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Iowa Ag ReviewFall 2002, Vol. 8 No. 4

Are Cost-Increasing Production Practices in Agriculture’s Future?Bruce A. [email protected]

Success in the business ofproducing agriculturalcommodities goes to thosewith the lowest production costsand highest volume, both of whichare best achieved through special-ization. The payoffs from getting bigand specialized are not unique tofarming. Frederick Taylor’s prin-ciples of scientific management inthe early twentieth century accom-panied vast changes in the way thatgoods were manufactured. HenryFord’s new assembly plants dramati-cally increased labor productivity byhaving each worker become adept ata single task. The payoff from in-creased specialization and controlover the work environment allowedboth corporate profits and workerpay to increase while simultaneouslydropping the price of manufacturedgoods enough so that most workingfamilies could buy them.

Increased specialization and con-trol in farming (particularly in thelivestock sector) has come to becharacterized by opponents as fac-tory farming. This characterizationhas stuck because, at least for live-stock production, it is an apt descrip-tion. Animals are consideredprotein-producing machines. The ob-jective of the farm is to make thesemachines run as homogeneously andas smoothly as possible, and to fit asmany of the machines onto one siteas possible so that the returns tomanagement are maximized.

The resulting productivity in-creases in agriculture have beenspectacular. In 1950, broilers wereprocessed at 128 days weighing 3.75pounds. It took about 16 pounds of

feed to grow a bird to marketweight. In 1994, broilerswere still processed at 3.75pounds, but it took only6.3 pounds of feed perbird. For hogs, the last 20years have seen feed effi-ciencies drop from 5.5 toless than 3 pounds of feedper hog.

WHO BENEFITS FROM LOWERCOSTS?The ultimate beneficiaries of thisinexorable drive for efficiencyare consumers through lowerfood costs. Most of us know thatU.S. consumers spend a lowerproportion of their income onfood —10.7 percent in 1997—thando consumers in any other country(German consumers spent around19 percent while Mexican consum-ers spent 28 percent). Some at-tribute this low percentage to U.S.agricultural policies that help keepfood prices down by expanding sup-plies. But the primary reason whythis percentage keeps dropping (itwas 13.9 percent in 1970) is a combi-nation of continued growth in agri-cultural productivity along withincreased disposable income.Growth in productivity is more im-portant than agricultural policy inhelping to keep prices down, andgrowth in incomes means that con-sumers can afford improvements infood consumption while spending agreater proportion of their incomeon other items, such as housing andautomobiles.

Economists characterize thedemand for food as being “incomeinelastic.” This simply means thatwhen consumers obtain, say, a 10percent increase in income, they will

increase their food purchases byless than 10 percent. Furthermore,the composition of food expendi-tures will change. A greater propor-tion of food expenditures willoccur away from home, in restau-rants. A greater proportion will bespent on higher-quality (more ex-pensive) food, and a greater pro-portion will be spent on processedproducts that reduce the amountof food preparation time.

These realities of food con-sumption combined with growth inagricultural productivity, whichholds down prices received byfarmers, is the primary reason whyfarmers’ share of food expenditurescontinues to drop. But these reali-ties could also hold the key to re-versing the never-ending race toadopt low-cost, high-volume busi-ness methods.

AN ALTERNATE PATH?When we think of a food connois-seur, we usually picture a wealthyperson with enough time and

2 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT FALL 2002

Iowa Ag Review

ISSN 1080-2193http://www.card.iastate.edu

Becky OlsonPublication Design

Iowa Ag Review is a quarterly newsletter pub-lished by the Center for Agricultural and RuralDevelopment (CARD). This publication presentssummarized results that emphasize the implica-tions of ongoing agricultural policy analysis,analysis of the near-term agricultural situation,and discussion of agricultural policies currentlyunder consideration.

EditorBruce A. Babcock

CARD Director

Editorial StaffSandra Clarke

Managing EditorBetty Hempe

Editorial Consultant

Editorial CommitteeJohn BeghinTrade and AgriculturalPolicy Division HeadKeith HeffernanCARD Assistant DirectorRoxanne ClemensMATRIC Managing Director

Iowa State UniversityIowa State University does not discriminate on thebasis of race, color, age, religion, national origin,sexual orientation, sex, marital status, disability, orstatus as a U.S. Vietnam Era Veteran. Any personshaving inquiries concerning this may contact theDirector of Affirmative Action, 1031 Wallace RoadOffice Building, Room 101, 515-294-7612.

Contact Betty Hempe for a free subscription, publica-tion information, and address changes at: Iowa Ag Re-view, CARD Publications, Iowa State University, 578Heady Hall, Ames, IA 50011-1070; Phone: 515-294-7519;Fax: 515-294-6336; E-mail: [email protected]; Web site:www.card.iastate.edu

IN THIS ISSUEAre Cost-Increasing ProductionPractices in Agriculture’sFuture? ............................................. 1

A New Brand of Agriculture?Farmer-Owned BrandsReward Innovation ......................... 4

Iowa’s Agricultural Situation ........ 6

Meet the Staff:Jackie Garreau ................................ 9

Disaster Assistance:How Best to Pay WhenNature Has Her Way..................... 10

Recent CARD Publications.......... 12

money and enough of an inclina-tion to invest in knowledge aboutquality food (and wine). Thesefolks can typically rattle off the dif-ferences in goat cheeses made indifferent valleys of the Pyrenees.They can comment on the at-tributes of arugula grown in Cali-fornia and France. They know thenuances of single malt scotches,and can have an erudite discus-sion of the finer points of Frenchversus Australian red wines.

