Monthly Archive:: August 2015

A report from the United States Department of Agriculture states that farms of all sizes spend more on indirect energy inputs like fertilizer and pesticides than on direct energy inputs such as fuel and electricity. Data from the Agricultural Resource Management Survey shows that 17.1% of operator expenses are put toward indirect energy, compared to the 8.5% for indirect energy.

Small farms have the highest share of direct energy expenditures, medium farms have the highest share of indirect energy expenditures, and large farms spend less overall on energy. Larger farms spend more overall money on both of course, but they have lower shares of their total resources devoted to energy presumably because they require fairly high labor costs to run and maintain. As you can tell by the figure above, fertilizer tends to be the form of energy input that farms spend the most on. In the U.S., farmers usually use inorganic fertilizer. It provides macronutrients to the soil in the form of compounds. Far and away the most common macronutrients are nitrogen (N¬), phosphorous (P), and potassium (K). Multinutrient fertilizers that have two or more nutrient compounds are generally the most common. Usually you get NP or NPK fertilizers (nitrogen and phosphorous or nitrogen, phosphorous and potassium respectively). Making nitrogen fertilizer is pretty energy-intensive. It involves a method called the Haber-Bosch process that uses a lot of natural gas, converting atmospheric nitrogen (N2) to ammonia (NH3) through a hydrogen reaction.

Clean Power Plan

As recently as August 3 of this year, president Barack Obama unveiled the final version of the Clean Power Plan. The plan, ambitious in its scope, aims to cut CO2 emissions by almost a third by the year 2030. He put the effect of the reduction in quantifiable terms by saying the projected reduction of carbon emissions would be similar to taking 166 million cars off the road. Every state will be tasked with a certain standard for emission-reduction, and they’ll all need to submit plans with ideas as to how to meet them. States can reduce emissions through any means, and must submit proposals to the federal government by 2015, lest the EPA devise one for them. The plan is aimed specifically at coal-burning power plants. It’s the latest attempt by the federal government to try and shift the country’s emphasis from coal to alternative forms of energy such as solar and wind power, as well as natural gas. Predictably there are many opponents to this bill in the energy industry, especially in places like West Virginia, Kentucky, and Wyoming where the coal industry is a vital part of economic configuration. Needless to say, it wouldn’t be a surprise if some of these states refused to comply with the EPA’s request for carbon-reduction proposals. Some might say that a federal mandate will be more effective at reducing U.S. reliance on coal. Certainly if you’re a legislator at any level in one of the aforementioned coal-heavy states, chances are a large part of your constituency is employed or in some way related to the coal mining industry. It’s such an entrenched part of life in certain areas that even if you wanted to begin addressing it, you’d have to think about the short-term effects it would have on your political career and chances of reelection. But what does this mean for you if you own rural land in the Greater Charlottesville area?

Effects of climate change and the Clean Power Plan on the agricultural sector

The Clean Power Plan will probably increase energy expenditures, both direct and indirect. The price of commercial electricity tends to increase rather modestly. On U.S. farms, the rate of electricity use remains fairly consistent. If you own farmland in central Virginia you probably already know this, but a lot of the power bill goes to the heating and cooling costs inherent in livestock production. There’s also the use of irrigation systems and sometimes other procedures involving water pumping. Then you’ve got security, which often comes in the form of an electric fence. Then in some cases you have to think about refrigeration and feeders/sprays. For livestock, poultry has the highest share of electricity spending while hogs have the highest average. For crops, cotton and rice farmers tend to have the highest share of electric spending.

An increasing amount of United States electricity comes from natural gas. It’s certainly used more than it was a few years ago and that usage is projected to increase. In 2004, coal was responsible for generating 50% of the country’s electric power, with natural gas at 18%. As of 2013, coal is down to 39% and natural gas is up to 27%. With measures like the Clean Power Plan and a general growing awareness of climate change and its adverse affects, natural gas is sure to play a bigger role. If you’re looking at it from an agricultural lens, consider that the use of natural gas makes up about 80% of fertilizer production costs, especially when we’re talking about nitrogen fertilizers. It’s worth noting that 50% of the United States supply of nitrogen fertilizer was imported in 2011, most of it from Canada and Trinidad and Tobago. Still, if you consider the ripple effect that the Clean Party Plan is expected to have, the costs of natural gas may go up in a considerable amount of places. Some good news for those of you reading this on your Madison County farms is that the Southern Seaboard has a relatively low share of fertilizer expenditures (though we do spend the most on electricity). Plants who use natural gas to generate electricity will in the coming years have to ramp up their supply considerably in order to meet EPA standards. This means the price of natural gas will rise. The EPA definitely projects that the Clean Power Plan will increase commercial energy prices.

