal income from agriculture in 2012.

While such trends and patterns are illuminating, there are many channels between agriculture and the Midwest economy. Please join us on November 17 as experts from academia, government, and business take a deeper dive into Midwest agriculture and its impacts.

 

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  1. See www.ers.usda.gov/data-products/chart-gallery/detail.aspx?chartId=45012 for a chart and details.
  2. See www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances.aspx for details.
  3. See www.ers.usda.gov/data-products/farm-income-and-wealth-statistics/us-and-state-level-farm-income-and-wealth-statistics-(includes-the-us-farm-income-forecast-for-2014).aspx for data.
  4. The Seventh Federal Reserve District comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin.
  5. Net cash farm income “represents the amount of cash available to service debt, pay family living expenses, and make investments. It is not a comprehensive measure of profitability, however, since it does not account for changes in inventory, accounts payable, accounts receivable, and depreciation.” See www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/farm-business-income.aspx for details.
  6. Census of Agriculture data are available via www.nass.usda.gov/Quick_Stats/index.php for 2012 and earlier.
  7. See bea.gov/regional/index.htm for data under “Local Area Personal Income & Employment.”
  8. See www.ers.usda.gov/topics/rural-economy-population/rural-classifications.aspx for details.

Farmers’ Markets and Local Foods Flourishing in the Midwest

By Rhiannon Jerch[1] and David B. Oppedahl

As Americans’ eating habits have evolved, so have our Thanksgiving feasts. Despite the holiday’s grounding in tradition, popular trends reinvent even the most common menu items. Cranberry sauce appeared on the American table after it was fed to Union troops during long stalemates of the Civil War.[2] Whipped cream appeared ubiquitously on pumpkin pie after the handheld mixer became a mainstay in the American kitchen.[3] Today, farmers’ markets and other direct channels are bringing local heritage turkeys to our dinner tables.

Likely, you have seen a farmers’ market pop up in your town square, neighborhood park, or in a vacant parking lot. Every week in over 6,000 neighborhoods across the countr y, people are going to farmers’ markets. Today there are over 4.5 times as many farmers’ markets throughout the U.S. as there were 20 years ago, according to the Agricultural Marketing Service (AMS) of the U.S. Department of Agriculture (USDA). Just in the past year, the number of farmers’ markets has increased 9.6% to a total of 7,864. Considering these numbers account for only documented markets, the actual numbers may be much higher.[4][5]

What is motivating this rapid growth? The popularity of farmers’ markets is more of a renewal than a new phenomenon. Vegetable and produce markets have been a mainstay of American communities from the beginning. America’s first recorded farmers’ market appeared in Hartford in 1643 as a mandate by the General Court of Connecticut. The farmers’ market was, in some senses, a precursor to nationhood.[6]

Today, policymakers, academics, and farmers alike are enthusiastic about the rural and community development potential of direct farm marketing. Thomas Vilsack, the Secretary of the USDA, proclaimed the nation’s first Farmers’ Market Week (August 5 to 11, 2012) “to further awareness of farmers’ markets and of the many important contributions farmers make to daily life in America….”[7] Farmers’ markets have been touted as community revenue generators that simultaneously strengthen economic ties between metropolitan consumers and rural producers. Not to mention, they bring fresh vegetables, freshly baked breads, and sometimes home-made nonfood items, like soap and candles, to eager metropolitan patrons. The USDA estimated the U.S. local food market to be worth $4.8 billion in 2008, half as much as Starbucks’ entire international net sales in the same year.[8]

How do the five midwestern states of the Seventh Federal Reserve District[9] measure up against the rest of the country in direct farm sales? Michigan and Illinois ranked fourth and fifth, respectively, among all 50 states for total farmers’ markets in 2012. Michigan has 294 documented farmers’ markets this year, while Illinois has 264. California, New York, and Massachusetts led the nation with 661, 332, and 305 farmers’ markets, respectively. All Seventh District states registered above the national average of 139 farmers’ markets per state. Indiana, Iowa, and Wisconsin reported 152, 208, and 211, respectively, as of 2012.

[MAP 1 – National Map of Farmers’ Market Locations and total markets per state as of July 2012]

Click to enlarge

Since the AMS began documenting farmers’ market trends in 1994, the period between 2009 and 2011 witnessed the highest national two-year growth rate to date: farmers’ markets expanded by over 36%. During this time, Michigan experienced the highest growth of all states. The number of markets nearly doubled, from 163 markets in 2009 to 322 in 2011. The only other states with growth over 80% were Oregon and Massachusetts. Average growth across the nation was 22.5%. Like Michigan, Wisconsin and Indiana have seen many new farmers’ markets pop up in the past two years at growth rates of 30% and 40%, respectively, while Iowa and Illinois saw little change.[10]

Click to enlarge

[MAP 2 – National Map of Farmers’ market growth by state from 2009-2011]

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Within the Seventh District, farmers’ markets are most concentrated near major cities, such as Des Moines, Cedar Rapids, Madison, Chicago, Indianapolis, and Ann Arbor. Not surprisingly, Chicago’s home county, Cook County, with 93 markets, has the highest number of farmers’ markets of all Seventh District counties.

[Map 3 – Seventh District Map of Farmers’ Market Locations and total markets per county as of July 2012]

Click to enlarge

However, this pattern shifts when viewing direct farm sales per person. Crawford County in southwest Wisconsin, with two farmers’ markets and a population of approximately 17,000, claimed the highest direct farm sales per resident at $92 as of 2007.[11] Wayne County, Michigan, with 26 farmers’ markets—the county with the second largest number of markets in the Seventh District—had substantially lower direct farm sales per capita at $0.90 per resident.[12]

It is not surprising that farmers’ markets concentrate in highly urbanized areas; aggregate demand is highest near major cities and farmers can reach a greater customer base by selling at urban markets.