And food connoisseurs are likelyto hold a firm belief that there is afundamental trade-off between foodquality and cost. They know that inorder to obtain high-quality meat,vegetables, bread, cheese, and bev-erages, they will have to spendmore money.

Most of U.S. agriculture is not inthe business of relating to gourmetdiners. Rather, U.S. agriculture isgeared toward providing productsof uniform quality at the lowest costand the highest volume. That is,what food connoisseurs demandsimply cannot be obtained fromtoday’s mainstream agriculture.

High-quality food typically re-quires more labor to produce(Parmigiano-Reggiano is made us-ing methods that are seven centu-ries old) and more care to process.In other words, high-cost produc-tion methods are used to create thekinds of foods that are sought byour typical food connoisseur.

What does this have to do withlife as we know it in rural America?As a nation, we have experiencedsignificant income growth over thelast 20 years. This income growthhas allowed us to spend less onfood and more on luxury items,such as cars, houses, vacations,and clothes. Such items are incomeelastic, in that a 10 percent in-crease in income will lead to agreater than 10 percent increase inpurchases. Other consumer itemsthat are income elastic are luxuryfood items, such as those pur-chased by food connoisseurs.

If income growth over the next15 years continues as it has over thepast 15 years, then we should seethe market for upscale food itemsgrow rapidly. Who will supply thesefood items? Many of the items willbe supplied by producers who rejectthe low-cost, high-volume businessmodel that leads to success in acommodity business in favor of ahigher-cost, consumer-oriented busi-ness model that emphasizes productquality and diversity.

Of course, U.S. consumers mayopt to purchase imported productsto fill this demand. If U.S. agriculturecannot or chooses not to produce thetypes of high-quality products de-manded by upscale consumers, thenthe next 15 years could see a surge inthe demand for imported food.

TRANSLATION OF DEMAND INTORETURN ON INVESTMENTAlready we are seeing individual pro-ducers and groups of producers us-ing their higher costs to meetgrowing consumer demands. Ver-mont Cheddar Cheese producershave successfully moved upscale byemphasizing the unique flavor oftheir product and its regional nature.Pasture-raised hogs in Iowa are beingsold to Niman Ranch for processinginto upscale cuts for West Coast res-taurants. But a large problem formost of U.S. agriculture is that thecurrent commodity marketing systemis not capable of compensating pro-ducers who increase the quality oftheir product, so there is no incentivefor them to adopt costly quality-increasing production methods.

There are two ways around thisproblem. If every producer adoptsquality-increasing practices, thenconsumers will be presented with anew product of uniformly higherquality. This method works best forproducts that are produced in asmall geographic area where organi-zation and monitoring costs are low.Alternatively, a separate marketingchannel can be developed to allowsource-identified products for those

FALL 2002 CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT 3

Iowa Ag Review

consumers who are willing to paymore for quality. Examples of bothare occurring now.

GOVERNMENT MANDATEOne method for getting all produc-ers to adopt higher-cost productionsystems is to simply outlaw low-cost production methods in thename of meeting consumer de-mand. This is what the EuropeanUnion has done in trying to phaseout cages for laying hens. CurrentE.U. law requires that all caged lay-ing hens have at least 111 squareinches of space after the year 2012.This contrasts with current U.S.practices that give each hen 53square inches. As a result, the Euro-pean Union will have happier chick-ens, higher egg prices, and, forthose consumers who support ani-mal welfare, a product that meetsconsumer demands.

Many U.S. groups advocate acomplete ban of organophosphateand carbamate insecticides in U.S.crop production. If passed, thisregulation can be viewed as a gov-ernment regulation in response toconsumer demand. For certaincrops, the resulting higher costs willresult in higher prices for farmers.

Of course, one downside of us-ing government regulation toachieve higher prices is that importcompetition will increase if foreignproducers are not subject to thecost-increasing regulation.

CORPORATE MANDATEIn response to growing demand forincreased animal welfare standards(and political pressure by suchgroups as People for the EthicalTreatment of Animals), U.S. fastfood restaurants have adopted ani-mal welfare guidelines that will in-crease costs. Their huge size(McDonald’s is the number one pur-chaser of beef and potatoes and thenumber two purchaser of poultryproducts in America) gives fastfood corporations enormous lever-age over their suppliers. For ex-

ample, McDonald’s now mandatesthat producers who supply eggs tothem must increase the amount ofcage space allocated to each hen to72 square inches. If only a portionof producers decide to adopt thesestandards, then McDonald’s will bepurchasing eggs from a group ofdedicated suppliers rather than onthe open market.

