Seeds of Discontent : Iowa’s Farm-Based Economy Is Ill, Worsening

Not far from this old industrial city’s downtown is a windowless, block-square building, a weathered red-brick plant flanked by empty parking lots and lifeless stockyards.

The virtually unused Rath meat packing plant is a sign of the times in Iowa--hard times that have affected residents of most of the state’s cities and towns as much as they have its farmers.

Iowa has spent virtually all of the 1980s in an economic depression.

World markets are glutted with surplus corn and soybeans, Iowa’s two major crops. The weakness in agriculture, the state’s principal business, has spilled over to manufacturing, which is dependent on the farm economy. Farm implement factories have closed or reduced their output. Jobs in meat packing and food processing have vanished.

Iowa entered the decade “in the wrong place at the wrong time producing the wrong mix of goods,” says Hassan Honarmand, vice president and chief economist of the Federal Home Loan Bank of Des Moines. “No one here saw the total dependency of the state on one industry.”

In fact, Iowa’s lack of economic diversification distinguishes it from most neighboring Midwestern states, where tourism, banking, mining or military installations are part of the economic mix.

“Iowa’s economic performance in the 1980s has been poor, whether measured by employment, income or output growth (or) whether compared with the United States, the Midwest or Iowa’s neighboring states,” says a study by the Federal Reserve Bank of Chicago. “A single statistic perhaps captures it best; Iowa ranked 49th in total employment growth during the early 1980s.” Only West Virginia performed worse.

What has happened during the past seven years on 100,000 Iowa farms and in more than 950 rural towns and cities is likely to have an effect on the rest of the nation next February, when Iowa voters go to caucuses to become the first in the country to voice their preferences for Democratic and Republican presidential contenders.

Their decisions affecting the fortunes of those contenders will be shaped in large part by the economics of this decade, just as rural and farm state economic conditions contributed to a dramatic shift in political power in Congress when Democrats won control of the Senate last year.

Amid Iowa’s economic gloom there are at last some shreds of hope. Farm income is up and, for the present at least, land values seem to have stabilized. Sales tax receipts indicate that spending has increased. In the Des Moines area, where insurance companies and other service firms are locating in increasing numbers, a boom appears to be under way.

But generally, economists caution against too much optimism.

“We are just now seeing the first signs of recovery,” says Harvey Siegelman, Iowa state economist. “Unfortunately it’s coming so very late (in the national recovery) . . . that we might find ourselves getting up to the head of the line with our plate out and find there’s no soup left in the caldron.”

“Declaring the farm crisis over is like taking someone on a heart-lung machine and calling that person healthy because they are not dead,” says Robert W. Jolly, an economist and assistant dean of Iowa State University’s school of agriculture.

“We are seeing less of a decline, but that does not rule out a future ratcheting down,” warns economist Neil Harl.

Economists say an important factor in Iowa’s apparent economic improvement is the infusion of $1.3 billion in federal farm subsidy payments to Iowa farmers last year, part of $26 billion the government spent nationwide. Last year, Iowa moved from 48th to 37th in the per-capita receipt of federal funds.

“That wasn’t because we acquired a naval base--it was because of farm payments,” Siegelman says.

“Iowa has three crops: corn, beans and federal agricultural programs,” says Charles S. Johnson, senior vice president and treasurer of Pioneer Hi-Bred International, a seed and farm products company.

Iowa’s economy was a row of dominoes that began toppling when world markets for U.S. grain dried up in 1980 just as interest rates soared. For example, about 10,000 jobs--2,000 of them white-collar and managerial positions--have vanished in the Waterloo area because farm equipment maker John Deere was forced to cut its payroll. In 1979, Deere employed 20% of the local work force. Today, it employs less than 10%, says Clif Moyer, manager of economic development for the Waterloo Chamber of Commerce.

Another 3,000 jobs disappeared in Waterloo when Rath Packing Co. closed its big--now largely abandoned--plant in 1984. At its peak, the plant employed about 6,000.

Those sharp drops in employment are reflected in other figures. Selling prices for houses here have fallen 20% in the last seven years. In 1981, when mortgage rates were high, there were 500 housing starts in Waterloo. Last year, when mortgage rates were at their lowest point in a decade, there were 18 housing starts.

“As an economist, that even startled me,” Honarmand says.

Local moving companies report that for every person they moved into the area around Waterloo last year, 10 moved out. In 1985, the ratio was one moving in for every 20 moving out. Another study shows that Black Hawk County--where Waterloo is the biggest city--lost 6.3% of its population between 1980 and 1986.

“Where we’re hardest hit is in the 25 to 35 age group and in the 35 to 45-year-old range,” Moyer says. “We’re losing the middle tiers of the population.”

