Agribusiness and Change: Or thanking T. Rex for your Breakfast

You  know, I’ve never liked the term “agribusiness”. Business has always been a component of agriculture. Yes, it entails land stewardship, and crop science, and just good, old-fashioned hands-in-the-dirt work. But those of us who do it for a living have no reason either to feel apologetic for wanting to make a profit, or feel inferior because we don’t wear expensive suits in a glass and chrome office. “Agribusiness” is useful for vilifying corporate farming, or for making insecure farmers or businessmen feel more important. I’m not much interested in either.

What I am interested in is a return to grass roots, bottom up, entrepreneurial farming. And while I appreciate the support and enthusiasm of foodies, academics and policy wonks, what we really need are people who have an enthusiasm for this business. In the part of my life spent in Silicon Valley, I observed an ethos that changing the world and making a profit did not need to be mutually exclusive. In fact, it was generally felt that making the world a better place was precisely what entitled you to significant financial rewards. (I’ll grant that some people in the Valley got a little bit drunk on this Kool-Aid, but I still like the philosophy, at least in moderation.)

This is why I was very happy to read a piece that Rob Smart posted on Civil Eats. Real change will not come externally and it will not come with a single lightning bolt from on high. Farms and small businesses will be the ones that create the models and the relationships and the innovations that will transform our present food system, just a bit at a time, until we have something much better than we have today. While I hope the pace of change will be rapid, I do believe it will be evolutionary, not revolutionary.

Let’s imagine the food system we want as being represented by a chicken.

Small. Adaptable. Friendly. Managable. Chickens are the embodiment of local scale. There is a reason that they are the iconic emblem of the idealized happy barnyard.

But what is the ancestor of this chicken? The fearsome Tyrannosaurus Rex.

Huge. Predatory. Not very pleasant to interact with, I would imagine. A good representation of today’s food system perhaps? I think so. How did we get from T. Rex to the Rhode Island Red?

Despite the occasional meteor or ice-age, it happened just one little innovation at a time.

When Local Food will Work

Without making a conscious decision to do so, I have divested myself from major banks. I no longer own Citigroup stock, and I no longer use BofA for my business banking. I belong to a credit union, finance my farm within the Farm Credit system, and am a customer and minor shareholder of our local Santa Clara Valley Bank. With all the turmoil these days, many critics of our financial systems say this is the right approach to take. It is what we should do. But I didn’t do it to make a political statement or encourage an alternative financial structure for our nation.
I did it because it works. Today I enjoy all the technological conveniences that used to be the domain of the big banks. Online billpay and transfers, ATM access all over the world… you name it. But I get much better service from people who not only know my name, in some cases they even know my dog’s names. Such is community banking in a small farm town. I get the chance to talk with the bank’s CEO on a regular basis as we serve together on several community projects. I would have needed a lot of money on deposit with Bank of America to get that kind of access.
What does this have to do with local and regional food? Right now, a number of people advocate for a local and regional model for our food system. It is what we should do, they say. Very possibly they are right. But in food, as in banking and energy (the other tack I could have taken for this piece) , we don’t do things just because we should. We go with what works for us.
Currently, local food systems fall short. Sure ,we have the Farmer’s market system, and a few CSAs, but access is a real issue. A few consumers with the knowledge, extra time, and disposable income gain the benefits… they get to meet their farmer. But this system hasn’t yet shown the ability to rival the mainstream. But it is growing and getting better. You still need to make sacrifices to eat locally but not to the same degree as just a couple of years ago. So maybe the day is not far off, when this is no longer something we “should do”, but simply “do.”
That will be when local food works.

About SOAR

I am a believer in representative democracy, which is the more positive way of saying I am not a fan off California’s all-pervasive initiative system. As practiced today, this system represents and failure of our elected officials to exercise the wisdom and judgment that the voters should rightfully expect. Instead we get endless campaigns pushing narrow special interests, distorted demagoguery and finally, just plain bad policy.

A favorite local example for me is the Ventura County SOAR complex. I call it that not to make it sound ominous, but because I think it is a real mess. SOAR stands for Save Our Agricultural Resources. But it applies to a series of City ordinances governing the potential conversion of agricultural land to other uses, a county ordinance with the same objectives, and a non-profit advocacy organization of the same name. The term is also used generically to apply to active members of the organization and/or the roughly 70% of Ventura County voters who can be relied upon to vote for just about any “no-growth” ballot initiative. Since two of our 5 County Supervisors are SOAR Organization founders and Boardmembers, people frequently (if imprecisely) consider the County Government and SOAR synonymous as well.