NICHE MARKET DEVELOPMENTDevelopment of a product with atrait sought after by high-end con-sumers is perhaps the most directroute to realizing increased returns.But getting the product to the cus-tomer through existing retail outletsin sufficient quantities is often adaunting task. MBA Poultry ofTecumseh, Nebraska, cools itsfreshly harvested birds in cold airinstead of dunking them in a streamof chilled water. The cost of air chill-ing is greater but with this innova-tion, the meat does not absorbwater and there is less spread of sal-monella. After some marketing andproduction missteps, which in-cluded promising more product thancould be delivered, MBA Poultry isnow selling product in 1,400midwestern stores.

PRODUCER MARKETING ORDERSA federal marketing order allows pro-ducers to coordinate their decisionsto enhance the returns from growingand selling some agricultural prod-ucts. Marketing orders are often usedto guarantee minimum quality stan-dards, which can serve two pur-poses. The ostensible purpose is toincrease quality to increase con-sumer acceptance and demand. Anindirect effect of this control in qual-ity is a control of quantity that canresult in increased price.

For example, domestic and ex-port demands for California pista-chios would grow if all Californiaproducers and processors were toadopt procedures that limit thegrowth of aflatoxin. One way to forceproducers to adopt such practices is

to develop a marketing order forpistachios that would empower anadministrative committee to en-force uniform quality standards forpistachios. A hearing to establishsuch a marketing order for pista-chios was held in July of 2002.Adoption of the marketing orderand safer production and handlingpractices would increase costssomewhat, but advocates of themarketing order argue that the re-sulting price increase would morethan offset any increase in cost.

WHAT IS “EFFICIENT” AGRICULTURE ?The never-ending quest for low costand efficiency has guided the struc-ture of U.S. agriculture for the lastone hundred years. But as incomescontinue to rise, the definition ofwhat constitutes an efficient produc-tion method may change to reflectincreased willingness to pay forproduct quality. That is, once wecan afford all the food we could pos-sibly want to eat, we will then begindemanding more high-end food thatoften can only be produced usingcostly production practices. Oncethis occurs, agriculture must de-velop new market channels andmarket regulations to give produc-ers who invest in product quality achance to obtain a return on theirinvestment. Only if these new mar-kets are developed can there be afundamental change for a significantportion of U.S. agriculture. �

That is, once we can afford

all the food we could

possibly want to eat,

we will then begin

demanding more high-end

food that often can only

be produced using costly

production practices.


Iowa Ag Review

Dermot J. [email protected]

Sergio H. [email protected]

Commodity agriculture as cur-rently practiced in the U.S.Midwest is an extremely effi-cient way of organizing productionand distribution. It allows for inex-pensive production and bulk trans-fer of huge quantities of meat andgrain and has resulted in enormouscost savings to U.S. and internationalconsumers. This system has evolvedin accordance with market forces,and we expect that these sameforces will allow the current systemto survive for decades.

There are aspects of the system,however, that are not desirable. Forexample, the commingling that oc-curs to take advantage of bulk han-dling means that signals cannot besent from consumers to producers.Consumers might desire food prod-ucts that are different from the com-modity standard and they might bewilling to pay a premium, but thefarmer does not get this signal.

In addition, competitive pres-sures mean farm operations mustgrow larger to reduce costs. Asfarms have grown larger, govern-ments throughout the world haveattempted to slow the process in or-der to ease the transition for thosewho are forced out of farming and toprop up rural communities. Thesegovernment “protections” distortmarkets and can lead to interna-tional tensions, as each country de-fends its own interventions.

Farm groups have attempted toaddress these issues by working to-gether to build value-added pro-cessing facilities such as ethanolplants and to create niche productsto satisfy the desire of some con-

A New Brand of Agriculture?Farmer-Owned Brands Reward Innovation

sumers for variety. However, when-ever these efforts are suc-cessful, they are quicklyimitated, and profit marginsget smaller and smaller.

A third possible solutionhas recently begun to emergethat meets consumers’ desirefor variety and quality and al-lows farmers to retain profitmargins for long periods. Thissolution would allow somesmaller operations to remainin business. The solution doesrequire cooperation betweenproducers and government,but it also relies upon marketforces. In essence, the solutionis to allow farmers to own theirown brands and to control produc-tion of branded quantities, much asalready occurs in other sectors ofthe economy. The phrase used in theEuropean Union to describe this con-cept usually refers to either a “guar-antee of origin” or a “guarantee ofproduction process.” (In the UnitedStates, the description will include areference to a federal marketing or-der.) Neither of these phrases reallycaptures the essence of the concept.Instead, we refer to this solution as a“farmer-owned brand.”

THE ECONOMICS OF FARMER-OWNEDBRANDSSome consumers are willing to paypremium prices for differentiatedproducts, and these premiums canoccasionally result in niche marketssuch as those that exist for organicproducts and local farmers markets.These consumers are essential for asuccessful farmer-owned brand. Butproducers in traditional niche mar-kets do not attempt to control sup-ply (that is, prevent imitation);therefore, profits for producers oforganic and local products will fol-low the pattern described for com-modity products. To be successful,branding also requires producer

control over the quantity supplied,and this is the key difference be-tween farmer-owned brands and or-ganic products or farmers markets.

