Increased focus on processing will add jobs, grow value of agribusiness
By Mark Green
Mark Green: What’s the Kentucky Agriculture Department budget, and how many employees does the department have?
Ryan Quarles: We’re around 215 employees, but we have some open positions now. We’re always looking to hire talented people at the Department of Agriculture. For a lot of folks, it’s a career where you’re not sitting behind a desk all day. Our hardworking inspectors may be out there working gas pumps or farms. Roughly half our staff are dedicated to fieldwork all across Kentucky.
The budget is usually around $33 million, give or take. Some of that money is pass-through money from federal sources like the EPA. We administer some of their programs when it comes to chemicals or pesticides; other money flows through us. Our state General Fund dollars are around $16 million, but our budget is around $33 million.
MG: Agribusiness in Kentucky remains a significant portion of a state economy whose GDP is $190-200 billion. What portion of that is ag?
RQ: Our direct farm cash receipts are usually around $6 billion a year. That’s dollars going into the pockets of farmers. However, due to low commodity prices and low cattle prices, that number is around $5.4 billion right now. We’re actually down 17 percent over the past two years.
You mention Kentucky’s GDP is around $190 billion. The total economic output nationally for agriculture is about the same number. Despite Kentucky being a small state with only 4.3 million people, our ag numbers usually have us ranked in the top tier of all states when it comes to the economic impact.
MG: Many elements of Kentucky business are directly connected to farm operations, but people might not think of them as agribusiness. Can you mention some of those?
RQ: We have a thriving bourbon industry in Kentucky, and a recent study showed that 15 to 20 million bushels of Kentucky corn go into Kentucky bourbon each year, which constitutes roughly 7 percent of our total corn output. As that industry grows, so does opportunity for Kentucky farmers. Another great example is Big Ass Solutions (formerly Big Ass Fans). That company has its roots in agriculture, as they developed those large, low-RPM fans for dairy barns. So there are a lot of agribusinesses that don’t necessarily come to mind at first but have deep agricultural roots.
MG: What today are the broad market forces that most affect farm revenue? RQ: It’s sometimes said that farming is the only industry that pays for all of our inputs at retail cost then sells its products at wholesale, and we pay the freight costs both ways – I think I have to attribute that quote to (Kentucky Agriculture Development Board Director) Warren Beeler (August 2016 One-on-One interviewee, see tiny.cc/kqojjy). We’re one of the few industries that produces a good without knowing what our sale price is going to be. Kentucky’s car producers have an idea what they’re going to sell that vehicle for; they know what their inputs are going to cost, and they’re able to project revenues. With farming, there’s oftentimes a year lag between putting seeds in the ground and knowing what price you’re going to get. In the global economy, the weather in South America very well could affect corn prices here in Kentucky this fall. So in one respect we’re very integrated with the international global economy, but the other respect is that Kentucky farmers continue to persevere through a high-risk occupation.
MG: How is the strong U.S. dollar on world currency markets affecting Kentucky’s farmers’ market prices?
RQ: A strong dollar always hurts exports, and we are an export-dependent agricultural economy: One in four rows of corn you see in Kentucky ends up overseas. About the same is true with soybeans, and 80 percent of our tobacco ends up overseas. We are sensitive towards the elasticity of the strength of the American dollar. Right now, agriculture represents about 5 percent of the total of Kentucky’s export portfolio, which is about $28 billion.
MG: Fewer exports then increases supply in the United States and causes lower prices?
RQ: That’s part of it. There seems to be a trend of commodity prices being lower not just in ag but also in metals right now and other commodities that are sold through Chicago (Mercantile Exchange). Oftentimes there’s a connection between other raw commodities and agriculture as well. You also have to remember that farmers respond to market forces. If they know corn prices were high, say, three years ago, more people are going to start growing corn. With our cattle prices right now (up 76 percent since 2009 to the highest on record), our beef herd has grown nationally over 2 million head recently; the supply has grown and that has caused a little dip in prices as well. We’re always responding to market forces greater than what you see on individual farm gates.
MG: Has Kentucky become more of a grain crop producer in recent years?