What Statistics Say

That is a snapshot of Waterloo. A still-developing picture of what has happened to the state in the 1980s can be seen in a sampling of data compiled by university researchers, state economists and pollsters. For example:

- Iowa has had a net loss of 60,000 manufacturing jobs since 1979, while non-farm employment opportunities have shrunk by 50,000 jobs.

- The state has experienced a massive loss of population this decade--an estimated 163,200 people through June, 1986. In fact, the estimated 43,200 people who moved out between July, 1985, and last June was more than left the state in the five-year period between 1975 and 1980. “We’ve done a great job in exporting our most precious commodity--our people,” says Willis Goudy, director of census services at Iowa State University. “It’s a reaction to changes that have occurred in Iowa’s agricultural-based economy.”

- Those leaving Iowa are among its best and brightest. Of 199 Iowa State University engineering graduates who reported job offers this spring, 75% took jobs out of the state. Three years ago it was 90%. The university is also exporting 75% of its computer sciences undergraduates. “We think of it as a brain drain,” says Dan Blanco, a placement coordinator.

- Family income in a third of all Iowa households has declined during the prolonged economic crisis, according to a poll published late last year by the Des Moines Register. The number of Iowans living below the federal poverty level increased by 138,000 between 1979 and 1984 to a total of 424,000--or 14.6% of the state’s population--according to Iowa Department of Education statistics.

- Almost half of the state’s households were affected by Iowa’s chronic economic problems, experiencing either a lost job, falling family income or bankruptcy, the Register poll found. The poll, taken last December, found that one or both spouses in 48% of all farm households had an off-farm job, up from 32% in 1984.

- Bankruptcies in Iowa have soared from 3,402 in 1983 to 6,300 in 1986. The 1986 figure included 1,258 farm bankruptcies. In January and February of this year, business failures were triple the number for the first two months of 1986.

- Farm land values, which usually represent a farmer’s principal asset, dropped 17% last year and an astounding 63% since 1981, according to Iowa State University figures. That translates to an average loss of $1,360 per acre since 1981, although recent data figures suggest that the decline has slowed or reached a plateau.

- Since 1980, more than a third of the state’s farm implement dealers have gone out of business. There are 479 dealers today, down from 742 in 1980. More than a quarter of the state’s grocery stores, 455 of them, have closed between 1977 and 1986, “virtually all of them in small towns,” according to Iowa State University economist Kenneth E. Stone.

The loss of an implement dealer can spell the beginning of the end for some towns. “Because farmers stop coming into town for the implement dealer, the hardware store feels a loss of business and then the grocery,” explains Stone, who monitors business in small towns.

Eventually tax revenues decline, people leave and school and public officials are faced with questions of survival. Boarded up main streets are already a common sight along the ribbons of two-lane blacktops that crisscross the state.

“Iowa is facing one of the most fundamental structural changes in 60 years,” says economist Mark Edelman. “How are we going to organize and finance local government?”

“We are talking about whether rural America is a heritage we ought to preserve,” says Johnson of Pioneer Hi-Bred International. “Rural communities don’t exist simply because they have a right to exist. They came into being because they served an economic need. If farmers are willing to travel farther to buy (farm supplies) and to market their output, then it raises questions of the viability of smaller communities.”

Big Structural Change

As rural Iowa is gradually depopulated there are signs of adjustments. In Monroe, southeast of Des Moines, there is only one high school but two football teams. One, the Plainsmen, represents Prairie City, which no longer has its own high school and sends its students to Monroe. The other team represents Monroe.

Monroe and Prairie City now share a high school and a middle school--something each city would have been hard-pressed to provide only for its own residents. That decision foreshadows the way rural Iowa may eventually be educating its children.

Another issue for the state is the graying of its population, something that is happening faster in Iowa than in most other states. As workers leave the state, Iowa’s percentage of older residents is increasing. In July, 1985, the Census Bureau reported that 14.3% of the population was over the age of 65. Only Florida and Rhode Island had a larger percentage of elderly.

“The last time we went through (a crisis) like this,” says Iowa State University’s Jolly, “it took a hell of a long time to sort out. It took from 1920 to about 1938 before the structuring was complete. Mortgage debt peaked between 1920 and 1925, but foreclosures didn’t peak until 1932. This is a very slow-moving, grinding process.”

“There’s going to be a sorting-out process and the survivors are going to be those communities that have leadership,” says Johnson, whose company has launched a program to help rural communities cope with the changes.

“With a conscious effort we can do better,” economist Harl says. “But Iowa will be dominated by agriculture for decades to come.”

Times researcher Wendy Leopold in Chicago contributed to this article.