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Economic instability affects all industriesBy Jennifer Bremer
Economic instability continues to plague the world and, while farmers have generally had good times recently, they are also beginning to feel the pressure. Virginia Tech University agricultural economist David Kohl discussed the instability at the National Bankers Conference in Des Moines, recently. "We've been living off a false economy for years, so this has been a real reality check for people," said Kohl. "With the extended period of economic moderation world wide, volatility will be at extremes and business and personal decisions will be reprioritized." He said economists still aren't sure how long the recession will last. A "code green" would be the best scenario, with unemployment stabilizing at 6 percent, the world economy stabilizing and oil prices under $60 per barrel. According to Kohl, this would end after a seven-month recession. A "code yellow" would be similar to recessions seen in 1973-1974 and 1980-1981. Unemployment would be in the 6 to 9 percent range with a 12 to 17 month recession. He said it would be a deflation in the short run, but a recession in the long run. Kohl said a "code red" would be the worst-case scenario for the economy. This would be a major worldwide recession. Unemployment would exceed the 10 to 15 percent level, interest rates would be in the double digits and oil prices would stay in the $100 to $200 per barrel range. "We obviously would prefer to have the 'code green,' but it's too early to really know what we are experiencing," said Kohl. Agriculture in the economy The story of the economy in the agriculture industry is more like the perfect storm. "Most farmers have their cash in land but, unfortunately, some have had to sell it when they needed money," he said. Many changes in agriculture have led to the American public backlashing toward agriculture because they don't think subsidies are needed. He said more changes need to be made for farmers to stay in business in the future: changes in tariffs and subsidies, changes in tax laws, lower interest rates and better supplies of needed inputs. "There are five dimensions of agriculture--food, fiber, life experiences, life sciences and fuel," said Kohl. "Being able to fill all those dimensions requires help from all angles." Changes in agriculture Kohl said farmers in the U.S. will see some changes in order to continue to compete with the worldwide markets. "The words value-added and niche will become more common as we move into the future," he said. "Everyone will need to have their specialty. Organic production will continue to become more popular, with 20 percent of agriculture in organic production by 2020." Farm and rural demographics in North America will show more of a European flavor and Ukrainian/South American dynamic. There will be a geographic migration of farms and ranches and rural renaissance seekers will emerge. "Consumer or special interest groups will drive agricultural business models. This was seen in California with the passage of Proposition 2," he said. "That was the most significant thing that happened in the election this year and will affect people in and out of agriculture." Kohl said bankers will play a huge role in determining the future of agriculture. The small community banks do a good job of keeping rural communities stable. However, with more consolidations in the banking business, the medium and larger banks are going to need to learn more about agriculture in order to understand what farmers need to continue to feed the world. He expects many changes in agriculture and the world in the next 20 years. The U.S. will receive pressure from other countries, like China, for economic and military supremacy. He also predicts a change in currency to the "Amerio," which would be a common currency for all of North America. "Many changes are on the horizon--everything from a woman president or vice president to wars over waters to a 300 bushel per acre corn average," Kohl said. "Changes will be happening." Jennifer Bremer can be reached by phone at 515-833-2120 or by e-mail at jbremermaj@hotmail.com. 12/15/08 Date: 12/10/08
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