However, individual demand for fresh fruits and vegetables appears more idiosyncratic. Counties containing major metropolitan areas, such as Des Moines, Indianapolis, Detroit, and Milwaukee, reported less than $5 per capita in annual direct farm sales as of 2007. Average shoppers tended to spend more outside of the larger cities. Crawford, Door, and Vernon counties in Wisconsin rank in the top five counties with highest per capita direct farm sales, and each has fewer than 30,000 inhabitants.

[Map 4 – Seventh District Map of Direct Farm sales per capita by county]

Click to enlarge

Why are per person sales so much higher in these more rural counties? If cities draw the most farmers to market, why aren’t urbanites also spending more than their suburban and rural counterparts? Agritourism may be part of the answer. Berrien County, Michigan, has the highest agritourism revenue in the Seventh District, grossing over $2 million in 2007, and also has the second highest direct farm sales per capita.[13] Door County draws many visitors each year to its fruit orchards and wineries; Door County had the seventh highest agritourism revenue in the Seventh District, grossing over $680,000 in 2007. However, this does not explain Crawford County, where residents spend over $90 each per year at farmers’ markets, despite the fact that agritourism is negligible. The dynamics of farmers’ market patronage likely involve several crosscurrents, including residents’ incomes, community organization, awareness of environmental and health issues related to food, educational attainment, and proximate land quality.

[Map 5 – Seventh District Map of agritourism sales by county]

Click to enlarge

The nation’s heartland has been a leader in the ongoing evolution of fresh food marketing. Seventh District residents spent slightly more at farmers’ markets in 2007 than the average American—about $8.50 per person versus $8.00. Future opportunities for the District’s market goers are strong. Growth trends may widen the gap. Between 2009 and 2011, Seventh District counties added 38% more farmers’ markets on average, a rate twice as high as the national average of 18.4%. Considering national growth in farmers’ markets has remained above 10% for the past five years, we can expect to see more farmers stacking baskets of peaches and bunches of kale under tents in our town squares and parks, as well as more patrons enjoying the local bounty.

______________________________________________________________________________________

[1] Rhiannon Jerch is a graduate student in the Department of Agricultural and Consumer Economics at the University of Illinois at Urbana-Champaign. Her research interests include consumer behavior, choice theory, spatial econometrics, and food policy. Rhiannon interned with the economic research department of the Federal Reserve Bank of Chicago in 2012. Previously, Rhiannon worked in transfer pricing with Ceteris US, LLC in Chicago and in transaction services with PricewaterhouseCoopers in Cairo, Egypt. Rhiannon received a bachelor’s degree in economics from the University of Illinois at Urbana-Champaign. (Return to text)

[2] “Thanksgiving, The Civil War, and Cranberry Sauce.” Julia Sexton, Westchester Magazine. October 20, 2010. (Return to text)

[3] “Early rotary egg beaters,” Home Thing Past. (Return to text)

[4] USDA Agricultural Marketing Service. Farmers Markets Search. (Return to text)

[5] USDA Agricultural Marketing Service. “Farmers Market Growth.” (Return to text)

[6] Masiunas, John B. Class Lecture. Local Food Systems. University of Illinois at Urbana Champaign, Department of Crop Sciences, Urbana IL. Spring 2012. (Return to text)

[7] link (Return to text)

[8] Starbucks Corporation Fiscal 2011 Annual Report. (Return to text)

[9] The Seventh Federal Reserve District comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin. (Return to text)

[10] USDA Agricultural Marketing Service. “Farmers Market Growth.” (Return to text)

[11] Total value of farm sales direct to consumers (including sales from roadside stands, farmers markets, pick-your-own, door-to-door, etc., but not sales of craft items or processed products, such as jellies, sausages, and hams) divided by the number of residents of the county. USDA. Food Environment Atlas Documentation. July 2012. (Return to text)

[12] Per capita direct sales were unavailable for Cook County. (Return to text)

[13] USDA. Food Environment Atlas. July 2012. (Return to text)

Farmers’ Markets and Local Foods Flourishing in the Midwest

By Rhiannon Jerch[1] and David B. Oppedahl

As Americans’ eating habits have evolved, so have our Thanksgiving feasts. Despite the holiday’s grounding in tradition, popular trends reinvent even the most common menu items. Cranberry sauce appeared on the American table after it was fed to Union troops during long stalemates of the Civil War.[2] Whipped cream appeared ubiquitously on pumpkin pie after the handheld mixer became a mainstay in the American kitchen.[3] Today, farmers’ markets and other direct channels are bringing local heritage turkeys to our dinner tables.

Likely, you have seen a farmers’ market pop up in your town square, neighborhood park, or in a vacant parking lot. Every week in over 6,000 neighborhoods across the countr y, people are going to farmers’ markets. Today there are over 4.5 times as many farmers’ markets throughout the U.S. as there were 20 years ago, according to the Agricultural Marketing Service (AMS) of the U.S. Department of Agriculture (USDA). Just in the past year, the number of farmers’ markets has increased 9.6% to a total of 7,864. Considering these numbers account for only documented markets, the actual numbers may be much higher.[4][5]

What is motivating this rapid growth? The popularity of farmers’ markets is more of a renewal than a new phenomenon. Vegetable and produce markets have been a mainstay of American communities from the beginning. America’s first recorded farmers’ market appeared in Hartford in 1643 as a mandate by the General Court of Connecticut. The farmers’ market was, in some senses, a precursor to nationhood.[6]

Today, policymakers, academics, and farmers alike are enthusiastic about the rural and community development potential of direct farm marketing. Thomas Vilsack, the Secretary of the USDA, proclaimed the nation’s first Farmers’ Market Week (August 5 to 11, 2012) “to further awareness of farmers’ markets and of the many important contributions farmers make to daily life in America….”[7] Farmers’ markets have been touted as community revenue generators that simultaneously strengthen economic ties between metropolitan consumers and rural producers. Not to mention, they bring fresh vegetables, freshly baked breads, and sometimes home-made nonfood items, like soap and candles, to eager metropolitan patrons. The USDA estimated the U.S. local food market to be worth $4.8 billion in 2008, half as much as Starbucks’ entire international net sales in the same year.[8]

How do the five midwestern states of the Seventh Federal Reserve District[9] measure up against the rest of the country in direct farm sales? Michigan and Illinois ranked fourth and fifth, respectively, among all 50 states for total farmers’ markets in 2012. Michigan has 294 documented farmers’ markets this year, while Illinois has 264. California, New York, and Massachusetts led the nation with 661, 332, and 305 farmers’ markets, respectively. All Seventh District states registered above the national average of 139 farmers’ markets per state. Indiana, Iowa, and Wisconsin reported 152, 208, and 211, respectively, as of 2012.