RQ: We’re about stable. There was obviously a run with the grain market back about three or four years ago when it hit its 2013 peak. People were growing grain in areas you traditionally wouldn’t see, particularly in Central Kentucky. However, we’ve always been a strong grain state. We consistently rank in the top 15 nationwide when it comes to our grain production. Corn is a billion-dollar industry. Soybeans is about a billion dollars. Wheat is still very strong as well. And particularly when you get out in Western Kentucky, we are part of the “breadbasket” that most people associate with the Midwest.
MG: Land in the Western Kentucky is similar to the Midwest?
RQ: The thing that’s unique about Kentucky, compared to the Midwest, is that a lot of our grain doesn’t leave the state. We export a lot, but we also process a lot of it here because we have a lot of livestock and about half of our grain is used for livestock feed. That’s one reason why we’re so efficient at producing cattle. That’s why poultry is our No. 1 livestock in the state, at $1.2 billion; it’s well on its way to becoming a $2 billion industry in our state because we’re able to lower our input costs on the feed side.
MG: Traditional family farms have long been consolidating and becoming part-time operations. How many farms are there in the commonwealth today, and what is the trend in operations?
RQ: We have 76,000 farms. That’s a lot of farms. That ranks us fifth or sixth in the nation in the number of farms. And 95 percent of our farms are owned and operated by families, so the corporate agriculture presence is quite small in Kentucky. We are a state of small family farmers. That sets us apart from most other agricultural states because we have a lot of people involved, and they’re used to growing specialty crops and have a focus on value. We grow everything from apples to zucchini and everything in between because we have such a large number of small family farms.
MG: Poultry has been the state’s top ag revenue producer for a decade or so. Corn, livestock, soybeans, equine, pork and tobacco are all significant also. What are your expectations about these sectors for the next five years?
RQ: Poultry will continue to grow in Kentucky. We have indications there will be even more investment in our state, particularly from the processors locating here. Well over 100 chicken barns are either under construction or planned in Kentucky, and each one of those barns represents a long-term contract, usually with a beginning farmer. Poultry oftentimes gives beginning farmers an entry point into agriculture, especially folks who may not have the ability to inherit a farming operation. Getting started with a poultry barn gives that young farmer a stable income, gives them the ability to start their own farming operation. So that’s an area of growth.
We have more beef cattle than any state east of the Mississippi, and we’ll continue to hold that strategic advantage because we’ve made the investments to make sure we have high-quality cattle herds in our state. Grain is kind of stable right now. The fate of tobacco really depends on how aggressive people get with marketing, so I think that will continue to dwindle. And of course our equine industry is strong and thriving; well over half of the Thoroughbreds born in the United States were sired by Kentucky horses. As long as we have the American Pharoahs of the world residing in Central Kentucky, that’s going to be an area of growth.
MG: How is Kentucky doing at attracting agribusiness processors to the state so that the value-add occurs in the commonwealth?
RQ: I sell agriculture as economic development. If we’re going to be serious about this, we need to make sure that we focus on processing. About 20 percent of every dollar you pay at the grocery store today actually goes to the farmer. If we want to create jobs and track investment, we need to continue to focus on processing. If you go to Christian County, you’ll see where we take corn and turn it into ethanol. That’s a multimillion-dollar operation now. We supply the Greater Nashville area with ethanol. If you go right next door to the next plant, Kentucky wheat is being milled for McDonald’s; their biscuits come from Kentucky wheat. Those are two shining examples of processing. We’ve also seen an uptick in the number of meat processors in our state; we’re at 27 USDA-inspected meat processors. Since we’re so good at livestock, let’s process them here, use that Kentucky Proud label and get them in front of more Kentuckians. During my administration, we’ll have a concerted effort on attracting more processing to our state.
MG: There was news a year or so ago was that a canola processor was looking at coming in. Did that happen?
RQ: Yes. They’re operating in Todd County right now. We’re still investigating the viability of canola here, but that’s just one of many different crops. Industrial hemp continues to be a focus of the department. We have the largest industrial hemp program in the nation, and we have attracted 40 processors into Kentucky. We’re also focusing on kenaf, a fibrous plant that can be grown just about anywhere. We have some innovators, particularly in Eastern Kentucky, looking at using kenaf as an alternative crop in that area. And of course the craft beer industry is growing, not just in Kentucky but nationwide, so we are researching the viability of hops production in Kentucky this year and connecting them with a market that we know is going to continue to grow.