In order to assert supply controlwithout violating price-fixing rules,farmer-owned brands must be basedon some fixed attribute. For example,a particular brand might specify thatthe product can only come from aselect area and justify this restrictionbased on the specific attributes ofthe region. Another legal way to con-trol supply would be to limit mem-bership in the producer group to arelatively small number of high-qual-ity producers (or to severely restrictadmission into the group). A thirdway would be to impose strict (forexample, environmentally friendly)production and/or quality standards,possibly allowing for some flexibilityover time to accommodate changesin market circumstances. A fourthway is to require the farmer-ownedproduct to use some ingredient orprocess for which the producergroup can control access, eitherthrough intellectual property rightsor through trade secrets.

In all cases, a successful prod-uct will become a temptation forimitators from outside the original


Iowa Ag Review

group and will generate attempts bymembers of the group to expandtheir individual output. If these pres-sures result in an expansion of sup-ply, the brand will fail. The mostobvious way to restrict this type ofsupply expansion is to use regula-tions to protect the property rights ofthose who own the brand. Theseregulations might be the same asthose used to protect branded prod-ucts in other sectors, with the crucialexception that they must also havethe power to restrict additional pro-duction from within the group—anissue that is not faced by corporatebrand owners. With this ability to re-strict production comes freedomfrom the boom-bust price cycles as-sociated with commodity markets.

Farmer owners will capture thebenefit associated with product im-provements; consequently, they canbe expected to pay close attentionto quality. Notice how the incentivestructure for a farmer-owned brandwould differ from that in a commod-ity system. Farmer owners wouldvalue the brand name and wouldtherefore want to maintain highquality standards throughout theassociation. Further, farmers wouldbe rewarded for innovation both inproduction and in marketing.

THE SITUATION IN EUROPEThe problems associated with agri-cultural commodities describedearlier are in many ways of greaterrelevance in the European Union.Europeans tend to live closer tofarm areas and they are thereforemore concerned about rural vitality.Also, there is a long tradition of re-gional production methods, and themost successful of these are liableto be copied. Finally, E.U. agricul-ture is currently evolving from onebased on price supports to onebased on income support. This hasput enormous cost pressure onfarms, which, if left alone, wouldresult in a rapid commodification ofmany food products.

All of the above has created agreat amount of interest in the pro-cess of branding in the European

Union. Dozens of individual centersare currently working on the issue,and several hundred new brands areintroduced each year. The emphasison selling the brand concept to con-sumers and policymakers is key tofinding ways around European price-fixing laws, and any positive impacton farm profitability is thereforeviewed as a by-product of the moreimportant goal of protecting the food

supply. Nevertheless, the programswork and operate exactly as theymight be expected to if they were setup to maximize farm profitability. Twoof the more successful cases that weencountered on a recent study tour inEurope are Brunello di Montalcinoand Parma Ham.

BRUNELLO DI MONTALCINOMontalcino is a small, saucer-shapedvalley in Tuscany that is said to be anideal location for growing Sangiovesegrapes (called “Brunello” inMontalcino). Producers in this areahave formed an association that ownsthe brand called Brunello diMontalcino, and this association lim-its the quantity of grapes grown underthis brand name. Individual vineyardshave their own labels, but most of themarketing and promotion of the brandis done by the producer-owned asso-ciation (about 60 percent of theassociation’s budget is spent on pro-motion). This makes a lot of economicsense, as some of the surviving vine-yards harvest less than two acres.The association also suggests a mini-mum price for wine bearing theBrunello di Montalcino brand name.Individual vineyards are free to chargemore than this suggested minimum,and virtually all of them do.

Importantly, the production areais set by the association and is rarelychanged. The association also limitsthe yield of grapes and the yield ofwine from grapes (to maximums of3.2 tons per acre and 68 percent, re-spectively). Production of Brunellodi Montalcino is further restricted byother means, such as prohibiting irri-gation. The strict rules underlyingthis brand are enforced using sup-port from federal and state authori-ties. Attempts to use this nameoutside of the European Union wouldbe opposed by the European Unionin international regulatory groupssuch as the World Trade Organiza-tion. Vineyards that are eligible touse the Brunello di Montalcinobrand command large premiums.

PARMA HAMA second successful E.U. example is“Prosciutto di Parma” or “ParmaHam,” a dry-cured ham produced inthe Parma region of Italy. Thisbrand is owned by a group of hamprocessors rather than by hog farm-ers. They maintain control over pro-duction using a regulation thatspecifies that all ham bearing thisbrand be cured in a very small areajust south of the city of Parma. Theargument used to justify this restric-tion is that this region has beenused to dry-cure ham since at leastthe times of the Roman Empire, be-cause its weather is ideally suitedfor that process. The wind blowsinto this region from nearby moun-tains and these climatic conditionsare said to give hams a unique fla-vor. This is the rationale for requir-ing that processing facilities havewindows facing the mountains toallow this “special” air through theunits. Interestingly, however, withmodern climate control these win-dows are seldom (if ever) used.

Another requirement of the“Prosciutto di Parma” brand is thatthe ham be produced from a pigraised in certain regions in thenorth of Italy. Further, only tradi-tional Italian breeds such as Italian

continued on page 8

With this ability to restrict

production comes freedom

from the boom-bust price

cycles associated with

commodity markets.