[MAP 1 – National Map of Farmers’ Market Locations and total markets per state as of July 2012]

Click to enlarge

Since the AMS began documenting farmers’ market trends in 1994, the period between 2009 and 2011 witnessed the highest national two-year growth rate to date: farmers’ markets expanded by over 36%. During this time, Michigan experienced the highest growth of all states. The number of markets nearly doubled, from 163 markets in 2009 to 322 in 2011. The only other states with growth over 80% were Oregon and Massachusetts. Average growth across the nation was 22.5%. Like Michigan, Wisconsin and Indiana have seen many new farmers’ markets pop up in the past two years at growth rates of 30% and 40%, respectively, while Iowa and Illinois saw little change.[10]

Click to enlarge

[MAP 2 – National Map of Farmers’ market growth by state from 2009-2011]

Click to enlarge

Within the Seventh District, farmers’ markets are most concentrated near major cities, such as Des Moines, Cedar Rapids, Madison, Chicago, Indianapolis, and Ann Arbor. Not surprisingly, Chicago’s home county, Cook County, with 93 markets, has the highest number of farmers’ markets of all Seventh District counties.

[Map 3 – Seventh District Map of Farmers’ Market Locations and total markets per county as of July 2012]

Click to enlarge

However, this pattern shifts when viewing direct farm sales per person. Crawford County in southwest Wisconsin, with two farmers’ markets and a population of approximately 17,000, claimed the highest direct farm sales per resident at $92 as of 2007.[11] Wayne County, Michigan, with 26 farmers’ markets—the county with the second largest number of markets in the Seventh District—had substantially lower direct farm sales per capita at $0.90 per resident.[12]

It is not surprising that farmers’ markets concentrate in highly urbanized areas; aggregate demand is highest near major cities and farmers can reach a greater customer base by selling at urban markets.

However, individual demand for fresh fruits and vegetables appears more idiosyncratic. Counties containing major metropolitan areas, such as Des Moines, Indianapolis, Detroit, and Milwaukee, reported less than $5 per capita in annual direct farm sales as of 2007. Average shoppers tended to spend more outside of the larger cities. Crawford, Door, and Vernon counties in Wisconsin rank in the top five counties with highest per capita direct farm sales, and each has fewer than 30,000 inhabitants.

[Map 4 – Seventh District Map of Direct Farm sales per capita by county]

Click to enlarge

Why are per person sales so much higher in these more rural counties? If cities draw the most farmers to market, why aren’t urbanites also spending more than their suburban and rural counterparts? Agritourism may be part of the answer. Berrien County, Michigan, has the highest agritourism revenue in the Seventh District, grossing over $2 million in 2007, and also has the second highest direct farm sales per capita.[13] Door County draws many visitors each year to its fruit orchards and wineries; Door County had the seventh highest agritourism revenue in the Seventh District, grossing over $680,000 in 2007. However, this does not explain Crawford County, where residents spend over $90 each per year at farmers’ markets, despite the fact that agritourism is negligible. The dynamics of farmers’ market patronage likely involve several crosscurrents, including residents’ incomes, community organization, awareness of environmental and health issues related to food, educational attainment, and proximate land quality.

[Map 5 – Seventh District Map of agritourism sales by county]

Click to enlarge

The nation’s heartland has been a leader in the ongoing evolution of fresh food marketing. Seventh District residents spent slightly more at farmers’ markets in 2007 than the average American—about $8.50 per person versus $8.00. Future opportunities for the District’s market goers are strong. Growth trends may widen the gap. Between 2009 and 2011, Seventh District counties added 38% more farmers’ markets on average, a rate twice as high as the national average of 18.4%. Considering national growth in farmers’ markets has remained above 10% for the past five years, we can expect to see more farmers stacking baskets of peaches and bunches of kale under tents in our town squares and parks, as well as more patrons enjoying the local bounty.

______________________________________________________________________________________

[1] Rhiannon Jerch is a graduate student in the Department of Agricultural and Consumer Economics at the University of Illinois at Urbana-Champaign. Her research interests include consumer behavior, choice theory, spatial econometrics, and food policy. Rhiannon interned with the economic research department of the Federal Reserve Bank of Chicago in 2012. Previously, Rhiannon worked in transfer pricing with Ceteris US, LLC in Chicago and in transaction services with PricewaterhouseCoopers in Cairo, Egypt. Rhiannon received a bachelor’s degree in economics from the University of Illinois at Urbana-Champaign. (Return to text)

[2] “Thanksgiving, The Civil War, and Cranberry Sauce.” Julia Sexton, Westchester Magazine. October 20, 2010. (Return to text)

[3] “Early rotary egg beaters,” Home Thing Past. (Return to text)

[4] USDA Agricultural Marketing Service. Farmers Markets Search. (Return to text)

[5] USDA Agricultural Marketing Service. “Farmers Market Growth.” (Return to text)

[6] Masiunas, John B. Class Lecture. Local Food Systems. University of Illinois at Urbana Champaign, Department of Crop Sciences, Urbana IL. Spring 2012. (Return to text)

[7] link (Return to text)

[8] Starbucks Corporation Fiscal 2011 Annual Report. (Return to text)

