Asian Crisis Compounds U.S. Farmers’ Problems

With demand from Asia sinking, pork is no longer bringing home the bacon for Hoosier farmer Jim Moseley.

“The reason we have $28 pigs now,” said Moseley, recalling the days of $52 hogs, “is we had built a substantial demand base in Japan and Taiwan. The Asian crisis is hurting us.”

He has lots of company. The nation’s agricultural producers are feeling pinched as a falloff in Asian demand for grains, meats, cotton and produce takes a multibillion-dollar bite out of U.S. farm exports.

Compounding the woes are global bumper crops of wheat, corn and soybeans, which have sent prices plunging even as growers in this nation’s midsection struggle with freak weather, crop diseases and the withdrawal of federal price supports. Meanwhile, the strong dollar is making U.S. goods less competitive abroad, and that is eroding the nation’s usually healthy agricultural trade surplus.

Much of this is good news in the short run for U.S. grocery shoppers, who are finding plentiful bargains on beef, poultry and pork.

And truth be told, trouble in the Farm Belt is not as serious a matter for the broader economy as it used to be. Even compared with the 1980s, the last time American farmers took a serious hit, agriculture has become less of a force in the rapidly diversifying economies of the United States and of California, the nation’s leader in agriculture.

“If all production agriculture ceased to exist tomorrow, we’d probably have a couple of down quarters, but it would not bring a depression to the country,” said David B. Danbom, an agricultural historian at North Dakota State University in Fargo.

However, as Asia’s economic trouble spreads around the globe, slowing growth in dozens of nations and lapping at U.S. shores, distress in the Farm Belt is bad news for the nation’s trade deficit, for the historic effort to yank price supports out from under American agriculture and for entire regions of the country already battling long-term forces of economic decline.

“This goes beyond just another low point in the cycle,” said Chuck Hassebrook, program director at the Center for Rural Affairs, a think tank in Walthill, Neb. “A lot of family farms have been hanging on for a decade. . . . This downturn is going to be the thing that washes out a lot of people.”

Limited though farming’s direct effect on the economy might be, troubles in farm country often do presage broader woes, another rural advocate said.

“The elements that are bringing the farm economy into a crisis now could bring the rest of the economy down as well,” said Mark Ritchie, president of the Institute for Agriculture and Trade Policy, an independent research center in Minneapolis.

These include, he said, not just the Asian collapse and weather woes but also such mundane factors as transportation disruptions. Lingering snags from U.S. rail mergers are expected to delay shipments not only of bumper grain crops from the Midwest, but also of inbound products from Asia on their way to U.S. retailers’ shelves.

A Key Part of Rural America

It’s tough to reconcile the mythic importance of farmers and ranchers with the modern reality that agriculture barely amounts to a hill of soybeans in the economic scheme of things. But there it is: Farm production accounts for less than 1% of gross domestic product. In California, that role is slightly larger at 1.5%.

Even in farm country, historian Danbom notes, farming “has become sort of a curiosity occupation.”

Yet as long as we’ve gotta eat, agriculture’s importance will transcend such statistical measures. Besides, farming assumes a much bigger role through its links to a patchwork of other industries, such as feed, fertilizer, equipment, food processing and transportation.

In 1996, this “food and fiber system” contributed nearly 13% of GDP and employed 17% of the U.S. labor force. So trouble on the farm--such as a projected 12% nose dive in farm income this year--is trouble for others as well.

“You take $8 billion off net cash farm income, and they’re not buying a new truck, going to Wal-Mart or taking the kids to Disneyland,” said August R. “Gus” Schumacher Jr., undersecretary of agriculture for farm and foreign agricultural services.

Although the overall U.S. trade deficit seems to grow endlessly, farmers have long been a reliable antidote. The United States is the world’s top exporter of farm products; one of every 3 acres of cropland produces for overseas markets.

But the government projects that Asia’s woes will knock about $4 billion off farm exports to that region this fiscal year, which ends Sept. 30. That is down from the $24 billion sold in 1997. Japan will account for a third of that overall drop in Asia.

Cattle producers have taken a big hit in hides, most of which are shipped to South Korea to be turned into handbags, coats and other products for export. The price of a hide has sunk to about $40 from $70, and “we have a huge oversupply right now,” said Bruce Berven, executive director of the California Beef Council in Pleasanton.

Other sales losses are being tallied in a vast array of categories, especially corn, soybeans, hardwood lumber and California-grown fruits and vegetables, including asparagus and grapes.