I hope anyone who knows me or regularly reads this blog believes that I am concerned with the long term economic viability of agriculture in Ventura County. So why would I have issue with a program intended to preserve agricultural land? Frankly, because I think that it does little to advance the goal, while restricting options for agricultural landowners (not always the same thing as a farmer).

Even my most organic and liberal farming friends (Yes, we have them here in Ventura… I know conventional farmers who own Priuses!) start to sound a little libertarian when it comes to property rights. This should be understandable. After several generations of carefully stewarding an asset that typically represents nearly the entirety of their net worth, farmers don’t like to see its value diminished. For a farmer, the land is not just a job, it is a family heirloom, legacy to the children, and retirement plan. Sadly though, if a farmer opposes SOAR his concerns are pretty airily dismissed. After all, his financial motives seem clear enough.

Those of us in Agriculture bear some responsibility for this. When SOAR was being rolled out in the mid ‘90’s, we generally failed to engage in the debate. No point dignifying such hare-brained scheme. We did not engage or propose alternative means to similar ends, which are surely one that most remaining Ventura Farmers can embrace. We want to see Ag continue here. We are literally working toward that goal every day.

What to do now? Item one is engagement, and this has already begun. At our County Farm Bureau annual meeting last week, SOAR architect and County Supervisor Steve Bennett was our keynote speaker. He explained the world view of our “urban friends”. In a Q&A session that followed he heard some of the rural worldview. I think there were moments where it was quite clear that neither side had any idea what the other was saying. But both frustration and a desire for cooperation was evident on both sides of the podium.

Item two is for those of us in agriculture to really begin to get serious about the policy directions that frankly acknowledge the desires of the urban majority in this county, while being a fair and workable system for those on the land. To this point, the debate has largely focused on a false choice between SOAR or no-zoning anarchy and unlimited suburban sprawl. We need a richer palette of choices. I agree with their desire for continued agriculture, and believe that local government has a role in shaping land use. There narrow point on which we differ is that in a county with greenbelt ordinances, Williamson Act restrictions, and notoriously cumbersome planning and zoning processes, SOAR believes that an additional layer of ballot box planning review represents leadership in stewardship of the land. I feel it is bureaucratic overkill. Let’s make something better.

Having been pretty tough on the “SOAR complex” let me contradict myself and acknowledge the real passion and commitment for the continuation of agriculture that I have seen from some of the individuals within SOAR’s leadership.  Specifically, I want to thank Karen Schmidt, SOAR ‘s Executive Director, for exhaustive work that she has done in support of the Ag Futures Alliance. A typical knock on SOAR is that it is a one-dimensional means to preserve pretty viewshed for the suburbs. Karen’s efforts in developing new economic opportunities for farmers with local and regional food systems contradict this view. I have enjoyed working with her for nearly 6 years, and I hope that her systematic approach to all the whirling variables in this complex system will be a model for others, even while she and I continue to argue about the details.

Lemonomics

So why is it OK for 25 to 45% of Ventura County lemons not to be sold as fresh fruit? The first thing to know is that demand for lemons is pretty inelastic. Simply put, consumers know how many lemons they are going to buy, and changes in price don’t tend to influence buyer behavior very significantly.

On the one hand, this is great. Even a relatively small shortfall in lemon supply tends to make for very good prices. Unfortunately the reverse is also true: small surpluses drive prices into the toilet.

 The industry’s safety valve is the market for processed lemon products: Lemon juice, lemon oil and citric acid. These lemon products have a great range of uses, but it would never make sense to grow lemons just for this market. The prices are horrible. But for fruit that would otherwise be culled, it makes perfect sense. Fruit that is damaged, scarred, deformed or off size can be sold and utilized, recapturing a few pennies for the grower from what otherwise would be waste. Processors very readily will absorb more fruit with even slight pricing adjustments.