Iowa Ag Review

Iowa’s Agricultural Situation

2002 2001 Avg 97-01

Iowa Corn Price

1.35

1.55

1.75

1.95

2.15

2.35

2.55

2.75

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Dol

lars

per

Bus

hel

Iowa Soybean Price

4.00

4.50

5.00

5.50

6.00

6.50


Dol

lars

per

Bus

hel

Iowa Oat Price

1.05

1.201.35

1.50

1.651.80

1.952.10

2.25


Dol

lars

per

Bus

hel

80

85

90

95

100


Dol

lars

per

Ton

Iowa Alfalfa Price

Corn, Soybean Prices and Yields Up Slightly;Hog Inventory Edges Downward

Alexander [email protected]

2002 2001 Avg 97-01

2002 2001 Avg 97-01

2002 2001 Avg 97-01

continued on page 9

IOWA CORN

The U.S. Department of Agriculture (USDA) October 21Iowa Crops and Weather report estimated harvest to be41 percent complete, compared to 59 percent normallyharvested by this time. Dry weather in mid-October allowedquicker harvesting. The early October ratings confirm that Iowacrops are in good shape, with 70 percent rated good to excellentand only 10 percent rated poor to very poor. As of October 1,Iowa’s corn crop was forecast to yield a record 159 bushels peracre. The projected yield is 13 bushels above last year’s level and15 bushels above the five-year average. Production is forecast at1.89 billion bushels for the state, up 14 percent from last year’stotal. As of mid-September, the price of corn in Iowa averaged$2.48 per bushel, up $0.63 from the price a year ago.

U.S. CORNNationwide, the USDA October 11 Crop Production report raisedthe corn production forecast to 8.97 billion bushels, which is 6percent below last year’s production. Based on October 1 con-ditions, yields are expected to average 127.2 bushels per acre,down 11 bushels from last year’s level. The forecasted yield andproduction are the lowest in seven years. Wet weather in springthat delayed planting in the eastern Corn Belt, as well as persis-tent hot, dry weather that stunted growth and limited yield po-tential, has led to yields below 2001 levels in many areas of thecountry. The harvested corn area is projected at 70.5 millionacres, up 3 percent from 2001 area. According to the USDA Sep-tember Grain Stocks report, the total old-crop corn stock wasrecorded at 1.60 billion bushels, down 16 percent from lastyear’s total. The ratio of off-farm to on-farm storage was 1.7compared to 1.53 last year. The summer-time corn usage of 2.00billion bushels fell short of the 2.02 billion bushels consumedlast summer. USDA estimates the worldwide feed grain produc-tion at 300 million bushels less than last year’s production,which is favorable for U.S. export demand. Projected cornprices for the 2002-03 marketing year are $2.35–$2.75/bu.

IOWA SOYBEANSThe soybean harvest, slowed by damp weather in the begin-ning, was in full swing by mid-October, bringing the statewidecompletion rate to 88 percent, just 2 percent below normal.Statewide, the soybean crop condition remained steady at 66 per-cent good to excellent, which is better than conditions a year ago.The October yield forecast of 46 bushels per acre is up 2 bushelsfrom the 2001 level and slightly above the five-year average. Thestate soybean production is projected at 489.9 million bushels, up2 percent from last year’s crop. Iowa farmers were getting $5.42


Iowa Ag Review

Iowa Cash Receipts Jan. – June2002 2001 2000

(Million Dollars)

Crops 1,853 2,086 2,256Livestock 2,565 2,892 2,947Total 4,414 4,978 5,203

World Stocks-to-Use Ratios Crop Year

2002/03 2001/02 2000/01 (Sept. Projection) (Estimate) (Actual)

(Percent)Corn 14.46 20.24 24.86Soybeans 13.35 16.65 17.90Wheat 22.63 27.55 28.58

Average Farm PricesReceived by Iowa Farmers

August* July 2002 2002 2001

($/Bushel)Corn 2.45 2.03 1.85Soybeans 5.65 5.26 4.95Oats 1.85 1.67 1.36

($/Ton)Alfalfa 85.00 85.00 86.00All Hay 84.00 85.00 85.00

($/Cwt.)Steers & Heifers 61.80 60.60 70.80Feeder Calves 85.80 83.70 102.00Cows 37.90 35.50 44.90Barrows & Gilts 35.60 41.80 53.80Sows 23.70 21.40 43.80Sheep 23.20 25.50 31.60Lambs 79.40 81.10 58.50

