From The Dairy Crisis To Rising Interest Rates, An Agricultural Economist Answers

Stephanie Mercier is the senior fellow for the Farm Journal Foundation. From 1997-2011, she served as the chief economist for the Democratic staff of the Senate Agriculture Committee.
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She also posts regularly on her blog. We spoke recently about issues facing the agricultural sector, including the dairy crisis and the impact that rising interest rates will have on agriculture.
Frerick: There are lots of stories on chaos in the American dairy industry. Can you explain what’s going on?
Mercier: It’s a global dairy problem—too much supply due to improving productivity, and not enough demand, since many dairy products are now seen by large segments of the population as not healthy food.
Frerick: So how will the market stabilize?
Mercier: There was a concerted effort by some dairy groups to incorporate some ability to control supply in the U.S. dairy program during the 2014 farm bill debate, led in Congress by Rep. Collin Peterson (D-MN), who was at the time ranking member of the House Agriculture Committee (and still is). That effort got shot down by then-House Speaker John Boehner, who referred to it as ‘Soviet-style’ policy. Boehner refused to let a bill come to the House floor that contained such provisions.
In face of the recent dairy price crisis, the focus has been on making the U.S. dairy support system more robust, with no real energy on the supply control side.
Since dairy is increasingly a global market, it is hard to see a policy solution to this crisis. If low prices continue, that will reduce farmers’ incentives to adopt new technologies, and over time demand might finally catch up with supply, but it could be a long hard slog to get there.
Frerick: Last fall, you wrote about the challenges that farmers face as a result of high levels of concentration in the agricultural sector. What should be done about this concentration?
Mercier: The federal government should never have allowed concentration in key agricultural sectors to get so high, but I don’t see those decisions being reversed. A settlement of a DOJ lawsuit in 1982 led to the break-up of the AT&T phone monopoly, but it is unlikely that something like that would ever be done in U.S. agriculture.
Frerick: Why do you think it’s unlikely that something like that would ever be done about this issue?
Mercier: I’m not a lawyer, but it seems that regulatory agencies don’t do a thorough job in evaluating the potential impact on farmers when agriculture-related mergers come up for consideration. For example, they tend to look only at national concentration ratios for the affected sectors, and not the regional concentration ratios that matter when it comes the pool of input suppliers or output purchasers that farmers have to deal with.
Frerick: A recent Federal Reserve Bank of Minneapolis article noted that farmland values increased «so fast [recently] that many expressed concern that land prices were unsustainably high and might crash after the fortunes of farmers reversed.” What do you think rising interest rates will mean for the agriculture sector?
Mercier: It will increase their operating costs since most farmers borrow money in the spring to buy their inputs for planting. Since a lot of them already are generating more expenses than farm revenue, this will make their financial positions more precarious.
Frerick: Down the road, could farming inputs be entirely purchased on Amazon?
Mercier: I don’t see this as an attractive venture for Amazon—sales of most farm inputs, like seed and fertilizer, consist of large shipments of relatively low value, which are not that profitable for the seller. Amazon also can’t offer the technical assistance on use of those inputs that farmers get from their local cooperatives or agribusiness dealers.
Frerick: How do you think driver-less farm equipment will impact agriculture?
Mercier: Not clear that farmers will fully trust such equipment to operate without any human supervision, at least in the near-term. Keep in mind that the average U.S. farmer was 58 years old in the 2012 Census of Agriculture, so a lot of them will be resistant to this radical a shift to their farming operation.

Mirá También

Así lo expresó Domingo Possetto, secretario de la seccional Rafaela, quien además, afirmó que a los productores «habitualmente los ignoran los gobiernos». Además, reconoció la labor de los empresarios de las firmas locales y aseguró que están «esperanzados» con la negociación entre SanCor y Adecoagro.

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