AG PRODUCTION -- A MANUFACTURING INDUSTRY?
by Thayne Cozart
Director of Communications, National Organization for Raw Materials
Too often, Chamber of Commerce leaders in county seat towns, and politicians at the state and federal level, eagerly apply a double standard when considering what constitutes a healthy agricultural industry. By and large they figure that a large crop, and a more than ample animal protein supply, which make commodity prices fall, is the definition of Ag Success.
My view differs. I think these folks should measure ag's success just as they do the success of one of the manufacturing companies they try so hard to recruit into their towns by giving various tax abatements, incentives, perks, etc.
Ask any Chamber of Commerce leader how he or she measures the success of the manufacturing company in the industrial park on the edge of town. Most likely the answer will be that the company's success is measured in the number of employed people, the annual gross wages and salaries paid, and the net profit of the company.
And, that analysis would be absolutely correct. So let's apply the same analogy to each and every farm in the city's trade territory:
First of all a farm is a manufacturing enterprise. It just doesn't have four walls and a weekly payroll. Each and every acre is like an employee. It produces product and it produces income. The farmer and his family supply the labor, management, supplemental feed and plant nutrients, and some of the capital. Agribusinesses supplies some resources. Banks supply the rest of the capital. The Good Lord provides the soil and its inherent fertility, the rain which we pay nothing for, and the microbes in the gut and rumens of farm animals.
Each acre has a differing "payroll." Some pay off once a year with a grain crop or a calf crop; others several times per year with commodities such as pigs, lambs, and double-cropping; others with every milk check.
Regardless of the acre or what it does, the bottom line from a macro-economic standpoint is how much DISPOSABLE INCOME PER ACRE does it produce? That's a combination of both production and price!!! A poor crop short-changes the disposable income per acre. So does a poor price.
Applying a parallel logic to the manufacturing plant example, each acre will maximize its disposable income when it's at full production and that production enters market channels at a price in balance with the costs of labor and capital.
I like to use the following example to prove my point to city folks that agricultural profits are important to everyone. Suppose an ad in the local paper said that the local Chamber of Commerce was doing a promotion and the ag committee members were putting a $10 bill on each and every acre in the county and that Saturday morning it was first-come, first-served. The only rule was that all the $10 bills had to be spent in the county within a month. Rest assured that every kid in the county, plus all the folks short on income, would be out there competing for those $10 bills.
The next week, building upon the success of the program, the Chamber ups the ante and puts a $50 bill on every acre. This time a much greater share of the county's population would be up at the crack of dawn to compete for the $50 bills.
The next week, the Chamber ups the ante to $100 on each acre. This time even the bankers and businessmen would be out there hustling and competing for those $100 bills.
What do you think would happen to retail sales and bank deposits in the county? They'd go up substantially, probably by a factor of three to five, thanks to the local agricultural trade turn. You do the arithmetic for your county and astound yourself as to the annual disposable income that ag in your county could generate.
If everyone understood how ag production and its trade turn generated earned income in the American economy, average citizens would march in the streets clamoring for full production and equitable prices. It's the best way for them to get earned income into their pockets and bank accounts.
The sad part is that once the annual cycle of agricultural production is sold at too-low a price, the die is cast and the lost income can never be recovered.
The following statement may be difficult for many people to believe, but it is true, and the National Organization for Raw Materials has the research to back it up: In the United States, the cumulative loss of ag income since 1952, multiplied times the ag trade turn, very closely equals the growth in public and private debt in that time span.
Want to balance the budget and retire the debt? If so,
MAXIMIZE THE DISPOSABLE INCOME PER ACRE and watch it happen!