($/Dozen)Eggs 0.34 0.27 0.27

($/Cwt.)All Milk 10.90 11.30 16.20

*Mid-month

August

Iowa Feeder Calf Price

75

80

85

90

95

100

105

110

115


Dol

lars

per

Cw

t

Iowa Barrow and Gilt Price

30

35

40

45

50

55


Dol

lars

per

Cw

t

Iowa Sow Price

20

25

30

35

40

45


Dol

lars

per

Cw

t

2002 2001 Avg 97-01

2002 2001 Avg 97-01

2002 2001 Avg 97-01

2002 2001 Avg 97-01 2002 2001 Avg 97-01

Iowa All Milk Price

10

12

14

16

18

20


Dol

lars

per

Cw

t

Iowa Steer and Heifer Price

60

65

70

75

80


Dol

lars

per

Cw

t


Iowa Ag Review

Landrace or Italian Large White areallowed. This creates the possibilitythat some of the success of the pro-gram might be transferred to Italianhog producers. Figure 1 compareshog prices for several countries.Italian hog prices have averaged$7.44 per hundred pounds higherthan German hogs over this period.In this case, there is no evidencethat Italian hog producers canprofit from the existence of the“Prosciutto di Parma” brand becausethere is no restriction on the numberof hogs that are grown in Italy. How-ever, the higher prices observed inItalian hog production have probablyallowed the Italian hog industry tosurvive in the absence of trade pro-tections from less expensive E.U. pro-ducers in the Netherlands, Ireland,and Denmark.

The Brunello di Montalcino andProsciutto di Parma brands are only atiny fraction of those that have suc-ceeded in the European Union.

AN EXAMPLE OF A SUCCESSFUL U.S.FARMER-OWNED BRANDFarmer-owned brands are relativelyrare in the United States. One suc-cessful brand involves Vidalia on-ions, a registered trademark of theGeorgia Department of Agriculture.Vidalia onions are grown only by agroup of authorized farmers in theregion around Vidalia in the South ofGeorgia (see “Why Can’t Vidalia On-ions Be Grown in Iowa? DevelopingA Branded Agricultural Product” byRoxanne Clemens, MATRIC BriefingPaper 02-MBP 3, available atwww.matric.iastate.edu). The farm-ers use a trademark and a federalmarketing order to restrict market-ing and production of these particu-lar sweet onions.

CAN THE MIDWEST JUMP ON THEBANDWAGON?It seems highly unlikely that the Mid-west will ever create a brand of ex-tra virgin soybean oil given currentconsumer preferences and produc-

tion practices. But other productsseem ideal for branding. For ex-ample, the Japanese beef consumerhas discovered that beef originatingfrom packing plants located alongInterstate 80 has a better flavor thanother U.S. beef. This is probably truebecause midwestern beef is typicallyproduced from calves that are grainfed for as long as six months. Beeffrom other U.S. regions is typicallyolder and less tender than themidwestern product and comesfrom calves fed for much shorterperiods. As a result, Japanese con-sumers have now begun to request“I-80 beef,” a brand that does not yetexist. It should be possible for agroup of cattle feeders to find a suit-able location for the production ofthis type of beef and justify why beeffrom this location has some specialcharacteristics. A key element inthis brand would be that state andfederal regulators would agree tostep in to protect this brand fromoverproduction from within thegroup and from outside competition.This latter feature has not been evi-dent in the attempts seen with thistype of product to date.

In the same way, in each county,producers could probably describea unique way to make ice cream,cheese, sausage, or ham, or unique

ways to feed and process pigs, cattle,chickens, or turkeys. These productsare more likely to succeed if there isa genuine flavor difference such asmight exist with range-fed poultry.Other possible brands might bebased on production practices thatuse science to improve flavor andtenderness.

Whatever the innovation, thecases we’ve studied in Europe maybe harbingers of a new strategy forAmerican farmers to make the mostof the unique characteristics of theirproducts in the marketplace.�

FIGURE 1. HOG PRICE COMPARISON, 1999-2001 (E.U. PRICES ARE DEADWEIGHTBASIS; U.S. PRICES ARE NATIONAL BASE FOR 51-52 PERCENT LEAN BARROWS AND GILTS)

A New Brand of Agriculture?continued from page 5

Criteria for SuccessfulDifferentiation of anAgricultural Product

• Product must transmit pricesignals from consumers toproducers.

• Product must achieve a scaleof production sufficientlylarge to justify the costs ofcreating and maintaining thedifferentiated image amongconsumers.

• Imitation of the product mustbe prevented.

• Method of supply controlmust not violate laws againstprice fixing.


Iowa Ag Review

per bushel of soybeans in August-September, $0.77 higher than theprice last year.

U.S. SOYBEANSThe USDA October 11 Crop Produc-tion report forecasted soybean pro-duction at 2.65 billion bushels, 8percent below the level in 2001.Based on October 1 conditions,yields are expected to average 37bushels per acre, down 7 percentfrom last year’s yields. If realized,this would be the lowest productionsince 1999. Expected harvestedacreage is forecast at 71.8 millionacres, 2 percent below that of lastyear. According to the SeptemberGrain Stocks report, the total old-crop soybean stock was recorded at208 million bushels, down 16 per-cent from last year’s stock. The ratioof off-farm to on-farm storage was2.3 compared to 1.96 last year. Onthe demand side, the USDA October11 World Agricultural Supply and De-mand Estimates report puts U.S. soy-

bean exports at 850 million bushels,20 percent less than exports a yearago. In spite of a large drop in U.S.soybean exports to the EuropeanUnion and Korea, so far U.S. ex-ports exceed last year’s levels. Soy-bean shipments to China areexpected to remain strong until theend of the year, when pending ge-netically modified organism (GMO)labeling regulations by the Chinesegovernment may go into effect. Sum-mer consumption of soybeans to-taled 477 million bushels, up 4percent from that of a year ago.