So what does this mean for you and your farmland in the Greater Charlottesville area? American farmers are notoriously good at adapting to outside conditions, be they economic or otherwise. Many farmers will probably respond to this either by taking on more energy-efficient practices or scaling back production. Admittedly, climate change takes its toll on agriculture. Climate disruptions to agriculture have increased in the past 40 years. Heat stress in livestock can increase susceptibility to diseases, reduce or impair fertility, and decrease milk production. Temperature changes may also increase the prevalence of parasites and diseases that affect your livestock. An earlier onset of spring could allow some pathogens to live longer. In rainfall-heavy places, moisture-reliant pathogens could start to thrive. There are also obvious considerations when it comes to heat and food storage and transportation.

Fortunately, the agricultural industry is resilient and malleable, and farmers aren’t shying away from alternative energy measures. Consider that the number of on-farm operations intended to produce on-farm renewable energy doubled between 2008 and 2011…guess the times they are-a-changin’. Farmers are looking towards sources of alternative energy that they can rely on themselves to produce: resources like solar panels, wind turbines, and methane digesters. There are also different farming techniques that could save money/energy in the long run. For example, precision agriculture. According to the Natural Resources Conservation Service, if GPS were used on just 10% of planted acres, it would save 16 million gallons of fuel through increased efficiency. Auto-steering (equipment guiding), field mapping…these are worthwhile endeavors.

Solar power—in the form of photovoltaic cells—is another viable alternative to coal and natural gas. Especially considering that the use of energy on farms is typically motor-generated, this could and already has been a benefit to farmers. You can use it to power water-pumping systems for both irrigation and livestock. It could power those systems whether they were above or below ground. Especially in places with no power lines, it’s a definite way to generate and use electricity and it also happens to be environmentally stable.

Cropland in the U.S. is now more consolidated than ever

The United States Department of Agriculture reports that half of U.S. cropland is now concentrated on farms with 1200 acres or more. The mean acreage of farms has changed only slightly over the last 30 years, hovering around 250 acres in the years since 2007. Since this figure belies the actual changes that are happening in U.S. agriculture, a new term has been devised to accurately reflect the industry. Midpoint acreage is the point in which half of all cropland acres are on farms with more cropland than the midpoint and half are on farms with less. It’s a much better indication of where farms are going in this country. The midpoint acreage for U.S. farms doubled between 1982 and 2007, from 589 to 1105, meaning there are less farms in the middle and a greater number of farms that are either small or very large. The midpoint acreage has increased to some extent in 45 out of the 50 states (declines occurred in Hawaii, Alabama, and southern New England). The midpoint acreage more than doubled in 16 of those states…12 states in the Western Corn Belt and Northern Plains States had the largest increase. But with regard to farms and rural estates in the Greater Charlottesville area, it’s worth noting that states in the Appalachian and Southeast regions used to account for 18.5% of all cropland in 1950 and now account for 11.2% (as of 2007). This is in part related to the decline of cotton and tobacco acreage, central cash crops to these areas in the past. The midpoint acreage doubled in corn, rice, soybeans, and wheat. There is some evidence to suggest that cropland consolidation may have slowed between 2007 and 2011, with the number of small farms on the rise again, due to a rising consumer demand for local crops and popular choices by people who want to combine rural life with small-scale, part-time farming. Here we’ll look at why consolidation happens and what it means.

So the midpoint acreage, which is a more accurate way to track and evaluate cropland consolidation, has risen by over 100% in 16 states. It’s evident that our agricultural systems are geared to larger farms, pretty similar to the advantages that large chain retail outlets have over small businesses. The biggest increases were seen in states where most of the land was cropland, and especially in states where crop fields were likely to be large and contiguous. The trend towards consolidation also favored areas with lower population densities, as more land is available for cultivation and there is less competition with the housing sector.

Technology

The advent of technology is one of the main things fueling cropland consolidation in this country. In agriculture as opposed to other industries, it’s less about economies of scale (the cost advantages that come from being a large organization, usually results in the price per unit of output going down as expenses are spread out over larger levels of input). Here we’re talking more about inventions that save labor and allow labor to be repurposed for other things. This eventually leads to the farming of more acres. These inventions don’t even necessarily need to favor larger farms; they just need to result in the expansion of cropland in general.

The tractor has been around since the early 20s. It proved to be one of the most revolutionary agricultural inventions of the century. By 1960, tractors had replaced 23 million draft animals, and the 79 million acres of land required to feed them had been converted into commercial cropland. It also reduced the labor required to produce agricultural output for 1960 by 1.7 million workers, 24% of the workforce in that year. The ones who remained working were used for several other labor-intensive jobs on the farm, and—most central to the point of this discussion—labor went to farm expansion. Mechanical harvesters are also worth mentioning here, speaking to the effects of mechanization on farm expansion. Bigger, faster equipment is most valuable where fields are large, flat and contiguous…the Western Corn Belt, the Plains, the Mississippi Delta etc.

Pesticides were another labor-saving innovation that made a huge impact during the 20th century, especially chemical herbicides. The sale of chemical herbicides climbed from 35 million in 1960 to 469 million in 1980, with farmers substituting using the chemicals in lieu of more labor-intensive methods of weeding and crop maintenance. With the amount of labor/acre required, farmers could manage even more land, thus resulting in expansion.

