Back to Coal's Uncertain FutureBy Michal Smith-Mello and Peter Schirmer
From The Context of Change
pp. 46-49, published 1994
The vulnerability of the key crop in Kentucky’s farm economy portends an uncertain future for farming and farmers.
Like coal, agriculture’s contribution to the state's economy has waned in terms of both income and employment, even as farm production increases. As Dr. David Freshwater, professor of agricultural economics at the University of Kentucky, notes, farming’s changing role in the lives of Kentuckians can be traced to larger national and international trends that are influencing supply and, in turn, cost. At the same time, advances in technology and agricultural science have expanded production per acre and made it far more costly for small farmers to compete.
The changing role of farming is evident, first and foremost, in the amount of land currently under cultivation in Kentucky. The total amount of farmland in the state has dropped from 21 million acres in 1930 to 14 million acres in 1994—a 33 percent decrease. Although cultivated farmland has been decreasing throughout the country, the rate of reduction in Kentucky is far more dramatic than the 7 percent decline experienced by the nation as a whole during the same time period. From 1980 to 1990, Kentucky lost an estimated 28 percent of its farm population, according to the U.S. Census Bureau, a reflection of the declining role of farming in the lives of rural Kentuckians. At the same time, the value of agricultural output in Kentucky has continued to steadily expand, reflecting the economy of scale realized from more advanced equipment and farming methods.
The long-term health of Kentucky’s historically important farm economy is also being influenced by the state’s heavy reliance on two farm commodities—tobacco and cattle—with some counties depending heavily on only one commodity for their livelihood. While some observers believe Kentucky’s farm economy is sufficiently diversified, others foresee significant future problems. Many farmers have begun to experiment with new crops and products, from tomatoes to bedding plants, but few have found economically feasible alternatives. Others have resisted change altogether. And there appears to be little incentive for farmers to diversify as long as tobacco remains lucrative. Trends, however, suggest that in the absence of expanded diversification, agriculture may play a declining role in the lives of Kentuckians, even as the value of state crops and products rises.
Figure 1: Kentucky Farm Cash Receipts, 1992
While Kentucky's agricultural base consists of several commodities, its components are not proportionate in their share of the overall farm economy. Agriculture in the Commonwealth generated $3.2 billion in cash and marketing receipts in 1992; however, tobacco and cattle accounted for 49 percent of those receipts (27 percent and 22 percent, respectively). Other major farm commodities in Kentucky were horses (13 percent), dairy and corn (8 percent each), soybeans (7 percent), hogs (5 percent) and horticulture (3 percent). Consequently, Kentucky farmers are heavily dependent on two agricultural products, one of which is threatened with precipitous decline, and as a consequence, is extremely vulnerable to market forces beyond their control.
The tenuous future before Kentucky burley tobacco, which has weathered attacks from several fronts, presents the most significant threat to farming and farmers in the state. A November 1994 study by the Kentucky Long-Term Policy Research Center identified four major trends influencing the future of burley tobacco. They are: increasing taxation on cigarettes at the state and federal level; heightened awareness of the health risks associated with use of tobacco; declining levels of domestic tobacco content in U.S.-manufactured cigarettes; and the increasing abundance of high quality burley on the world market. The Center study, which included a survey of tobacco experts, concluded that Kentucky’s basic burley quota could decline as much as 40 percent over the next 10 years as a result of these trends.
Due to the momentum many of these trends have already gathered, the downward spiral is well underway for burley tobacco. While Kentucky produces some of the highest quality burley in the world, exports have slowed dramatically in recent years. Over the 1980-1990 decade, exports of tobacco leaf onto the world market expanded by 136 percent. However, from 1990 to 1993, exports of unmanufactured leaf decreased by 20 percent, according to the U.S. Department of Agriculture. This recent trend reflects the fairly rapid development of tobacco as an agricultural crop in locations remote from Kentucky but in closer proximity to growing global markets for cigarettes.
The impact of these trends is greatly magnified when the structure of agriculture in Kentucky is closely examined. Tobacco reigns supreme among agricultural commodities in Kentucky. It is grown on more than 60,000 of the state's 90,000 farms. According to Dr. Freshwater, tobacco's importance is largely attributable to the state's tobacco program. "Tobacco provides farmers with relatively stable net returns per acre. Thus, virtually all farmers choose to raise tobacco, but they are limited in the amount they can produce. Limitations on the transfer of production quota have helped preserve farm numbers in Kentucky by providing even the smallest of farms with a significant source of income." Overall, the structure of the tobacco program has ensured a measure of equity, spreading the wealth of tobacco among the state's farmers.
Those who eye Kentucky’s agricultural future predict that Kentucky, the second largest tobacco producing state in the nation, may be severely affected by the anticipated reduction in demand. In 1992, Kentucky' farmers produced more than 500 million pounds of tobacco valued at $877 million, an economic contribution that reaches well beyond the almost $900 million it generates in income for farmers. Some estimate that money generated from the sale of tobacco could roll over as much as two to three times in local economies. A study conducted by Price Waterhouse in 1990 also suggests that a significant share of state employment, as many as one of every nine jobs, may be directly or indirectly tied to tobacco. The study estimated that tobacco contributed more than 135,000 jobs, generating in excess of $2.1 billion in wages and benefits to Kentucky.
