Bacon's Rebellion

James A. Bacon

Virginia doesn’t have much to show for its massive investment in agricultural productivity. It’s time to change priorities.

In 1831 Cyrus McCormick, a Shenandoah Valley farmer, invented the mechanical reaper. The ingenious horse-drawn contrivance represented a spectacular breakthrough in agricultural productivity: It performed the work of four to five men wielding hand-held scythes. McCormick began building the machine in his blacksmith shop, but the business opportunities grew far beyond Virginia. In 1847, he moved to Chicago, where he founded one of the largest manufacturing companies of the era -– later known as International Harvester -- to serve the vast wheat farms of the Midwest.

Nearly two centuries later, Virginia gave rise to another innovative agricultural company, CropTech. Exploiting research conducted at Virginia Tech, the company mass produces pharmaceutical proteins by converting tobacco plants into molecular factories. The technique represents a promising alternative to traditional methods for manufacturing complex biochemical compounds, and CropTech has ambitions to become a major player in the pharmaceutical industry. Unfortunately, management announced its decision two months ago to relocate the company to Charleston, S.C.

Virginia agriculture has a history of inventiveness. But other than the cigarette industry, now under siege, and to a minor extent the poultry and ham industries, agriculture hasn’t spun off many wealth-creating opportunities for the Old Dominion. That’s not for lack of state support. Remarkably, the General Assembly allocates as much money to promote the farming/forestry sector as it does to boost manufacturing, tourism, advanced technology and general business assistance combined – oblivious to the fact that farming in this state contributes less than half of one percent of Virginia’s gross state product and shows every sign of sinking in insignificance.

This year, despite budget cutbacks, the state is budgeted to spend $142 million from the General Fund promoting business, as opposed to regulating it or supporting it indirectly through the support of transportation and education. Remarkably, half that amount, about $71 million, goes to agriculture and forestry. Of that, the lion’s share is spent for the benefit of the state’s 49,000 farms -- more than $1,000 per farm!

I don't know the history of how Virginia's agricultural sector came to be so favored. Perhaps the agribusiness lobby has been especially tenacious in defending its turf. Perhaps legislators regard agriculture programs as one of the few remaining pillars buttressing Virginia’s ailing rural economy. Whatever the reason, Virginia’s policy makers need to ask hard questions about why they are devoting disproportionate resources to such a small and slow-growing sector of the economy.

State support for agriculture runs through three main channels. According to Department of Planning and Budget summaries, about a third of Department of Agriculture and Consumer Affairs budget, or $8 million, is dedicated to promoting agriculture and seafood. Roughly 40 percent of Department of Forestry’s budget, or about $6 million, is spent on improving and renewing forest resources. And the vast majority of the Virginia Cooperative Extension program, or $55 million, goes to agricultural research and the dissemination of information to farmers.

By contrast, Virginia has allocated about $40 million to recruit out-of-state industry through marketing and a deal-closing fund. It invests another $17.7 million to promote university R&D and technology transfer for non-agricultural research in such burgeoning fields as information technology, advanced materials, biotechnology and nanotechnology. To promote manufacturing best practices to the manufacturing sector, which comprises almost 14 percent of the state’s economy, Virginia contributes a grand total of one quarter million dollars to the Philpott Manufacturing Extension Partnership.

George Norton, a professor in the Department of Agriculture and Applied Economics at Virginia Tech, contends that the investment in the Agricultural Extension program is a good deal. He’s conducted detailed studies of agricultural inputs, such as land, labor, capital and technology, with the aim of sorting out the contribution of agricultural R&D. Despite the fact that the pay-off from research can take 10 to 15 years, he estimates a 50 percent rate of return for R&D and a 33 percent rate of return for extension programs. Virginia farmers are far more productive and competitive in global markets than they would have been without the state support, he says.

When he calculates rates of return, Norton adds, he’s only looking at financial return. But there are significant environmental benefits to the research which he can't measure. Farming is getting so productive that marginally productive farmland, often subject to erosion, is being taken out of production. The environment also benefits from research into integrated pest management, which enables farmers to boost yields while using fewer pesticides and fertilizers.

As just one example, Norton cites research into “early leaf spot,” the bane of peanut farmers. In the past, farmers regularly sprayed their crops every 14 days as a preventive measure. But the extension service now issues a spot advisory when environmental conditions are favorable to the disease. Now farmers spray only when they receive an advisory, reducing their use of the leaf-spot pesticide by a third.

Virginia Tech is responsive to changing priorities, Norton says. “The research we’re doing now is very different from what we did 20 years ago.” There’s more emphasis these days on the environment, for instance, and much of the research verges on biotech.

Without question, the Agricultural Extension program makes a vital contribution to Virginia's farm economy. Unfortunately, farmland productivity has not led to rural prosperity. Virginia farms, like most U.S. farms, are so hyper-efficient that bountiful yields of crops and livestock produce chronic surpluses, which in turn depresses commodity prices. As a consequence, farm incomes are low and unstable. On a national level, Congress has intervened with expensive subsidies and market-structuring programs to keep farmers in business.

In Virginia, the rewards of farming are meager. According to the Virginia Agricultural Statistics Service, state farm assets (including land) amounted to $19.8 billion in 1999. Virginia farmers were not burdened with excessive debt – only $2.1 billion. Equity amounted to $17.7 billion, giving farmers stronger balance sheets than most companies on the New York Stock Exchange. Yet in 2000, farmers generated a net farm income of only $642 million, a return on equity of 3.6 percent – and 2000 was a good year! Even more dismal, farmers paid themselves only $411 million in employee compensation.