[9] The Seventh Federal Reserve District comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin. (Return to text)

[10] USDA Agricultural Marketing Service. “Farmers Market Growth.” (Return to text)

[11] Total value of farm sales direct to consumers (including sales from roadside stands, farmers markets, pick-your-own, door-to-door, etc., but not sales of craft items or processed products, such as jellies, sausages, and hams) divided by the number of residents of the county. USDA. Food Environment Atlas Documentation. July 2012. (Return to text)

[12] Per capita direct sales were unavailable for Cook County. (Return to text)

[13] USDA. Food Environment Atlas. July 2012. (Return to text)

What’s behind the large and rapid gains in Midwest farmland values?

by David Oppedahl

Rapid increases in the value of Midwest farmland have contrasted sharply with the malaise of other real estate markets. At 17% (see chart), the year-over-year increase in the value of farmland in the Seventh Federal Reserve District for the second quarter of 2011 was the largest recorded since the 1970s, according to a survey conducted by the Chicago Fed and reported in the latest issue of AgLetter. Agricultural land values in Indiana and Iowa climbed 20% or more in a year, while agricultural land values in Illinois climbed almost as much. “Good” agricultural land in the Seventh District rose 4% in the second quarter of 2011 relative to the first quarter of 2011. Bankers in the survey commented that there were more summer auctions of farmland than usual, particularly as demand for farmland remained strong from both farmers and investors. Some bankers expressed concerns about the risks facing farmland markets, especially with regard to declines in crop prices. However, these views formed a minority, as just 2% of responding bankers expected farmland values to fall in the third quarter of 2011 (36% of survey respondents anticipated higher farmland values in the third quarter, and 62% expected no change).

On November 15, 2011, the Federal Reserve Bank of Chicago will hold a conference to explore the factors contributing to these large increases in midwestern agricultural land values and associated cash rental rates. At the conference, experts from academia, the farm industry, and policy institutions will present research on the causes of rapid increases in agricultural land values and cash rents, as well as their interrelationship. The goals of the conference include analyzing demographic and geographical characteristics of Midwest farmland ownership; understanding the dynamics of farmland valuations; assessing the risks facing agriculture and the banking industry from rising farmland values; and discussing policy implications for agricultural lending stemming from current farmland trends. Visit here for additional details.

A report on agricultural land values from the U.S. Department of Agriculture showed similar increases for 2011, as of January 1. There was a 16.2% gain on an acre-adjusted basis for the five Seventh District states from the start of 2010 to the start of 2011, calculated from data in the USDA report. Furthermore, there have been large increases according to surveys in Indiana and Illinois. Wisconsin farmland values have risen too, although not as quickly.

Recent data from the Iowa Farm and Land Chapter #2 of the Realtors Land Institute confirmed that farmland values continued their fast ascent in Iowa. The institute’s survey results indicated that there was a 12.9% jump in Iowa’s agricultural land values between March and September of 2011. Further information about Iowa’s farmland is available from an annual survey conducted by Iowa State University. Michael Duffy from Iowa State University will present on the demographics of farmland ownership at the Chicago Fed conference.

By the end of this year, net farm income for 2011 is projected to have risen $24.5 billion from that of 2010, to $103.6 billion, according to the latest USDA forecasts. This estimated rise in net farm income should help propel farmland values upward even further. This forecasted rise in net farm income is due to anticipated increases of $34.7 billion in the value of crop production and $22.7 billion in the value of livestock production, even though the cost of purchased inputs is projected to rise $28.0 billion. Government payments were forecasted by the USDA to decrease 18% from 2010—to $10.2 billion for 2011.

Higher crop prices have boosted the expected stream of earnings from crop production, supporting further gains in farmland values. According to data from the USDA, crop revenue for 2010 in the Seventh District jumped 34% above that of 2009, despite below-trend corn yields. The Seventh District value of corn for grain produced in 2010 was $31.8 billion, and the value of soybeans was $16.6 billion. In 2011, corn and soybean prices have kept well above the levels of a year ago. Relative to a year earlier, September corn prices were 49% higher and soybean prices were 27% higher, even though crop prices have fallen from summer highs.

The USDA estimated that the nation’s 2011 harvest of corn for grain will be slightly smaller than the 2010 harvest. It also estimated that the five Seventh District states’ 2011 harvest of corn for grain will be 2.4% larger than the previous year’s harvest. Soybean production was estimated to decline 8.1% for the U.S. and 9.9% for the five Seventh District states. Total usage of corn, at 12.7 billion bushels, would result in U.S. ending stocks of 866 million bushels—the tightest in 15 years. Total soybean usage in the U.S. of 3.13 billion bushels would leave ending stocks at 160 million bushels, tighter than a year ago. The USDA estimated price intervals for the 2011–12 crop year of $6.20 to $7.20 per bushel for corn and $12.15 to $14.15 per bushel for soybeans. Based on the midpoints of these projected price ranges, the value of the Seventh District corn crop in the current year would rise 25% from 2010, while the value of the soybean crop would decline almost 1%.

In addition, livestock prices were well above the levels of 2010 in September 2011. Prices for hogs, cattle, and milk were 9.6%, 17%, and 18% higher this September than last September, respectively. The livestock sector has experienced higher revenues, but higher feed costs have limited the rise in income for the sector. The combination of higher revenues for crop and livestock production has been an impetus for the significant increases in agricultural land values seen this year in the Seventh District.

According to the AgLetter covering the first quarter of 2011, farmers tended to outbid investors for agricultural land at auctions, some respondents reported. Although investors often bowed out in the bidding, they are showing growing interest in farmland. This should not be too surprising given the mixed results other investments have been generating in recent years. Jennifer Ifft, a conference speaker, co-wrote a piece that examines the role of investors in California farmland markets. The reporting bankers in the Seventh District thought farmers bought an even higher share of farmland this year than during the prior year; 48% of the respondents saw an increasing share of land purchased by farmers and only 6% saw a decreasing share in the period from October 2010 through March 2011. With 75% of the bankers observing higher demand for the purchase of farmland and just 1% observing lower demand, the market for farmland was ripe for fast rising land values.