Tobacco’s prominent role in Kentucky’s farm economy and technological advances in agriculture may figure in a projected continuation of the downward spiral that farm employment has been on for years. Building on a decade of decline, during which farm employment fell by 11,600 between 1979 and 1988, BEA analysis suggests that farm employment in the state may drop dramatically over the next 45 years. Between 1995 and 2010, the analysis suggests that nearly 10,000 jobs may be lost in farming. The most significant drop is projected to occur between 2010 and 2040, when an additional 22,400 jobs are projected to be lost, according to BEA.
Figure 2: Farm Employment in Kentucky, 1979-1988 and Projected
Kentucky's second leading agricultural commodity is cattle. Nationally, the state ranks eighth in the production of beef cows, 95 percent of which are sold as finished or fat calves (Sprague). Ironically, the most significant problem facing the state’s cattle production may be a result of the number of small farms and part-time farmers who raise cattle. According to the Kentucky Farm Bureau, the average herd of the state’s 1.1 million head of beef cattle has only 25 cattle. Because buyers usually demand large numbers of uniform animals, the presence of so many farmers producing cattle of diverse quality poses a marketing problem for the state.
Programs being developed by the Kentucky Farm Bureau aim to rectify these marketing problems. They include an educational beef management course and a program to monitor the movement of feeder cattle through marketing channels, combining small lots to create larger herds for the feed lots. If successful, the Farm Bureau believes these two programs could have a significant impact on the future viability of Kentucky's number two farm commodity. Importantly, these efforts would be dramatically enhanced by the full implementation of the KY I-Way, which would provide both a vehicle for educating farmers in their communities and ready access to comprehensive information on cattle markets. Clearly, cooperative efforts, marshaled by such organizations as the Farm Bureau and the Community Farm Alliance, working in conjunction with the state Department of Agriculture, offer state farmers the opportunity to build on a solid foundation. These important efforts should also involve planning to tap the enormous resources technology holds for expanding the knowledge base of farmers, creating and tapping into new markets, and discovering alternative methods and product opportunities.
The third major agricultural enterprise in the state of Kentucky is horse breeding or, more specifically, Thoroughbred breeding. While concentrated in the Bluegrass region, the Thoroughbred industry has become part of Kentucky’s national and international identity and an important magnet for visitors, as well as those engaged in the business. As Dr. Freshwater notes, Kentucky is the only state in the nation in which horse breeding is a major source of farm receipts. In 1992, for example, Thoroughbred breeding accounted for 13 percent of Kentucky’s agriculture receipts. A 1991 study conducted by the University of Kentucky Center for Business and Economic Research found that the equine industry provides a $5 billion annual stimulus to the economy of Kentucky, accounts for 7.5 percent of the gross state product, creates 80,000 jobs and generates an annual estimated payroll of $1.3 billion, 5 percent of the state's overall payroll. The study also found that, contrary to perceptions, the horse industry is pervasive throughout the state. Horse farms are present in 108 of Kentucky's 120 counties, and they represent a total investment estimated to be between $4 and $5 billion.
Kentucky’s other major commodities, dairy products, corn, soybeans, hogs and horticulture, hold enormous potential for product diversification, on which the future of farming in Kentucky may hinge. According to the U.S. Department of Agriculture, the country’s leading exports in 1992 were feed grains, soybeans, wheat, live animals and meat. Kentucky’s agriculture base can be strengthened over the long-term by programs designed to encourage and enable production, as well as the use and consumption, of more of these commodities. Strategically, such diversification could be expected to buffer the impact of the predicted decline of tobacco.
Beyond the basic agricultural commodities that dominate the national and global marketplaces, specialty or "niche" agricultural products are expected to become increasingly prevalent offerings. While certain staples will continue to form the foundation of agricultural production, the growing internationalization of the American palate is expected to boost demand for ethnic cuisine and the vast array of ingredients it demands. In the coming years, Roper pollsters predict a "fragmentation" of the food market in response to heightened interest in the cuisine of diverse cultures. As a consequence, today’s rare item may become tomorrow’s staple. For example, Roper pollsters note, Americans purchased more salsa last year than ketchup. With the popularization of Mexican and other ethnic cuisine comes an immense and rapidly evolving market for agricultural products, many of which can be successfully grown and marketed by Kentucky farmers and organizations representing their interests.
Some small Kentucky farms are looking inward for discrete markets for items such as organic produce, range-fed animals, and specialty items, for which demand is growing. Much of the success of such ventures depends on the anticipation of demand, successful promotion, the development of markets and transportation to them. The future potential of Kentucky’s agricultural base will depend on the creativity of its farmers and the organizations which represent them, on their knowledge of trends and their timely response to new and unfolding markets. Agriculture, like manufacturing, will be challenged to change, to become more flexible and more responsive to customer demand.
If sustainability is to be advanced as an overriding goal for Kentucky agriculture, a value-added component of the state’s agricultural base could also lend strength to the state’s farm economy. By creating internal markets for Kentucky agricultural products, some of the uncertainty that attends diversification can be mediated. By advancing the goals outlined in Ag. PROJECT 2000, Kentucky can develop a sustainable, interdependent internal marketplace of sufficient scope to strengthen prospects for farmers, small and large. Ultimately, however, state-of-the-art farming methods and practices and access to markets, national and international, both of which can be dramatically enhanced by computer literacy and broad access to the proposed KY I-Way, will determine the extent of the role farming will play in Kentucky’s future.
To view a list of all chapters in this book, click here. To read the chapters in sequential order, please follow the arrows below.