Put another way, the average farm in Virginia yielded $8,400 per farmer (assuming one farmer per farm on 49,000 farms) in compensation and $13,000 in business profit on a $350,000 equity investment. Admittedly, averages conceal a wide range of variation. At the top of the scale are large, highly productive operations run by full-time farmers. At the bottom are hobby farms requiring little effort and generating little revenue. According to the 1997 Census of Agriculture, the numbers broke out like this in Virginia:

Remember, profits amount to roughly 25 percent of statewide farm sales. Assuming that larger farms are more profitable than smaller ones and pay more in compensation, it’s conceivable that farming in Virginia supports a middle-class existence for 5,000 to 8,000 families, but no more.

Although the number of farms has held steady in Virginia over the past decade, full-time farmers are growing older and their children are seeking more attractive avocations. Increasingly, it appears, farming is becoming a part-time occupation. Blue-collar workers supplement their factory wages with a small plot of tobacco. Retirees grow grapes to sell to local wineries. Urban refugees move to the exurbs, raise hay to feed their horses and sell the surplus.

Farming is becoming a more of lifestyle in Virginia, a form of conspicuous consumption, and less a livelihood for raising a family. It’s less than obvious that the state should be investing more than $57 million annually to elevate serious farmers to ever-increasing heights of productivity, surplus and depressed prices, much less to dispense advice to affluent lifestyle farmers.

Let me be clear. I don’t advocate dismantling of the agricultural extension program. But we do need to think more rigorously how the money is being spent, and policy makers should be prepared to reallocate ag funds to generate greater social and economic benefit.

We should be asking questions like these:  

• How many farmers benefit from ag programs, and who are they? Morally, it’s more defensible to help full-time farmers who raise crops and livestock for their livelihood than to subsidize rural Yuppies. But does the small number of full-time farmers justify such extravagant support?

• Does ag research create affluence, or does it simply keep farmers on an endless treadmill of rising productivity, commodity gluts and depressed prices?

• Does ag R&D create proprietary technology that can be converted into non-farming business opportunities, like a McCormick Reaper or a CropTech, that attracts investment capital and puts people to work in high value-added occupations? Currently, most agricultural R&D is conducted with the idea of sharing knowledge as widely as possible for free, not to create new business opportunities.

• If Virginia does fund a commercializable technology, as it did with CropTech, do the conditions exist for the business to grow and prosper in Virginia, or is a start-up likely to relocate elsewhere? 

Legislators must continually bear in mind the alternative use of funds. Virginia’s rural economies were devastated by the 2001 recession, and there’s a natural instinct to cling to programs associated with these hard-hit regions. But Virginia’s rural counties aren’t predominantly farming economies – they’re mill-town economies built on manufacturing. The recession hurt because it hollowed out the manufacturing sector, not the farming sector.

Unlike farming, manufacturing does not suffer from excessive productivity. Indeed, achieving greater efficiencies may be the only way most manufacturing companies can keep from losing business overseas. By sharing best management practices with small to midsize manufacturers, for instance, the Philpott Manufacturing Extension Partnership arguably could do far more than the agricultural extension to save jobs and boost rural incomes. 

If agricultural research is politically untouchable -- a sacred cow, so to speak -- lawmakers and Virginia Tech should re-think the kind of R&D the Cooperative Extension program funds. Research should be aiming to find a modern-day Cyrus McCormick and his biochemical reaper, then make sure he stays home to create wealth to share with other Virginians.

--July 29, 2002                                                   

Measured by the number of farms, Virginia ranked 20th among the 50 states in the 1997 Agricultural Census -- down from 19th five years previously. The state lost 1,127 farms over that period.

Washington County  has the most farms

Washington County, on the Tennessee border, had more farms than any other in Virginia -- 1,744, according to the 1997 Agricultural Census. But ranked nationally by the number of farms, Washington County scored only 72nd. 

Notes on Table

Department of Forestry: About 40 percent, or $6 million, goes to maintaining and improving forest resources.

Department of Agriculture: One third, or about $8 million, goes to promoting agriculture and seafood.

Innovative Technology Authority: Funds from this authority support Virginia's Center for Innovative Technology.

Governor's Opportunity Fund:  Budget cut calculated on basis of $15 million allocation in fiscal 2002. In actuality, the General Assembly allocated $30 million over the 2001-2002 biennium.

Motion Picture Fund: This table omits the Motion Picture Fund, which received no money during the current biennium.

   Rockingham Tops         for Large Farms    

Rockingham County, a major center of poultry production, had 701 large farms -- farms with sales of more than $100,000 -- according to the 1997 Agricultural Census. That made it the top large-farm county in Virginia and the 17th top large-farm county in the U.S.

Critical Mass

The poultry industry is the only broad agricultural sector where Virginia is an industry leader. Poultry and eggs racked up $774 million sales in 2000 -- one third of the state's total agricultural production, according to the Virginia Agricultural Statistics Service. Nationally, Virginia ranks No. 4 in turkey production.

The presence of large, efficient turkey farms and poultry processing companies around Harrisonburg represents one of the main agribusiness clusters in the state. The infrastructure exists to exploit research emerging from Virginia Tech and convert them into new businesses. Ironically, the Agricultural Extension program downplays poultry R&D on the grounds that the industry is dominated by large companies that can do their own research.