MG: Agriculture was the world’s first industry and is considered one of the most rustic, but today it has adopted a wide variety of high-tech, digital tools. Which Kentucky ag sectors are the most teched-up?
RQ: Farmers were on mobile devices long before Siri was. Kentucky farmers are early adopters of technology, and our grain producers exemplify the latest and greatest in technology. Our grain operators were the first to put GPS on moving vehicles after the military declassified the global positioning system. Because we’re a state that has challenging terrain, we have to be efficient. We can’t afford not to be. That’s why you see the emphasis on early adoption of technology. If you attended the National Farm Machinery Show last month in Louisville, you saw that more vendors each year push agricultural technology products, software management, those small changes farmers can make that can create efficiencies across our commonwealth. If you go to a modern dairy operation, each cow is electronically monitored to control their feed rations; automated feeders recognize which calf has already had its fill for that day and which calf needs to have a little bit extra. They can all be monitored via mobile devices.
MG: Across all areas of business, Kentucky is conservative and can be a slow adopter of “the new.” How does Kentucky agribusiness’s adoption of technological change compare with its peer or competitor states?
RQ: I’d say we’re right in the middle with our peers. Kentucky agriculture is large, and we’re fortunate to have ag leaders who are known nationally, who have made Kentucky a destination state. The National Farm Machinery Show is the biggest indoor farm show in the country. We had over 300,000 people come to our state to look at what’s latest and greatest in ag technology. That’s a testament that’s been true for the past 50 years. We have the reputation, along with collaboration with our land grants research institutions such as UK, where we have a culture of innovation, new technology and research.
MG: You have initiated a Kentucky Hunger Task Force. What are the goals?
RQ: It’s an unfortunate reality that one in six Kentuckians and one in five Kentucky schoolchildren are considered food insecure. As agriculture commissioner, representing an industry that is blessed with an abundance of food, I know we can do a better job. The Hunger Initiative seeks to collect an inventory of what’s working and what’s not working across our state, build a collaboration among our organizations that are already addressing this, and build consensus on strategies that can reduce hunger in our state. This legislative session we’ll be passing what’s called a food donation immunity bill, which will help encourage our grocery stores and other entities to donate more food to our food banks. It also encourages farmers to let volunteers on their farms to harvest food that otherwise would rot in the field and get it into the hands of those less fortunate.
MG: What legislation or initiatives are you advocating to enhance international trade for farm products?
RQ: International trade is imperative if we want to expand Kentucky agriculture revenue; we need to expand our markets. And as the Trump administration considers trade deals or bilateral agreements, we need to make sure our policymakers understand that farmers can benefit by getting access into new markets. In 2017 we will put an emphasis on international trade as a state-level priority and start connecting farmers with those emerging markets. We provide technical assistance for farmers and agribusinesses to connect them with importers and exporters, to help them explore whether their products can be sold internationally. I recently served on the Trump Agriculture Advisory Committee and plan to continue to be active, particularly on trade issues, in Washington, D.C.
MG: You are an advocate of diversification and adding new crops to Kentucky’s farmers’ options. What do you want to see happen?
RQ: We’re always on the lookout for new opportunities for our farmers and agribusinesses. We have several crops being researched in partnership with our universities, which are hops, kenaf, industrial hemp. We have an open-door policy towards anyone who seeks our guidance towards a new agribusiness or a new processing plant. It’s important that we don’t stand still. The innovative process may have failures on the way, but Edison didn’t invent the light bulb on his first try.
We want to develop a culture here in Kentucky that our farmers are bold or experimental and that we have a critical mass of resources, such as our universities, that will aid folks in developing new crops and technology. As an example, 40 years ago soybeans were considered an experimental crop in Kentucky, and look at the impact soybeans have today. We want to make sure we don’t pass up any good opportunities.
MG: Where specifically does Kentucky stand with industrial hemp?
RQ: Kentucky has the largest research program in the nation. We have approved up to 12,000 acres to be grown in 2017 and have attracted 40 processors who have brick-and-mortar locations in our state and are processing that hemp to intermediate or final products. We continue to have conversations on a weekly basis with other industries about whether or not industrial hemp or kenaf can be used with their industrial applications, such as injection molding, concrete, insulation, makeup, protein shakes, even nutraceutical purposes. We seem to have attracted a lot of interest, and there’s no lack of encouragement from Kentuckians about the future of this group of crops.