IOWA HOGS AND PIGSAfter August’s one-third cut in hogprices, the USDA September 27 Hogsand Pigs report brought a bit ofgood news for pork producers, indi-cating smaller supplies in the com-ing months. The report estimatedthe inventory of hogs on U.S. farmsat 60.2 million hogs and the inven-tory of market hogs at 54.2 million;both numbers are 1 percent abovelast year’s levels. There were 6.05million breeding hogs, 2 percentfewer than last year. The initial mar-

ket reaction was positive, as theseinventories were below trade expec-tations. Even though the reductionin the breeding herd points to thebeginning of a liquidation phase, areduction in hog slaughter is ex-pected in the spring quarter of 2003.In September, Iowa farms had 15.4million hogs and pigs. This is 2 per-cent higher than levels a year ago,but nearly 1 percent lower than theJune 1 inventory. The Iowa June-Au-gust pig crop this year was countedat 3.65 million head, on a par withlast year. A total of 420,000 sows far-rowed, with an average litter size of8.7 pigs per litter. As of September1, Iowa producers planned to farrow440,000 head of sows and gilts in theSeptember-November quarter, down2 percent from last year’s number.The estimated farrowing intentionsfor the December-February 2003 pe-riod of 440,000 head of sows are 5percent above the number of sowsfarrowed during the same period in2001. Analysts expect that pork pro-ducers will continue to market hogsat a loss for most of the coming win-ter and spring. Break-even prices forproducers are projected to appearby summer of 2003.�

Iowa’s Agricultural Situationcontinued from page 6

Jackie Garreau

Meet the Staff: Jackie Garreau

The friendly voice that hasgreeted callers and visitors toCARD for the past five yearsbelongs to Jackie Garreau. Jackie isthe CARD receptionist and secretaryfor Assistant Director Keith Heffernanand for Professors GianCarloMoschini and David Hennessy.

Jackie worked at Guthrie CountyHospital in her hometown of GuthrieCenter, Iowa, for twelve years as amedical transcriptionist, medicalrecords coder, chart reviewer, andrecords clerk before she and her hus-band, Leo, moved to Ames in thespring of 1997. Jackie joined CARD inAugust of that year.

Besides her other secretarial andadministrative support duties, Jackieis in charge of communicating em-ployee news through CARD’s two bi-weekly e-mail posts: InsideCARD andCARDEvents. She also handles the pa-perwork for personnel matters—with

its wide variety and complexity offorms and checklists—and makessure that every detail is attended to.She can often be seen making a dashto the dean’s office in Curtiss Hall toget a signature or push a formthrough to make a deadline.

Serving at the front line for con-tacts seeking information or trying tomake a connection to the faculty andstaff at CARD is one thing Jackie saysshe appreciates about her role withinthe organization. “I enjoy handlingcalls, and getting to meet people fromvarious organizations and other coun-tries,” she says.

Jackie can be found helping wher-ever there is a need. She often worksat CARD-sponsored conferences suchas the Ag Forum, assisting with regis-tration. She also regularly helps staffwith their travel plans, creates mail-ing lists for publicizing special events,inputs data about CARD publications

for an online database, and helpswith the hosting duties when CARDreceives special guests.

At home, Jackie looks forward totime spent with her husband of 29years, her two daughters and sons-in-law, and her two grandsons. “I enjoybeing with my grandsons and family,and, occasionally, traveling.” A thirdgrandson was welcomed to the fam-ily October 8. Jackie also likes to sewand shop in her spare time.�


Iowa Ag Review

Over the past several months, Congress, the administration, andvarious farm groups have debated the type and size of an agricul-tural disaster assistance package. Drought has affected a largepart of the country and could continue to do so in future months (seeMap 1). The Senate attached an agricultural disaster assistance packageto the Department of the Interior’s appropriation bill. The House has notmoved forward on any disaster package. The administration has statedthat any disaster assistance must be paid for by budget offsets (that is,other programs must give up funding to pay for the disaster assistancepackage). The debate on a package for the current drought has centeredon two questions: who will receive assistance, and how will it be paid for?

The administration and the House leadership have focused on budgetoffsets to pay for any disaster package. Many critics of agricultural disasterfunding have pointed to the recent passage of the U.S. Food Security andRural Investment Act, stating that any funding for agricultural disaster as-sistance should come from the $70.5 billion appropriated for the new farmlegislation. The Senate has followed the form of previous disaster packagesby declaring these outlays emergency spending. This allows Congress toavoid budget offsets; it can simply increase the federal budget to accountfor the additional spending. In previous agricultural disasters, the federalgovernment has provided various forms of assistance, from direct pay-ments to feed assistance. Since 1988, there have been over fifteen emer-gency disaster aid packages, and these programs have provided over $20billion in agricultural support. The Senate package would provide over $5billion ($3.8 billion for crops and $1.2 billion for livestock) in support to pro-ducers who suffered production losses for the 2001 and 2002 marketingyears. The administration has already provided some assistance to live-stock producers through the Livestock Compensation Program. This pro-gram will provide up to $752 million in direct payments to livestockproducers that maintain their livestock in counties that have been declareddisaster areas. Additional support has been given in feed assistance, emer-gency loans, conservation payments, and the authorization to allow emer-gency haying and grazing on Conservation Reserve Program land.