This summer there was a set of articles about agricultural land values published in Choices, which was designed to educate readers on farmland. Another good resource on farmland values, from Purdue University, provides an analysis of farmland values, co-written by Brent Gloy (also a presenter at the conference).

Rents for farmland headed up

Seventh District cash rental rates for agricultural land in 2011 rose sharply relative to 2010—the only year over the past five that had an increase of less than 7%. Seventh District cash rents climbed 16% from 2010. Cash rental rates were up 14% in Illinois, 15% in Indiana, 16% in Iowa, 18% in Michigan, and 20% in Wisconsin. After being adjusted for inflation using the Personal Consumption Expenditures Price Index, Seventh District cash rental rates increased 14% from 2010. This increase was the second largest, behind that of 2008, since tracking of Seventh District cash rents began in 1981.

USDA results on cash rents for cropland showed an increase of 8.8% nationwide for 2011, as of January 1. Cash rents in the Seventh District rose 8.3% in Illinois, 7.8% in Indiana, 11% in Iowa, 12% in Michigan, and 7.6% in Wisconsin.

With the increase in Seventh District farmland values matching that for cash rental rates for 2011, there was no change in the price-to-earnings (P/E) ratio for Seventh District agricultural land (see chart). The unchanged P/E ratio indicated relatively balanced demand to purchase versus rent farmland. In an asset valuation model, the present price of an asset should reflect both current profitability and expectations for future earnings. The P/E ratio for farmland can be constructed as the ratio of indexes based on average farmland values per acre and cash rental rates per acre (the latter representing the earnings potential of farmland). Both cash rental rates and farmland values have risen because of higher agricultural prices.

Cash-renting agricultural land, although increasingly with clauses that allow owners to benefit when crop prices increase further, remained the dominant method (80%) in the Seventh District for farm operations by someone other than the owner. With 16% of farmland on crop shares, 1% on a bushel basis, and 3% on other arrangements, there appeared to be an inclination by owners to get more involved in farm operations and garner higher returns in 2011. Illinois remained the Seventh District state with the lowest percentage of cash rentals (68%), even as rentals on a crop share basis diminished (26%). Additional information on cash rental arrangements can be found from the University of Illinois.

Come join us on November 15, 2011, at the Federal Reserve Bank of Chicago to discuss these agricultural trends and the issues that they raise.

Charts:

What’s behind the large and rapid gains in Midwest farmland values?

by David Oppedahl

Rapid increases in the value of Midwest farmland have contrasted sharply with the malaise of other real estate markets. At 17% (see chart), the year-over-year increase in the value of farmland in the Seventh Federal Reserve District for the second quarter of 2011 was the largest recorded since the 1970s, according to a survey conducted by the Chicago Fed and reported in the latest issue of AgLetter. Agricultural land values in Indiana and Iowa climbed 20% or more in a year, while agricultural land values in Illinois climbed almost as much. “Good” agricultural land in the Seventh District rose 4% in the second quarter of 2011 relative to the first quarter of 2011. Bankers in the survey commented that there were more summer auctions of farmland than usual, particularly as demand for farmland remained strong from both farmers and investors. Some bankers expressed concerns about the risks facing farmland markets, especially with regard to declines in crop prices. However, these views formed a minority, as just 2% of responding bankers expected farmland values to fall in the third quarter of 2011 (36% of survey respondents anticipated higher farmland values in the third quarter, and 62% expected no change).

On November 15, 2011, the Federal Reserve Bank of Chicago will hold a conference to explore the factors contributing to these large increases in midwestern agricultural land values and associated cash rental rates. At the conference, experts from academia, the farm industry, and policy institutions will present research on the causes of rapid increases in agricultural land values and cash rents, as well as their interrelationship. The goals of the conference include analyzing demographic and geographical characteristics of Midwest farmland ownership; understanding the dynamics of farmland valuations; assessing the risks facing agriculture and the banking industry from rising farmland values; and discussing policy implications for agricultural lending stemming from current farmland trends. Visit here for additional details.

A report on agricultural land values from the U.S. Department of Agriculture showed similar increases for 2011, as of January 1. There was a 16.2% gain on an acre-adjusted basis for the five Seventh District states from the start of 2010 to the start of 2011, calculated from data in the USDA report. Furthermore, there have been large increases according to surveys in Indiana and Illinois. Wisconsin farmland values have risen too, although not as quickly.

Recent data from the Iowa Farm and Land Chapter #2 of the Realtors Land Institute confirmed that farmland values continued their fast ascent in Iowa. The institute’s survey results indicated that there was a 12.9% jump in Iowa’s agricultural land values between March and September of 2011. Further information about Iowa’s farmland is available from an annual survey conducted by Iowa State University. Michael Duffy from Iowa State University will present on the demographics of farmland ownership at the Chicago Fed conference.

By the end of this year, net farm income for 2011 is projected to have risen $24.5 billion from that of 2010, to $103.6 billion, according to the latest USDA forecasts. This estimated rise in net farm income should help propel farmland values upward even further. This forecasted rise in net farm income is due to anticipated increases of $34.7 billion in the value of crop production and $22.7 billion in the value of livestock production, even though the cost of purchased inputs is projected to rise $28.0 billion. Government payments were forecasted by the USDA to decrease 18% from 2010—to $10.2 billion for 2011.

Higher crop prices have boosted the expected stream of earnings from crop production, supporting further gains in farmland values. According to data from the USDA, crop revenue for 2010 in the Seventh District jumped 34% above that of 2009, despite below-trend corn yields. The Seventh District value of corn for grain produced in 2010 was $31.8 billion, and the value of soybeans was $16.6 billion. In 2011, corn and soybean prices have kept well above the levels of a year ago. Relative to a year earlier, September corn prices were 49% higher and soybean prices were 27% higher, even though crop prices have fallen from summer highs.