MG: What is kenaf?
RQ: Kenaf is a fibrous plant currently used in many industrial applications. Some car companies are using kenaf to provide lightweight strong materials in their car parts. Kenaf is somewhat like industrial hemp, but it doesn’t have the legal issues. Approximately a dozen people in the state are growing kenaf, and a few of them are already selling products in stores today. Just this morning, I was discussing a fuel log made of kenaf that has a higher BTU rating than firewood. The important thing about kenaf is that automotive companies are already using it, but they’re sourcing it from out of country. If they’re going to use kenaf, and if Kentucky continues to be the third-largest automobile-producing state in the country, let’s try to produce it here and process it in Kentucky.
MG: Regarding hemp, what would be some of the next steps that we would need to see happen for that to turn into a major industry here?
RQ: We want to make sure that Kentucky provides a good faith effort towards demonstrating to law enforcement and our policymakers that it can be a viable crop once again in Kentucky. We know that, historically, it thrived here. Even Henry Clay grew industrial hemp. My family grew it during World War II to help with the war effort, because the U.S. Navy needed rope. The best thing we can do here is to attract processors so that when it is made into final products, those jobs are being created in Kentucky. Finally, we need to encourage Congress to eventually legalize industrial hemp. Hopefully, one day, it’ll be viewed no differently than corn or soybeans in our state.
MG: What is agribusiness’s role in helping Appalachian Kentucky diversify its economy?
RQ: Agriculture has a bright future in Eastern Kentucky because it is situated within one day’s drive of two-thirds of the U.S. population. If we could attract some processors to Eastern Kentucky that could be a win. We already have large-scale warehouses locating to Eastern Kentucky that are supplying restaurants on the East Coast. The bourbon industry is thriving and needs American white oak to make bourbon barrels, which cannot be reused by federal law. We are in discussions with the timber industry about creating a long-term collaboration with the bourbon industry to get more of that American white oak replenished in Eastern Kentucky.
MG: The Department of Agriculture is the state’s largest regulator and the primary consumer protection entity. How much of the department’s resources are devoted to that role?
RQ: It may come as a surprise to most Kentuckians that the Department of Agriculture is the state’s largest regulatory agency. Roughly half of our staff is dedicated towards a regulatory function of some sort. If you fly out of a Kentucky airport, sell gold at a pawn store, buy meat at a grocery or even ride a zip line, it is the Department of Agriculture that plays that consumer protection role. We now are also combating credit card theft. As we inspect our 60,000 gas pumps across the state, we’re looking for the installation of skimmers, which have been stealing credit card identity from Kentuckians for years. We caught our first skimmer this past summer.
MG: Are younger Kentuckians entering agribusiness in adequate numbers, and what kind of backgrounds and qualifications do people need nowadays?
RQ: They aren’t. We need to develop a better pipeline to encourage the next generation of agricultural leaders to get involved in an industry that accounts for one in five jobs nationwide. We support our premier youth development organizations such as 4H and the FFA financially. We want to develop a pipeline of not just farmers, not just agribusiness owners, but the researchers and the technology specialists that modern agriculture demands. It’s so important that we develop a culture in our state that views agriculture as co-equal, as part of our greater economic portfolio. We’re working hard to inspire the next generation of leaders.
MG: Are there particular qualifications, education, skills that people who want to go into agribusiness should pursue?
RQ: We hear a lot about STEM and its importance. I like to add an A for agriculture, because agriculture already includes science, technology, engineering and math. If you don’t have a mastery of those skills, farming is going to be tough for you, because modern agriculture demands proficiency in so many cross-disciplines. We have several phenomenal agriculture colleges in our state, and they continue to produce
top-quality employees who can work not just in agriculture but in other industries. It’s important to reach young Kentuckians to remind them about the science behind agriculture, remind them that food doesn’t come from a grocery store – it comes from a family farm, and there is a future career opportunity in this industry as well. ■
Mark Green is executive editor of The Lane Report. He can be reached at [email protected]
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