At a certain point is became clear that surpluses of better quality fruit could be diverted to these markets as well, helping to manage inventory levels of fresh fruit.  A quick (and very simple) example:

Let’s say you have two tons of lemons: You can sell one fresh for $500/ton, and one for products at $10/ton. Obviously, it is vastly preferable to sell it all fresh. But let’s suppose that this isn’t one grower’s harvest of lemons but the whole industry. If you sell one ton each for fresh and products, you get $510. But what if you try to sell it all fresh? The price is forced down. In the exampe, lets assume that it hits $250/ton. Selling both tons fresh yields $500, not $510. But if you withold a quarter ton from the  fresh market, and sell .75 tons fresh, and 1.25 tons for product, price rises of $800 a ton. You would gross $606.25, even if the product fruit dropped by 50%.

The numbers above are approximate, and this is a market that fluctuates constantly based on weather and several points in the globe, exhange rates, energy prices, consumer confidence and many other factors. But the bottom line is this: in lemons it pays to overproduce and use the product market to modulate inventories of fresh fruit. At the February 2009 AFA discussion of economics the number was thrown out of 55% fresh. My experience is that the fresh percentage is typically closer to 70%, even though I used 50% in my example above.

A final note on the topic. Overproduction of lemons is not subsidized by the taxpayers in any way. It is simply a market based solution to meeting the demands of two very different customer bases: the consumer who wants consistently beautiful yellow fruit year round (which Ventura County is able to provide), and the processor who needs a cheap source of raw materials. The grower, while always grumbling about the crappy product prices, enjoys a relatively stable market and pricing structure for the fresh fruit that is their bread and butter. Were inventories allowed to flucuate as much as they would without the outlet for surplus fruit, a single bumper crop could drive a lemon grower to insolvency.

Defining Economic Viability

Many discussions of sustainable agriculture don’t seriously address the economic viability of commercial agriculture. Without a prevailing definition of economic viability as it relates to agriculture, I offer the following.

Economic viability means that the real returns from farming operations, relative to the farm’s asset value and labor inputs, are competitive with other small business, career, or investment alternatives.

If you are willing to take this statement at face value, you need read no further. For those who do not, let’s the critical points of this statement .

By “Economic returns from farming operations”, I mean actual earnings after expenses, taxes, and debt service, not simply gross revenue. Income should be derived from the actual farming activities and crop production. While non-crop income in the form of agritourism, workshops, books, carbon credits or government subsidies may provide welcome assistance with incremental income, they cannot sustain a healthy agricultural industry by themselves. Farming is the defining characteristic of a farm; it must succeed on that basis in order to be viable. You can get money for recycling wine bottles, but that is not why reasonable people buy wine.

The farm’s asset value is an important consideration. If farming is not the highest and best use for the land, there will always be pressure for its conversion to other purposes. The proper yardstick of a farm’s economic viability is the return relative to its current value, not what it may have been purchased for a generation ago. If presented with the check for value of an acre of Ventura County farmland, would the rational person want to invest it in agriculture?

Why must agriculture be “competitive with other small business, career, or investment alternatives”? There is no need to keep individual farmers, or even individual families in agriculture. For a healthy agricultural economy, people must be free to opt out, and others must be willing and able to buy in. Agriculture must offer a reward to business people, workers considering their career options, or investors looking to place capital. If it does not, the system will not be healthy and sustainable for the long-term. All people make choices about where they will commit their time and money.  Since slavery is illegal, and farmers are mortal, new people must be willing to participate. Not everybody needs to become a farmer; but agriculture must be a reasonable choice for at least a portion of the population.

Is agriculture economically viable in Ventura County today, based on this yard stick? I don’t think so. To be sure, there are farmers making money in the county. But often they are helped by the low cost basis of land bought long ago. Others may accept minimal returns from farming as the price of living in our beautiful agricultural areas. Or they may even be willing to accept losses from farming in anticipation of the eventual conversion of their property to a more valuable use. None of these scenarios would support agriculture in perpetuity.

Can Ventura agriculture again be viable? I believe it can, but that is by no means certain. What does seem certain is that costs will continue to pressure farmers. To succeed, farmers must be able to outpace any rise in costs. Changing crop mixes, consumer preferences, distrust of foreign food products, and a favorable exchange rate are among the indicators that suggest that this is possible. With Ventura County’s soil, climate and history of innovation, there are few places with better potential for economically viable agriculture.