On the crop side, the administration is taking a “wait and see” approach.Many of the crops affected by the drought could have been covered by thefederal crop insurance program. Nationwide, roughly 80 percent of the pro-duction of eligible crops is covered by some form of crop insurance. Recentchanges in the crop insurance program have made it more popular with pro-ducers, and they are purchasing higher levels of coverage. The administra-tion and House leadership are waiting to see how the crop insuranceprogram performs during this disaster before proceeding with a disaster as-sistance package for crops.

The administration’s concentration on livestock stems from a coupleof factors. Federally subsidized insurance is not available to most live-

stock producers. Map 2 shows pas-ture conditions across the country.In three states (California, Colo-rado, and Nebraska), over 80 per-cent of the pasture is considered tobe in poor or very poor condition.These three states account forroughly 15 percent of cattle in theUnited States. Eleven states havepoor to very poor pasture condi-tions on over 60 to 80 percent of

DisasterAssistance:How Bestto PayWhen NatureHas Her WayChad [email protected]

Bruce A. [email protected]

TABLE 1. JULY 1 ALL CATTLE AND CALVES INVENTORY2001 2002 2002 as

(million head) (million head) % of 2001California 5.20 5.20 100Colorado 3.30 3.10 94Kansas 6.90 6.55 95Nebraska 7.25 7.05 97South Dakota 5.10 5.00 98United States 105.80 105.20 99Source: From “Cattle,” 7/19/2002, USDA-NASS.


Iowa Ag Review

Source: National Drought Mitigation Center, http://www.drought.unl.edu/risk/us/usimpacts.htm.

MAP 1. DROUGHT INDICATOR

MAP 2. PASTURE CONDITIONS

Source: From “Crop Progress,” 9/30/2002, USDA-NASS.

their available pasture. Table 1 high-lights cattle production in several ofthe drought-affected states. The lastcolumn of Table 1 shows the rela-tive size of the herds between 2001and 2002. Most of these states haveseen overall cattle numbers shrink.Part of this cattle liquidation hasbeen brought about because of lim-ited feed availability resulting fromthe current drought.

If disaster aid is once again ex-tended to crop farmers who are eli-gible for crop insurance, thereasons for the existence of a cropinsurance program are certainlycalled into question. After all, thefederal government already under-writes the companies who sell cropinsurance. Why not simply do awaywith crop insurance, pass annualdisaster declarations, and save sig-nificant administrative costs? Alter-natively, Congress could pass a farmbill that makes countercyclical pay-ments with respect to crop yields ina county or crop reporting district.These payments would have loweradministrative costs than crop in-surance and would be significantlyless prone to political meddlingthan are annual declarations. Givingfarmers both disaster payments andcrop insurance indemnities wouldseem to be difficult to justify interms of either cost or equity to U.S.taxpayers. �

www.card.iastate.edu

PRESORTEDSTANDARD

U.S. POSTAGE PAIDAMES, IA

PERMIT NO. 200

Recent CARD PublicationsBRIEFING PAPERSBabcock, Bruce A., John Miranowski, Roxana

Carbone. An Initial Analysis of Adoption ofAnimal Welfare Guidelines on the U.S. EggIndustry. August 2002. 02-BP 37.

Hayes, Dermot J., Sergio H. Lence. Farmer-Owned Brands? October 2002. 02-BP 39.

MATRIC BRIEFING PAPERClemens, Roxanne. Why Can’t Vidalia Onions

Be Grown in Iowa? Developing a BrandedAgricultural Product. September 2002.02-MBP 3.

MATRIC RESEARCH PAPERFang, Cheng, Jacinto F. Fabiosa. Does the U.S.

Midwest Have a Cost Advantage Over Chinain Producing Corn, Soybeans, and Hogs?August 2002. 02-MRP 4.

WORKING PAPERSCarriquiry, Miguel, Bruce A. Babcock. Can

Spot and Contract Markets Co-Exist in Ag-riculture? August 2002. 02-WP 311.

Hueth, Brent, Philippe Marcoul. InformationSharing and Oligopoly in Agricultural Mar-kets: The Role of Bargaining Associations.September 2002. 02-WP 313.

Huffman, Sonya Kostova, Helen H. Jensen. AnEmpirical Analysis of the Effects of JointDecisions on Food Stamp Program, Tempo-rary Assistance for Needy Families, andLabor Force Participation. September2002. 02-WP 314.

Lapan, Harvey, E., GianCarlo Moschini, BradCaruth. Are All Taxes Equally Bad? HowReplacing Iowa’s Sales Tax Could Save Io-wans More Than $100 Million per Year.September 2002. 02-WP 312.

Lence, Sergio H., Dermot J. Hayes. OptionPricing on Renewable Commodity Mar-kets. July 2002. 02-WP 309.

Opsomer, Jean D., Helen H. Jensen, SuwenPan. An Evaluation of the USDA Food Secu-rity Measure with Generalized LinearMixed Models. September 2002. 02-WP 310.

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