Rural survivors: can value-added agriculture save struggling rural communities? Congress hopes USDA grant program will provide needed stimulus

Rural Cooperatives, July-August, 2002 by Dan Campbell

The internal combustion engine improved the quality of life in rural America, but it also may have doomed many of America's rural farming towns by expanding trading areas beyond the distance a horse could travel in a day (the basis on which many rural trading centers were founded). Many of the farming communities that survived the coming of the automobile--particularly in the Great Plains--may not, however, survive continuation of a farm policy that subsidizes production of commodity crops, leading to ever fewer, larger farms producing more and more of the nation's food and fiber, says Bruce Babcock, an economist at Iowa State University.

Ironically, the success story of the American farmer--his ability to produce huge volumes of high-quality, low-cost food--has been the downfall of thousands of rural communities, Babcock said. Speaking as a panelist on a rural development session at USDA's 2002 Agricultural Outlook Conference, he noted that "However much we try to combat rural stagnation with price supports and commodity production, I think it will lead to large portions of physical and social infrastructure leaving vast areas of the Great Plains."

He cited an article in a recent issue of the "The Economist" magazine showing that rural counties that have received the most farm subsidies during the past 20 years have also suffered the greatest population declines. "I'm not saying subsidies caused the population to decline," Babcock said. "But it is clear that encouraging commodity production with price subsidies has not kept people in rural areas."

Babcock said that while Congress (in his view) may be unintentionally accelerating outward migration from some rural areas by showering "unprecedented levels of support" on commodity crops, it is simultaneously seeking another, more promising path to fighting rural stagnation: encouraging new value-added agricultural endeavors.

In 2001, USDA launched a new program to spark development of more value-added agricultural enterprises, as authorized by the Agricultural Risk Protection Act of 2000. Though the Rural Business-Cooperative Service, it provided $20 million in grants for 62 value-added ag projects, ranging from a joint venture of two Illinois cooperatives studying the possibility of building their own flour tortilla plant, to a new market development project launched by the California Wild Rice Growers Association. (The entire list of grants, as well as information about upcoming grant rules and deadlines, can be viewed at www.rurdev.usda.gov/rbs/coops/VADG.htm). Many of the grants were awarded to cooperatives, but all producers can apply for them.

However, the 62 projects funded represented just a fraction of the 509 applicants who sought $136 million in funding, according to panel moderator Randall Torgerson, deputy administrator for USDA/RBS Cooperative Services.

New Center to promote value-added ag projects

Congress--through the 2002 Farm Bill--is doubling USDA's annual value-added grant program to $40 million for each of the next six years. The money will be used both as grants for more value-added enterprises and to fund (with $2 million per year) an agricultural marketing center. One such entity, the Agricultural Marketing Resource Center (AgMRC) at Iowa State University (of which Babcock is a member of the executive committee), has been formed through a partnership of Iowa State, Kansas State and Oklahoma State Universities and the University of California, with financial support from USDA. Smaller amounts of the appropriation will also be used to fund several new value-added innovation centers and for a research project on value-added agriculture.

The AgMRC's main objective is to create an electronic, Web-based library that producers and producer groups can access for information that will support their value-added endeavors. AgMRC staff will collect and interpret relevant information and conduct research on value-added agriculture. The center will also compile information on business principles, legal, financial and logistical issues that producer groups should consider before investing their money in a project, and it will coordinate research and extension programs with value-added ag groups. The center is a joint venture of extension, research and industry, Babcock said, noting that the center will operate with an industry advisory council.

And what exactly is "value-added"? Babcock said there are two basic definitions: 1.) Any activity that increases the per-unit price received for farm production; 2.) Any activity that transforms a product into another product that fetches more revenue on the market.

But will more value-added agriculture increase rural vitality? "I don't know," Babcock said. Experience to date, he said, "has shown that large-scale, capital-intensive, value-added enterprises, such as ethanol, will not slow down migration from rural areas." People are more mobile today--they will live wherever they think can have the best life, he noted. "All things being equal, businesses will locate in areas where workers want to live."