The USDA estimated that the nation’s 2011 harvest of corn for grain will be slightly smaller than the 2010 harvest. It also estimated that the five Seventh District states’ 2011 harvest of corn for grain will be 2.4% larger than the previous year’s harvest. Soybean production was estimated to decline 8.1% for the U.S. and 9.9% for the five Seventh District states. Total usage of corn, at 12.7 billion bushels, would result in U.S. ending stocks of 866 million bushels—the tightest in 15 years. Total soybean usage in the U.S. of 3.13 billion bushels would leave ending stocks at 160 million bushels, tighter than a year ago. The USDA estimated price intervals for the 2011–12 crop year of $6.20 to $7.20 per bushel for corn and $12.15 to $14.15 per bushel for soybeans. Based on the midpoints of these projected price ranges, the value of the Seventh District corn crop in the current year would rise 25% from 2010, while the value of the soybean crop would decline almost 1%.

In addition, livestock prices were well above the levels of 2010 in September 2011. Prices for hogs, cattle, and milk were 9.6%, 17%, and 18% higher this September than last September, respectively. The livestock sector has experienced higher revenues, but higher feed costs have limited the rise in income for the sector. The combination of higher revenues for crop and livestock production has been an impetus for the significant increases in agricultural land values seen this year in the Seventh District.

According to the AgLetter covering the first quarter of 2011, farmers tended to outbid investors for agricultural land at auctions, some respondents reported. Although investors often bowed out in the bidding, they are showing growing interest in farmland. This should not be too surprising given the mixed results other investments have been generating in recent years. Jennifer Ifft, a conference speaker, co-wrote a piece that examines the role of investors in California farmland markets. The reporting bankers in the Seventh District thought farmers bought an even higher share of farmland this year than during the prior year; 48% of the respondents saw an increasing share of land purchased by farmers and only 6% saw a decreasing share in the period from October 2010 through March 2011. With 75% of the bankers observing higher demand for the purchase of farmland and just 1% observing lower demand, the market for farmland was ripe for fast rising land values.

This summer there was a set of articles about agricultural land values published in Choices, which was designed to educate readers on farmland. Another good resource on farmland values, from Purdue University, provides an analysis of farmland values, co-written by Brent Gloy (also a presenter at the conference).

Rents for farmland headed up

Seventh District cash rental rates for agricultural land in 2011 rose sharply relative to 2010—the only year over the past five that had an increase of less than 7%. Seventh District cash rents climbed 16% from 2010. Cash rental rates were up 14% in Illinois, 15% in Indiana, 16% in Iowa, 18% in Michigan, and 20% in Wisconsin. After being adjusted for inflation using the Personal Consumption Expenditures Price Index, Seventh District cash rental rates increased 14% from 2010. This increase was the second largest, behind that of 2008, since tracking of Seventh District cash rents began in 1981.

USDA results on cash rents for cropland showed an increase of 8.8% nationwide for 2011, as of January 1. Cash rents in the Seventh District rose 8.3% in Illinois, 7.8% in Indiana, 11% in Iowa, 12% in Michigan, and 7.6% in Wisconsin.

With the increase in Seventh District farmland values matching that for cash rental rates for 2011, there was no change in the price-to-earnings (P/E) ratio for Seventh District agricultural land (see chart). The unchanged P/E ratio indicated relatively balanced demand to purchase versus rent farmland. In an asset valuation model, the present price of an asset should reflect both current profitability and expectations for future earnings. The P/E ratio for farmland can be constructed as the ratio of indexes based on average farmland values per acre and cash rental rates per acre (the latter representing the earnings potential of farmland). Both cash rental rates and farmland values have risen because of higher agricultural prices.

Cash-renting agricultural land, although increasingly with clauses that allow owners to benefit when crop prices increase further, remained the dominant method (80%) in the Seventh District for farm operations by someone other than the owner. With 16% of farmland on crop shares, 1% on a bushel basis, and 3% on other arrangements, there appeared to be an inclination by owners to get more involved in farm operations and garner higher returns in 2011. Illinois remained the Seventh District state with the lowest percentage of cash rentals (68%), even as rentals on a crop share basis diminished (26%). Additional information on cash rental arrangements can be found from the University of Illinois.

Come join us on November 15, 2011, at the Federal Reserve Bank of Chicago to discuss these agricultural trends and the issues that they raise.

Charts:

Innovation and the District’s Food Industries, and “Clean Tech” Conference Announcement

By David Oppedahl and Bill Testa

We all eat, yet the variety of what we eat is mesmerizing. Whether we eat the newest power bar developed in a laboratory or the latest organic, heirloom tomato, innovation is essential to food reaching our mouths. Everyone has a stake in the innovation of the agricultural and food industries—from the inhabitants of the rural Midwest, to the research scientists in our nation’s labs and universities, to people around the world who benefit from pest-resistant strains of grain. Agricultural innovations already have enhanced a wide range of products, including nutritional supplements, plastics, and energy materials derived from production agriculture. The future holds even more promise for benefits derived from the agriculture and food pipelines, especially enhanced nutrition, drought-resistant crops, and new functional foods. However, the safety of the food system remains a vital and ever-present concern, as well as a new source of job creation.

A Regional Strength

It is an interesting feature of regional economies that they often continue to be the innovative centers of the industries that were born there. Perhaps this is not all that surprising, since it is innovation that so often drives and sustains industries—innovation encompassing not only the creation of new products to sustain consumer demand, but also the productivity-enhancing technological improvements to fend off competition from other companies, industries, and countries. Yet, as regions search for their own economic renewal, they may overlook their innovative roots, opting instead to recruit or grow the latest hot sector—be it personal computing equipment, homeland defense, information technology, or biotechnology.

