View Research Topics | View Complete Article List | Visit the Library
NGPRDC - International Trade
2007-11-04
I. INTRODUCTION
A. Background Economic Conditions
Research on the economy of the Northern Great Plains by state land grant universities, USDA, state agencies, and the Federal Reserve system is remarkably consistent and the conclusions are stark. The Region is one of the most productive in the world for several agricultural commodities. That is both its great strength and its great weakness. The combination of technological improvements in agriculture and an historical dependence upon commodity production has had sweeping impacts on the Region's employment and income prospects, the structure and even future of its rural communities.
Employment. As advances in agricultural production technology increase, farm productivity also increases and farm-related employment, in turn, decreases. The more farm-dependent the county, the more this phenomenon applies. There is no region in the nation more farm-dependent, and therefore more negatively affected by this reality, than the Northern Great Plains. If American agriculture is to continue to be competitive, it will have to continue increasing productivity. The more it does so, the more farm-related employment will decrease. In other regions of the country, the local economy provides non-farm employment opportunities. But in much of the Northern Great Plains, such opportunities are few and far between.
Income. Studies of the Northern Great Plains economy during the Roosevelt, Eisenhower and Kennedy administrations each concluded that the Region was heavily dependent upon federal government support. That condition continues today. As a region, the Northern Great Plains receives a much larger percentage of total farm income from government payments than any other region in the United States. The new Farm Bill will phase such payments out over the next seven years. As a result, the Region can expect to see significant structural changes in agriculture, as marginally competitive farms are either forced out of business or absorbed by competitive ones. Partly as a consequence, farm-related income is likely to be distributed among a diminishing number of owners of increasingly large farms. The larger and fewer these farms are, the fewer the local businesses will be that they support. That will mean not only the decline of rural communities, but also a decline in off-farm income opportunities. Even now, as a percentage of total family income, the Northern Great Plains has the lowest percentage of off-farm income than any region in the nation. There simply are not sufficient off-farm jobs available in much of this thinly-populated area.
Regional Growth Trends. Most rural counties throughout the United States have experienced declines in traditional industries in the last decade. Some, however, are blessed with significant offsetting assets from which to build a new economic base: dramatic scenery to attract tourists, warm sun to attract retirees, proximity to a growing city or a retail trading center, the potential for synergies among small manufacturers, or a college that can spawn new enterprises. Mark Drabenstott, chief economist at the Federal Reserve Bank of Kansas City, found that 569 of the nation's 2357 non-metropolitan counties had income and employment growth rates higher than the national average during the 1980s. A quarter of these counties had amenities that were attracting retirees and, with them, their investment income and transfer payments. Another 35 percent were rural retail trade centers (which "stole" their growth from surrounding counties). Another fifth were manufacturing-based economies. Significantly, only three percent of the fast-growing non-metropolitan counties had farming-dependent economies. In contrast, among the 1146 non-metropolitan counties with growth rates below the national average, nearly a quarter were farming-dependent. Another 37 percent were retail trade-dependent. ("These are the counties," says Drabenstott, "that did not get WalMarts.") Another 16 percent were manufacturing-dependent, underscoring the weakness of rural economies based on uncompetitive factories and low wage branch plants. Proximity to an urban center matters, but is not the definitive reason for faster than average growth. While 45 percent of the fast-growing counties were directly adjacent to a metropolitan area, fully a sixth were not.
Drabenstott also found that the rural counties with lagging economies were not evenly distributed across America, but instead clustered in a "Heartland Triangle" north of a line drawn from Chicago to Dallas to Seattle. The greatest majority are concentrated in the Northern Great Plains.
B. Agricultural Export Growth
The Northern Great Plains region is a major exporter of raw agricultural commodities. Given increasing demand for such commodities in developing markets, such as China, it would be only natural to conclude that one way to revive the Region's economy and improve employment and income opportunities for the Region's citizens would be to increase international grain sales. But because of their low employment multiplier, raw commodity exports produce far less direct and indirect employment than do value-added agricultural or manufactured exports. Moreover, because of the low dollar value per unit of production, they also produce far less income. Since 1990, U.S. agricultural exports have grown only eight percent, compared to 30 percent for nonagricultural exports. Consequently, agriculture's share of total exports has been declining for years and dropped below 10 percent for the first time in 1994. The exception--nationally and, it would appear, in the Northern Great Plains as well--is value-added agricultural exports.
According to USDA, as a percentage of total agricultural exports, U.S. exports of bulk or raw commodities have declined steadily since the mid-1970s, when they accounted for nearly 75 percent of agricultural exports, to only slightly more than 40 percent in 1996 (est.). Intermediate processed goods exports have been largely flat for the last 20 years as a percentage of total agricultural exports. Consumer foods, however, have skyrocketed from less than 5 percent of total exports to nearly 40 percent today. Indeed, they are expected to account for all agricultural export growth in 1996. Despite this growth, however, the U.S. is behind the value-added curve.
According to the USDA's Pat O'Brien, worldwide agricultural trade totals some $250 billion. Roughly four-fifths of this total is accounted for by value-added agricultural products. Raw commodities account for only a fifth. The United States accounts for fully half of the raw commodity trade, but only 16 percent of the high-value trade--up from 10 percent in 1985, but still behind the curve. USDA's new export strategy aims to strengthen dramatically the nation's value-added agricultural export market share.
Even if commodity exports increased dramatically (and no scenario currently suggests such an increase), income and employment improvements in the Northern Great Plains would be modest because of the low income and employment multipliers of raw commodity exports. Moreover, given the steadily increasing concentration of commodity production into a smaller number of ever-larger farms, and given the concentration of trade activity in a handful of commodity trading companies, what benefits were gained from commodity exports would accrue to a very small number of individuals and corporations, not broadly to the Region's declining communities.
However important bulk grain exporting may be as a component of the Region's economy, it does not hold significant potential as a new source of employment or income for underemployed and unemployed residents and depopulating communities in the Northern Great Plains. If trade development is to generate increased income and employment in the Northern Great Plains it can only do so by increasing service and manufactured exports, including value-added processed agricultural products.
