US farmers' woes being felt down the agribusiness line
Economic troubles on American farms have begun to spread to related businesses -- rural stores and giant food processors, farm-equipment makers and shippers of grain. While some sectors of agriculture have not been affected, trouble in the nation's largest industry is evident. This week at an agribusiness symposium here in Memphis, businessmen and economists expressed their gloom.Skip to next paragraph
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``The outlook is dim,'' says Dick Gady, corporate vice-president of economic research at ConAgra Inc., one of the nation's largest agribusinesses. ``We've got some businesses that are doing terrible.''
``You've already seen a lot of bankruptcies,'' adds Russell J. Bragg, group vice-president of Pillsbury Company.
And the outlook for 1985 is scarcely better, these observers add. The latest sign of trouble: On Tuesday, the nation's largest farm-implement manufacturer, Deere & Co., announced a $28.2 million net loss for its last quarter. One reason: significant losses in North American farm business, which already has forced another big farm machinery maker, International Harvester, to sell its implement division to Tenneco Inc.
Other agriculture-related industries are also hurting. Pesticide manufacturers are operating at about 47 percent capacity, down from 80 percent five years ago. Fertilizer production is down. Soybean processors are at 64 percent capacity -- down from 80 percent.
In one recent year, sales by a big grain-bin manufacturer dropped by 80 percent, but the company still gained a greater share of total sales because the market was so depressed.
The future, agribusiness executives say, depends in part on the shape of 1985 farm legislation. Many companies and grain users lost heavily in 1983 because of the payment-in-kind (PIK) program, a huge effort by the federal goverment to reduce planted acreage. Now, agribusi- nesses are paying more attention to legislation.
``Ever since the PIK program, we've taken a much closer look'' at farm policy, says George Watts, president of the National Broiler Council, which represents the nation's large poultry companies.
Here at the seminar -- the first on agricultural policy sponsored by Agricenter International, a new international marketing center for agribusiness -- the thrust of a consensus approach among agribusinesses emerged: Lower domestic price supports so that the United States can compete in the growing world market.
Agriculture Secretary John Block agrees with this approach. So do many economists, who argue that the US export boom of the 1970s was an unsustainable bonanza and helped encourage US farmers and agribusiness to overinvest. Now federal price supports -- which, in effect, set the minimum price for a commodity -- are too high in relation to the rest of the world, the economists add. And the market is the best way to signal that resources should shift out of agriculture.
But this direction in farm programs runs counter to the thinking of many financially strapped farmers. Many cannot make a profit even on current prices, partly because they are making high interest payments. Several farm groups are pushing for programs that would restrict US production in order to raise prices.
Not surprisingly, many agriculture-related companies oppose this approach, which would mean reduced business for many. Already, ConAgra estimates that 500,000 jobs have been lost in the past four years due to the drop in farm exports. Most of those jobs were in agribusiness, ConAgra's Mr. Gady says.
While agribusiness executives are pushing for a decrease in support prices, many also are calling for help for the farmer. ``We're in a huge area of disinvestment,'' said Thomas N. Urban, president of Pioneer Hi-Bred International, in a recent interview in Des Moines. ``Talk about disinvestment! . . . Billions and billions of dollars have disappeared from the balance sheets.''
``The solution resides, I think, on the balance sheet, not on the income statement,'' Mr. Urban says. A few such solutions -- beyond the modest program already put in place by the Reagan administration -- are being discussed.
Farm land values have fallen by an estimated 50 percent or more in hard-hit areas such as Iowa. And economists warn that further drops in land values could jeopardize farmers who are currently considered moderately indebted. But the aid that these agribusiness executives are calling for would help stretch out their interest payments, not make unprofitable farmers more profitable.
Clayton Yeutter, president of the Chicago Mercantile Exchange, wonders whether Congress and agriculture be willing to suffer short-term punishment for long-term benefits. Mr. Yeutter says he believes Congress will lower support prices. But for many farmers already in trouble, this solution seems unpalatable.
``Nobody in Washington, in the administration anyway, seems to have a real grasp of what's going on,'' says Bill Ramsey, a western Illinois farmer who has decided to find other work. With current land prices, he says, he couldn't make a profit if corn prices fell 70 cents, to $2 a bushel -- even with no debt. ``The solution's got to come in profit.''