So far, the decline in Asia trade--and smaller losses in the value of poultry, pork and other farm goods going to Russia--has been cushioned by the strength in European markets and growth in shipments to Canada, Mexico and other Western Hemisphere countries. But that picture could change rapidly if those nations’ economies succumb to the “Asian contagion,” as early signs indicate is happening.

Foreign orders for California produce and other crops are below last year’s levels, though reliable data aren’t yet available. In 1997, the state exported farm products valued at $6.7 billion, nearly 20% of its agricultural production. Of that, two-thirds went to Asia. Japan was the largest customer for California farm goods, buying about a fifth of the state’s agricultural exports.

Natural and Man-Made Disasters

Asia collapsed at a uniquely bad time for American farmers, both meteorologically and politically. The result, though the U.S. economy appears for now to remain strong, is that there’s a world of pain in its rural pockets.

In drought-plagued Texas and Oklahoma, cotton crops are shriveling and cattle herds have been dumped for lack of feed, further depressing a glutted market. Each of Texas’ 254 counties has been declared a federal disaster area.

In the hard-hit Northern Plains, five soggy years have given rise to scab and other wheat diseases, reducing yields and quality. So many farmers are calling it quits in North Dakota, the nation’s most farm-dependent state, that there aren’t enough auctioneers to sell off all the tractors and combines. By the end of next year, predicts Bank of North Dakota President John Hoeven, the state might well have lost 10% of its 30,000 remaining farmers.

Nationwide, the plunge in farm income is sure to accelerate the decline of the family farm as more middle Americans abandon the land in search of other employment. And that will further erode the already rickety social structure of rural America.

“You’ll eliminate the middle class in rural communities,” Hassebrook said. “That’s what we’re seeing in this part of the country: Social institutions--churches, schools--are dying.”

Meanwhile, the Asia pressures are hitting in the midst of the most radical change in American farming in decades: the phasing-out of Depression-era crop subsidies and removal of restrictions on what and how much farmers can plant.

Enacted in 1996 by the Republican-controlled Congress, the so-called Freedom to Farm measure was aimed at weaning farmers from government support and encouraging them to court overseas markets. It passed at a time when grain exports to robust Asian nations were soaring, lifting crop prices.

Farmers nationwide shifted into these hot export crops. Now, amid stagnating demand, they are awash in grain as ideal weather conditions in Australia, Europe and parts of the U.S. and China create bounties of corn, wheat and soybeans.

With prices tumbling, bitter farmers have dubbed the deregulation act “Freedom to Fail.”

As a stopgap measure, President Clinton last month signed a bill to accelerate $5.5 billion in payments already due farmers in the year ahead. The U.S. Department of Agriculture also is speeding sales of surplus grain to needy nations. And legislators are weighing tax cuts for farmers.

But many farmers say more radical steps are needed. Hammered by the double disaster of bad weather and low prices, many want Congress to rethink its plan to remove the safety net of federal crop subsidies by 2002.

Jim Harmon, a North Dakota wheat grower who is president of the state Farm Bureau, says farmers are suffering from the government’s “lack of intestinal fortitude.”

‘80s Debt Crisis Was Much Worse

When Congress voted to deregulate farming, he said, the government vowed to offset potential ill effects by upgrading the crop insurance program and boosting export subsidy programs. But the Export Enhancement Program, for one, “is not being used,” Harmon said.

For all the difficulty, most economists say the current farm predicament falls short of the 1980s debt crisis, when soaring interest rates and plummeting crop prices sent agriculture into a swoon. Survivors of that ordeal have become much more disciplined about borrowing. And even in rural hotbeds such as Iowa and North Dakota, an emphasis on economic diversification has eased the dependence on agriculture.

“We haven’t even started to knock on the door of what the 1980s were like,” said Moseley, the Indiana hog farmer. “We’re just healthier overall. But that doesn’t mean this isn’t painful.”

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Tightly Cropped

The Asian financial crisis has caused a falloff in overseas demand for grains, meats, cotton and produce, putting a dent in projections for U.S. agricultural exports for 1998 and 1999 -- and causing commodity prices to fall.

Agricultural Exports In billions of dollars: $52 billion

*

Change in commodity prices for 1997-1998**

Hogs: --32.8%

Wheat: --21.0%

Soybeans: --12.2%

Corn: --9.6%

Cotton: --3.3%

*

* Projections

** Year-over-year percent change in price compares prices for the 1996-1997 year with prices in 1997-1998. (The years run from July to July.)

Source: Economic Research Service, U.S. Department of Agriculture

Researched by JENNIFER OLDHAM/Los Angeles Times