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Farmers Beginning to Feel Economic Pinch

September 21, 2010 By Lee Egerstrom, Economic Development Fellow

Part Two of Two-Part Series
Read Part 1

Despite several strong growing years and an abundant harvest expected this fall, rural communities are feeling the broader economy's negative impact.  This can be seen in the near record number of Farmer-Lender Mediation notices that researchers, bankers, farm leaders and state officials have just begun to recognize.

As noted in part one of this series, the director of the state's farmer-lender program said we've now matched the number of mediation requests from 1987, the first year of the 23-year-old Minnesota debt mediation program. That came in what proved to be the final year of the 1982-1987 Farm Financial Crisis that ran thousands of farm families off the land and toppled many banks.

With a couple of weeks left in the current fiscal year (2010), mediation requests are on pace to top the 3,547 handled in 1987, noted Mary Nell Preisler, the program's director for the University of Minnesota Extension Service.

But who, exactly, are these farmers? What do their debt problems mean to the greater Minnesota economy, and what signals are these debt problems sending to rural Minnesota in the days and months ahead?

Unfortunately, that is nearly impossible to say until after the end of the current fiscal year and if University of Minnesota and state officials have the wherewithal to analyze data now being aggregated by Preisler and her debt mediators. That is because being called a "farmer" means being a member of the least exclusive club in all of Minnesota.

During the 1980s farm crisis, University of Minnesota applied economist Michael Boehlje looked at farm census data and concluded farms were split into three categories - hobby farms, part-time farms and full-time farms. Boehlje, now at Purdue University, noted financial stress centered on the part-time and full-time farms, which had large debts and dependency on agricultural income to support household expenses and debt service.

The demographic profiles of American and Minnesota farms have changed in significant ways in the past two decades. A look at state 2007 Census of Agriculture data has Minnesota 2020 convinced that farms today are divided between two distinct categories - Lifestyle Farms and Commercial Farms.

For people who will study such numbers, it must be noted that two sets of farm profiles are provided by the U.S. Department of Agriculture and the U.S. Census Bureau. USDA's National Agricultural Statistics Service (NASS) does an annual survey of farms by size, measured by annual sales from the enterprise. But it uses one category of farms with annual sales between $10,000 and $100,000 - a category too large to shed light on who might be part-time and full-time farmers.

As a result, we used the more detailed 2007 Census of Agriculture report even though that will be updated and made current in 2012. That said, it must also be noted that we've used categories of farms that sell more or less than $20,000 annually as the dividing line between Commercial Farms and Lifestyle Farms, only because there are semi-retired people holding onto farm property with little additional income.

The loose category of Lifestyle Farms would include retirees who rent out land that generates "farm" income, it involves people who have moved to the country to former homestead properties even though they may be teachers, bankers or computer programmers; and laborers who live on an "acreage," as these properties are called in the countryside, while they work at a nearby factory or store. These properties can be inexpensive - or affordable - housing, or they can be the $1 million to more than $3 million hobby farms on the real estate markets around Northfield, Cannon Falls, Red Wing and similar areas near the Twin Cities.

In reality, $40,000 or even a higher figure would be a practical dividing line when farm and home debts are involved. But knowing that many rural folks use such land holdings as a supplement to Social Security or a main source of income, we went conservatively to the $20,000 line.

So what is happening in the countryside, and what's at stake for Minnesota?

Some of the best insights have come from Ben Winchester, 
research fellow for the University of Minnesota Extension Center for Community Vitality connected to both the University of Minnesota-Morris and its Twin Cities campuses; and from Cameron Macht, a Minnesota Department of Employment and Economic Development (DEED) research analyst.


Source: USDA, U.S. Census Bureau, 2007 Census of Agriculture
Winchester has studied school enrollment data and different age cohorts to show rural populations are more transitory than is generally assumed, given the continuous total population decline in many rural counties. In one study ("Rural Migration: The Brain Gain of the Newcomers"), he shows larger than expected age cohorts involving people age 10-14, 15-19, 35-39, 40-44 and 45-49 in the past decade, offsetting some of the out-migration of people in other age groups and especially the young adults that leave home areas for higher education, jobs and new experiences (the "brain drain").

These findings are consistent with University of Nebraska research that also notes in-migrations to rural communities by families with children in the school age cohorts cited above. What's more, about 40 percent of the adult newcomers to rural Nebraska had bachelors and higher degrees, which suggests entrepreneurs and skilled or professional people were moving into the area.

Macht, meanwhile, did a comprehensive analysis of the 18-county Southwest Initiative Fund region in June 2009 that found total population continuing to decline except in three of the counties, and that manufacturing was still the largest employing industry in the region, ahead of health care and social assistance, retail trade, accommodation and food service, educational services, construction and wholesale trade.

Between 1980 and 2008, he found, the southwest counties had a net gain of 35,700 jobs - a 39 percent increase. That would be consistent with national trends that show rural employment and population shifting from agriculture to manufacturing and the service industries. It is also consistent with the Census of Agriculture groups that show greater numbers of "farmers" in low farm income brackets, meaning these rural residents combine some agriculture as a supplement to other economic activity.

Need to know         

Winchester said it is assumed that people who have taken school-age children and moved to the countryside have done so to pursue entrepreneurial opportunities or are seeking a different lifestyle. Most likely, he said, they came with money to sustain their households. Are these people among the applicants now requesting debt mediation services?

The mediation service's Preisler said applicants do reflect lingering problems with the livestock and dairy industry, but off-farm job losses, health care issues and a host of other influences from the weak state and national economy are factors.

Going forward, aggregate data gleaned from the Farmer-Lender Mediation program should help reveal which groups of rural residents are at risk in the current economy. And that should help academic researchers such as Winchester, and public service researchers such as Macht, to sort out what is happening in rural Minnesota.

Local communities, school districts and other service providers need this information. State officials and financial institutions do, too.

Problems that are purely agricultural in nature can be addressed with federal farm program responses, but data clearly show such responses would have limited impact on more than half of the farm families in Minnesota that depend on other sources of income. What, then, should be proper state and local responses to economic problems arising from lost jobs and economic activity in rural areas?

Those questions will need research dollars in the coming year if appropriate answers are to be found.  



Data Source: USDA, U.S. Census Bureau, 2007 Census of Agriculture

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