The advent and influence of precision agriculture are still difficult to measure, but it will doubtlessly have an impact on farming if it hasn’t already. The ability to measure, account for, and respond to crop variability both on and off the field will eventually save farmers considerable time and labor. Crop variability has both spatial and topological considerations. GPS technology has already proven to optimize returns while reducing the amount of resources necessary to complete given tasks. Farmers can already create spatial representations of their fields in the form of maps that are related to yield, the form of the terrain, topography, moisture and nitrogen readings, etc. Specific technology that’s already available includes pest monitors that track and identify the presence of pests at spraying time, auto-steering and guidance systems for tractors, and laser guidance for field leveling and drip irrigation. As it’s a fairly recent development, precision technology can’t really account for the extent of cropland consolidation up until this point, but there can be little doubt that it will become integral to farming practices. At least at present, these innovations are accessed through capital technology, so there are certainly elements of a scale economy here. The cost of such technologies gets distributed among a larger share of output.

Differences in farm organization/specialization

For the first half of the century, most farmers worked with both crops and livestock. Toward the middle of the century, there arose a trend towards specialization. The first manifestation of this was the separation of livestock and crops. Since the tractor essentially replaced animal husbandry, farmers started to choose between either work with livestock or with crops. Now as of 2000, less than 30% of crop farmers have chickens, cows, or hogs and those that do tend to choose one species. This shift affects the crops that farmers choose to grow. Most farmers had to grow crops with which to feed their livestock, mostly corn. This specialization led to more free time for farmers; those who wished to work full-time were able to devote more time and resources to expand their acreage. Focusing on one crop means that farmers can invest in more specialized equipment and cultivate crop-specific knowledge for production savings. It would also make sense to grow crops that required similar soil characteristics.

Specialization isn’t always the safest bet, however. It carries greater risks. The fewer crops you have, the more susceptible you are if your crop fails for whatever reason. Crop blight, climate or soil issues, or unfavorable price flux on one end or another…these are all risks. Diversification brings advantages, especially if your main crops are harvested at different times of year. Farmers can reduce the number of pests and improve soil quality through rotating crops in and out of fields. Farms in the U.S. tend to balance the advantages and risks of specialization by focusing on a few crops. Most of them aren’t completely specialized, but most of them aren’t very diversified either. 22% of crop production occurred on farms that produced only a single crop and 30% occurred on farms with just two crops. To protect against the risks, many farm transactions are organized through contracts between farmers and buyers. They reduce financial risks by providing a secure outlet for output and making farmers less susceptible to price flux.

Contracts and federal policies

Agricultural contracts are also relevant to the discussion. Production contracts (more related to livestock production, nonetheless pertinent to the discussion). They specify services provided by a farmer on behalf of a contractor. The contractor owns the commodity while it’s being cultivated by the farmer. Production contracts stipulate services provided, the manner in which the farmer gets compensated, and the contractor’s responsibility to facilitate production. Marketing contracts are more relevant to crop farming. They focus on the product itself rather than the services. They set prices, delivery outlets, and quantities. Other kinds specify specific methods for determining price, reducing a farmer’s exposure to sudden price flux. There are contracts out on 40% of all crop production in the U.S. and, predictably larger farms are more likely to use marketing contracts.

Tax policies can affect the prices for capital goods, making them cheaper. If it helps farmers buy more capital equipment, we can assume that possession and mastery of this equipment will eventually free up time and resources for farmers who will then expand their acreage. USDA lending programs extend credit to farmers who may not be able to obtain them elsewhere…in that way, they also limit cropland consolidation by giving smaller farms a chance. 40% of the funding for the mechanized tomato harvester was funded by the government, so we can see that the government makes certain technologies available that encourage cropland consolidation. The Food Safety Modernization Act of 2011 gives the FDA new enforcement authorities. They apply new standards for growers of fruits and vegetables and impose higher costs on farms that fail to meet these standards. Those that sell the majority of their products directly to consumers or retail outlets within 275 miles of their farms or have $500,000 or less in annual sales are often exempt. So the government’s role in agriculture can work for or against cropland consolidation.

The future

The biggest farms in the U.S. are huge…some of them in the low hundred thousands and growing (if this research on cropland consolidation is any indication). Despite this, the family farm is still king in America. Since family farms are considered such solely because of their ownership, 96% of U.S. crop farms are considered family farms. 87% of the crop value of is produced by these family farms. There isn’t really any evidence of systemic decline of the family farm in the U.S., unlike other countries. Families can manage huge operations, but land is only getting more expensive. The cost of land and the cost of capital equipment represent extremely high startup costs before a farm can be successfully up and running. You can rent or lease a lot of the necessary capital, but it’s still pretty risky to tie one family’s livelihood up in one massive venture like that. Precision agriculture reduces the advantage of family farming in that the optimized technology often undermines a family’s localized knowledge. Not only that, but farmers or family members won’t be as adept at using capital technology from the onset and will have to rely on outside help and contracted managers at first. Nevertheless, there is nothing to indicate that family farms will go anywhere in the U.S., although maybe we should start calling them extended family farms.