Historically, the Midwest economy is as closely linked with agriculture and the food industry as it is with, say, manufacturing. Indeed, the bountiful production and transport of farm products for export not only supported the region’s employment and income throughout most of its growth and development, but also fed the hordes of factory workers who were once needed to operate the region’s factories and mills.

Today, the innovations of production agriculture remain a legacy feature. Nationally, the identifiable value added from innovation in food processing is significant, though far from the top among industries. According to the most recent National Science Foundation survey (2008), U.S. food companies poured $3.18 billion into R&D domestically and another $683 million abroad.

Such expenditure figures are not publicly available for individual regions. But we can look at the Bureau of Labor Statistics’s occupation data for each state to get a sense of innovation-related employment in agriculture and the food industry. These jobs would include: food scientists and technologists; animal scientists; soil and plant scientists; and agricultural and food science technicians. Moreover, unlike the R&D spending numbers, these employment figures include people across the spectrum from government to university, to nonprofit lab, to private business ventures.

Occupational specialties vary from state to state. Also, due to the sample sizes, there are anomalies in the results for specialized occupations for some states. Yet, overall across all of them, the Seventh District states are 31 percent more concentrated in these occupations than the U.S. average; 39 percent more concentrated if we use a broader eight-state definition of the Midwest region (including Minnesota, Missouri, and Ohio). Thus, our region benefits more than the nation from the growth in spending on innovation in the agriculture and food sectors of the economy.

Food Safety is Paramount

As the variety and breadth of our diet expand, so do concerns about food safety. News accounts of foodborne illnessses regularly appear, although the U.S. food system remains among the safest in the world. Public concerns about food safety led to the passage of the Food Safety Modernization Act, signed into law in January 2011. The act will impose new requirements on food manufacturers, processors, packers, distributors, exporters, and importers. It will speed the industry’s movement toward a more science-based food safety system, compelling firms to seek innovative solutions in order to comply and be competitive in dynamic markets.

The academic and government laboratories of the Midwest are important research partners with the private sector. A conference called “Food Safety: Policy Changes, Science-based Opportunities” was held this summer at the Federal Reserve Bank of Chicago as part of a dialog between research institutions and industry in order to further partnerships and generate connections that will improve food safety via innovative technologies and refined systems. It was organized by an array of groups under the auspices of the Global Midwest Alliance.

At the event, David Oppedahl of the Chicago Fed gave an overview of key issues from a regional perspective with regard to food safety. Farming and food manufacturing combined to generate 3.4% of the District’s output in 2008, over 1% more than for the country (see figure 2 at end). Just one form of foodborne illness, salmonella, cost the U.S. economy $2.7 billion in 2010, with almost 1.4 million cases reported. The costs to the nation in medical expenses, lost employment compensation, and premature deaths are significant, although challenging to quantify.

The event’s keynote speaker, Robert Hibbert, K & L Gates L.L.P., compared the food safety system of the 20th Century with that of the 21st Century under the new act. Whereas the former regime involved more reactive regulations and enforcement, the updated food safety system will strive for prevention and traceability. Although resources remain limited, there are plenty of demands on the science and technology: improving process methodologies, enhancing control mechanisms, establishing traceability systems, gathering and exchanging information, and researching virulence in order to establish standards. Challenges to this agenda include the limits of science, expanding the foundation of basic research, communicating risk, and issues with clearances and approvals. Hibbert concluded that firms must “put up with the process,” while at the same time challenging it. An understanding of the emerging regulatory system and business realities will guide the industry toward a safer food supply and improved public health.

A panel on the scientific aspects of food safety was moderated by Paul Sebesta, U.S. Department of Agriculture. The panelists were Rosie Newsome, Institute of Food Technologists, Carla Little, Illinois Department of Public Health, and Todd Ward, U.S. Department of Agriculture. Newsome talked about the Institute’s initiatives and the resources they provide to advance the science of food. Little presented information on her agency’s efforts to ensure a safe food supply for Illinois, while facing increasing complexity in the food chain, globalization, and multi-state outbreaks of foodborne illnesses. Ward outlined the food safety programs at the National Center for Agricultural Utilization Research in Peoria, which focus on developing information and science-based solutions for detecting and removing toxins from food and preventing toxin contamination of food.

Finally, an industry panel, moderated by Matthew Botos, Illinois Science & Technology Coalition, focused on specific firms’ roles in the field of food safety and the opportunities for technological innovators. Justin Ransom, OSI Industries, shared experience gained from running the Food Protection and Quality Systems group, which oversees a global network of food manufacturing plants that handle both raw materials and finished products. Greg West, National Pasteurized Egg Inc., talked about his firm’s rapid growth to meet the demand for safer eggs (especially from restaurants) through innovative technology that maintains the look and taste of fresh eggs while extending shelf life and eliminating salmonella. D. J. Alwattar, Northland Laboratories, outlined his company’s specialized testing expertise, which provides a key component in the industry’s push to meet the challenges of food safety through innovation.

Upcoming Midwest “Clean Tech” Conference Announcement

On September 14, a related meeting at the Federal Reserve Bank of Chicago will focus on innovations in “clean” technology, including those that affect the food industry and agriculture. Organized by the Global Midwest Alliance, “Midwest Clean Tech 2011” will have a particular focus on global issues for innovation partnerships.

Innovation and the District’s Food Industries, and “Clean Tech” Conference Announcement

By David Oppedahl and Bill Testa

We all eat, yet the variety of what we eat is mesmerizing. Whether we eat the newest power bar developed in a laboratory or the latest organic, heirloom tomato, innovation is essential to food reaching our mouths. Everyone has a stake in the innovation of the agricultural and food industries—from the inhabitants of the rural Midwest, to the research scientists in our nation’s labs and universities, to people around the world who benefit from pest-resistant strains of grain. Agricultural innovations already have enhanced a wide range of products, including nutritional supplements, plastics, and energy materials derived from production agriculture. The future holds even more promise for benefits derived from the agriculture and food pipelines, especially enhanced nutrition, drought-resistant crops, and new functional foods. However, the safety of the food system remains a vital and ever-present concern, as well as a new source of job creation.

