Economist examines agricultural policy

Biofuels policy may sustain high feed prices, farm subsidies will remain but with more pressure on efficiency, and environmental regulations will persist and strengthen.

Those are three long-term policy issues discussed by Daniel A. Sumner, director of the University of California’s Agricultural Issues Center at Davis, during the 2009 Spring Ag Outlook Conference of the California chapter of the American Society of Farm Managers and Rural Appraisers at Sacramento.

Sumner said these and a host of other concerns on pests, water, hired labor, regulation, and global competition are under study at the center.

Although many issues are becoming more difficult to resolve, he predicted California agriculture will be able to “innovate ourselves through.”

On biofuels, he said California agriculture wants to have a part in the industry and although the overall outcome cannot be predicted, corn-based ethanol will have difficulty being considered a low-carbon fuel.

Cellulose-based ethanol, made largely from crop residue, has yet to be a commercial success despite huge investments. “But if oil goes to $100 a barrel, cellulosic ethanol may be coming on line,” he said.

However, he cautioned that California has no comparative advantage to Midwestern states where millions of acres are available for biofuels. Material such as rice straw must be collected and hauled, is bulky, and has low energy yield; while technical problems need to be solved.

Sumner expects no change in farm subsidies for at least the next several years. “But pressure will be on the larger, more efficient operations.”

“Regulatory pressures are tighter in California and that means some operations will come out ahead and others will have it harder. Different parts of the state will have it easier or harder, depending on the technology used.”

How greenhouse gas policies emerge, he reasoned, will govern how they are tied into the regulatory sphere.

“Food safety issues are growing,” he said, adding that in the recent example of contamination in pistachios, the national media and politicians largely ignored efforts by the pistachio industry and put forth “incredible amounts of misinformation, using the broadest possible brush” to blame the entire industry over a local problem.

“The same is true with the animal agriculture issue,” Sumner said, pointing to the passage of California’s Proposition 2 in the November 2008 election, which will regulate the confinement of farm animals, as a useful signal to the dairy industry in the state.

He reasoned that “most concerns are being held at bay by innovations, technology and management, and these will likely continue” during the next couple of decades.

“Threats,” he noted, “are almost always overestimated and today’s disaster becomes a manageable concern. The biggest concern is if growers and investors become discouraged by a lack of opportunity.”

Furthermore, he said, “the future is not assured, but the valuable natural and human resources will remain productive.”

Even though regulations, labor costs, water constraints and other obstacles may drive some industries out of the state, others will expand to use the resources.

For example, he cited the state’s cropping shifts during the past 20 years. “That is a relatively short horizon, but it has been long enough to cut cotton acreage dramatically, increase tree nut acreage, and shift processing tomatoes south.”

Responding to an audience question about the danger of the planet reaching its agricultural carrying capacity and causing high food costs, Sumner said he is not worried about that.

He and other economists across the nation are concerned instead about “the declining investments we’ve been making in agricultural research and development.”

“As we’ve cut back our willingness to invest — all around the world and in science. We’ve seen increasing resources devoted to issues such as sustainability which is important to investors.”

In contrast to the higher proportion of public and private resources of 30 years ago devoted to raising yields and lowering food prices, “we are now investing in working on things that we all think are important about maintaining or improving the environmental impact of agriculture.”

That may be a “great trade-off” for the U.S. and other affluent nations, but “it is a tougher trade-off” for hungry nations, he said.

Discussing the current “macroeconomic flux” of the global recession, Sumner said projections abound, “but the answer is nobody really knows.”

Regardless, he sees evidence that recovery from the recession has begun. “In the 2008 election year, a lot of people had incentive to make things sound terrible. That probably made things worse than they might have been.”

But at the same time, he added, Federal Reserve Chairman Ben Bernanke and other policy makers have to sound as optimistic as possible to avoid causing a panic.

Pointing to International Monetary Fund projections, Sumner said indications are that the remainder of 2009 possibly will have no more than 2 percent to 3 percent in declines.

“It will take some time to get out of this. Growth could be starting sometime in the fall, but the annual data for 2009 would look pretty bad. Even in 2011 we will not have recaptured everything we lost in terms of economic growth.”

Domestic markets for California farm products will be stronger for essentials such as grains and milk and weaker for products that consumers feel they can use less of or do without.

In terms of the implications for California agricultural exports, he said markets in Europe may do poorly until 2011, but the outlook for recovery in markets in developing countries is in better shape.

The conference also saw the presentation of the chapter’s 2009 Distinguished California Agriculturist to Cornelius “Corny” Gallagher, senior vice president and global business executive for Bank of America based in Roseville.

He heads a national team that coordinates management of the bank’s $18 billion agribusiness and food production portfolio.

A native of Iowa and a graduate of Iowa State University, Gallagher began his career with the bank in 1969. After advancing through a succession of positions, he was commercial banking agribusiness portfolio manager from 1989 until 1999 when he assumed his present post. He and his family reside in Fair Oaks.

TAGS: Management
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