A Regional Strength

It is an interesting feature of regional economies that they often continue to be the innovative centers of the industries that were born there. Perhaps this is not all that surprising, since it is innovation that so often drives and sustains industries—innovation encompassing not only the creation of new products to sustain consumer demand, but also the productivity-enhancing technological improvements to fend off competition from other companies, industries, and countries. Yet, as regions search for their own economic renewal, they may overlook their innovative roots, opting instead to recruit or grow the latest hot sector—be it personal computing equipment, homeland defense, information technology, or biotechnology.

Historically, the Midwest economy is as closely linked with agriculture and the food industry as it is with, say, manufacturing. Indeed, the bountiful production and transport of farm products for export not only supported the region’s employment and income throughout most of its growth and development, but also fed the hordes of factory workers who were once needed to operate the region’s factories and mills.

Today, the innovations of production agriculture remain a legacy feature. Nationally, the identifiable value added from innovation in food processing is significant, though far from the top among industries. According to the most recent National Science Foundation survey (2008), U.S. food companies poured $3.18 billion into R&D domestically and another $683 million abroad.

Such expenditure figures are not publicly available for individual regions. But we can look at the Bureau of Labor Statistics’s occupation data for each state to get a sense of innovation-related employment in agriculture and the food industry. These jobs would include: food scientists and technologists; animal scientists; soil and plant scientists; and agricultural and food science technicians. Moreover, unlike the R&D spending numbers, these employment figures include people across the spectrum from government to university, to nonprofit lab, to private business ventures.

Occupational specialties vary from state to state. Also, due to the sample sizes, there are anomalies in the results for specialized occupations for some states. Yet, overall across all of them, the Seventh District states are 31 percent more concentrated in these occupations than the U.S. average; 39 percent more concentrated if we use a broader eight-state definition of the Midwest region (including Minnesota, Missouri, and Ohio). Thus, our region benefits more than the nation from the growth in spending on innovation in the agriculture and food sectors of the economy.

Food Safety is Paramount

As the variety and breadth of our diet expand, so do concerns about food safety. News accounts of foodborne illnessses regularly appear, although the U.S. food system remains among the safest in the world. Public concerns about food safety led to the passage of the Food Safety Modernization Act, signed into law in January 2011. The act will impose new requirements on food manufacturers, processors, packers, distributors, exporters, and importers. It will speed the industry’s movement toward a more science-based food safety system, compelling firms to seek innovative solutions in order to comply and be competitive in dynamic markets.

The academic and government laboratories of the Midwest are important research partners with the private sector. A conference called “Food Safety: Policy Changes, Science-based Opportunities” was held this summer at the Federal Reserve Bank of Chicago as part of a dialog between research institutions and industry in order to further partnerships and generate connections that will improve food safety via innovative technologies and refined systems. It was organized by an array of groups under the auspices of the Global Midwest Alliance.

At the event, David Oppedahl of the Chicago Fed gave an overview of key issues from a regional perspective with regard to food safety. Farming and food manufacturing combined to generate 3.4% of the District’s output in 2008, over 1% more than for the country (see figure 2 at end). Just one form of foodborne illness, salmonella, cost the U.S. economy $2.7 billion in 2010, with almost 1.4 million cases reported. The costs to the nation in medical expenses, lost employment compensation, and premature deaths are significant, although challenging to quantify.

The event’s keynote speaker, Robert Hibbert, K & L Gates L.L.P., compared the food safety system of the 20th Century with that of the 21st Century under the new act. Whereas the former regime involved more reactive regulations and enforcement, the updated food safety system will strive for prevention and traceability. Although resources remain limited, there are plenty of demands on the science and technology: improving process methodologies, enhancing control mechanisms, establishing traceability systems, gathering and exchanging information, and researching virulence in order to establish standards. Challenges to this agenda include the limits of science, expanding the foundation of basic research, communicating risk, and issues with clearances and approvals. Hibbert concluded that firms must “put up with the process,” while at the same time challenging it. An understanding of the emerging regulatory system and business realities will guide the industry toward a safer food supply and improved public health.

A panel on the scientific aspects of food safety was moderated by Paul Sebesta, U.S. Department of Agriculture. The panelists were Rosie Newsome, Institute of Food Technologists, Carla Little, Illinois Department of Public Health, and Todd Ward, U.S. Department of Agriculture. Newsome talked about the Institute’s initiatives and the resources they provide to advance the science of food. Little presented information on her agency’s efforts to ensure a safe food supply for Illinois, while facing increasing complexity in the food chain, globalization, and multi-state outbreaks of foodborne illnesses. Ward outlined the food safety programs at the National Center for Agricultural Utilization Research in Peoria, which focus on developing information and science-based solutions for detecting and removing toxins from food and preventing toxin contamination of food.

Finally, an industry panel, moderated by Matthew Botos, Illinois Science & Technology Coalition, focused on specific firms’ roles in the field of food safety and the opportunities for technological innovators. Justin Ransom, OSI Industries, shared experience gained from running the Food Protection and Quality Systems group, which oversees a global network of food manufacturing plants that handle both raw materials and finished products. Greg West, National Pasteurized Egg Inc., talked about his firm’s rapid growth to meet the demand for safer eggs (especially from restaurants) through innovative technology that maintains the look and taste of fresh eggs while extending shelf life and eliminating salmonella. D. J. Alwattar, Northland Laboratories, outlined his company’s specialized testing expertise, which provides a key component in the industry’s push to meet the challenges of food safety through innovation.

Upcoming Midwest “Clean Tech” Conference Announcement

On September 14, a related meeting at the Federal Reserve Bank of Chicago will focus on innovations in “clean” technology, including those that affect the food industry and agriculture. Organized by the Global Midwest Alliance, “Midwest Clean Tech 2011” will have a particular focus on global issues for innovation partnerships.