Underestimating agribusiness?

By Kara Keeton

Kentucky farmers had record revenues in 2012, topping $5 billion for the first time – and expectations are that 2013 will be even better. However, experts say overall revenue from state agribusiness production was at least $34 billion last year when the many value-added processing operations for Kentucky’s crops are factored in.

Soybean crops in Western Kentucky such as at this Union County farm are faring well as a result of plentiful rain.
Soybean crops in Western Kentucky such as at this Union County farm are faring well as a result of plentiful rain.

The USDA farm gate receipts tally –  that for decades has been the traditional measure of the agriculture economy – does not include any of the value and income generated by processing after crops and livestock leave the farm or the services and supplies sold to farmers and processors.

When the revenue generated by directly related business activities are added to gate receipts, the result is a more accurate assessment of the real annual economic impact of agribusiness across the commonwealth, according to agriculture economists at the University of Kentucky.

Meanwhile, diversification of agriculture in Kentucky the past decade has led to much more than just cattle, corn and tobacco growing across the state. The commonwealth’s entrepreneurial farmers are growing a robust agricultural economy in the Bluegrass.

Total agriculture product cash receipts to Kentucky’s roughly 80,000 farms continued to increase in 2012, reaching an estimated $5.2 billion, and that was in spite of adverse weather conditions, according to recent economic estimates in the “April Economic and Policy Update” from the University of Kentucky College of Agriculture, Food, and Environment.

USDA is scheduled to issue official 2012 income statistics within the next month, but estimates are that net farm income levels remained at about $1.5 billion thanks in part to significant crop-insurance payments to growers across the state. Also helping keep farmers’ net income levels steady was the nearly $50 million in direct payments and tobacco buyout funds.

The UK 2013 Ag Outlook estimates cash receipts for 2013 will continue to grow because of increased crop acreage, rising global demand and relatively strong prices. Those estimates are based on hopes for a better growing season across the state than 2012, when drought conditions affected many western portions of the commonwealth – but 2013 calculations were made before this year’s cool spring and excessive rains across the Bluegrass State.

“This year, farmers are either having a windfall or wipeout with the weather,” said Hoppy Henton, a farmer in Woodford County. “I’m one of the lucky ones. I got my wheat in early, and my tobacco is planted on a slope (and the land drains well) so it is looking good. But I have a neighbor who is looking at a wipeout due to the rain.”

Looking at the total cash receipts for the state’s agriculture, it is easy to assume that all Kentucky farmers are successful in this thriving economy. This view of Kentucky’s agriculture economy, however, does not always reflect the challenges and struggles taking place daily on family farms across the commonwealth. It also does not capture the full picture of what is taking place in Kentucky’s diverse and expanding agriculture sector.

Beyond the farm gate receipt

“When we talk about the agriculture economy, we are often just talking about ‘farm gate receipts,’ as that is the most common way we tend to measure the agriculture impact on the economy,” said Dr. Scott Smith, dean of the UK College of Agriculture, Food and Environment. “Those numbers do not look at services, supplies and all the people employed in all the agriculture-dependent industries. I believe it is time to look beyond the farm gate to see the real impact of agriculture.”

In contrast to 2012 drought conditions, Western Kentucky corn has had adequate rain in 2013. The National Agriculture Statistics Service ranks 85 percent of Kentucky’s corn crop good or excellent.
In contrast to 2012 drought conditions, Western Kentucky corn has had adequate rain in 2013. The National Agriculture Statistics Service ranks 85 percent of Kentucky’s corn crop good or excellent.

Alison Davis, an agriculture economist at UK and executive director of the Community and Economic Development Initiative of Kentucky (CEDIK), has been looking beyond the farm gate over the past several years in an effort to gain a better understanding of the full reach of the state’s agriculture economic impact.

Revenue and income generated by food and fiber processing and manufacturing – value-added enterprises beyond the farm gate – are not captured in traditional cash receipt numbers, Davis explained. The forestry and wood products production sector is not represented in these numbers either.

“Ignoring these businesses underestimates the value of the agricultural sector,” she said.

Meanwhile, the Kentucky Agricultural Development Fund, financed with federal Tobacco Master Settlement Agreement dollars since a multistate deal with the cigarette industry in 1998, has invested millions annually since then in food, fiber and forestry projects that are not captured in traditional cash receipt numbers. Because the health of the agriculture economy and family farms depends on more than the farm gate, the goal of the KADF has been to build the sustainability of family farms first, said Smith, a state Agriculture Development Board member.

Roger Thomas, executive director of the Governor’s Office of Agricultural Policy, said the KADF investments made by the board reflect the wide range of diversification efforts they are seeing across the state.

“The interest in buying local products has led to a growth in new processing facilities for livestock, value-added processing for produce, wineries and fiber processing facilities across the state,” Thomas said. “The investment of funds into these value-added projects has opened up opportunities for farmers to put their own brands on products and in some instances has opened up new jobs in rural communities.”

In her study, Davis explains that redefining Kentucky agriculture to include these related sectors adds almost 195,000 workers to the more than 90,000 individuals who work directly in agriculture production and $34 billion in revenues. And this impact does not include service-based industries such as banking, insurance or legal sectors.

“If we look beyond the farm gate and begin to think of agriculture in terms of biofuels, the food system, all of the things that come out of agriculture products, I think we have enormous potential to grow the industry in our state,” Smith said.

Soybeans are state’s top ag export

Kentucky agriculture has always been dependent on international markets. State agriculture exports are only a small percentage of the overall U.S. agricultural exports, but growth in U.S. agricultural exports plays a significant role in the success of the commonwealth’s exports.

Kevin Trunnell has diversified his family’s farming operation by building the successful Trunnell’s Farm Market, but he still spends his summers in the field as the farm manager.
Kevin Trunnell has diversified his family’s farming operation by building the successful Trunnell’s Farm Market, but he still spends his summers in the field as the farm manager.

“Kentucky exported over $2 billion of agricultural commodities and related products in 2011, representing 45 percent of total agriculture cash receipts and approximately 10 percent of total Kentucky exports,” said Will Snell, an agricultural economist at UK.

This recent growth in exports has boosted Kentucky to the third most trade-dependent agricultural state in the United States. Other states export more in total dollars terms, but based on USDA methodology for measuring export value, the economic impact from the share of production exported and the value created across the Bluegrass ranks the state third nationally.

For decades, horses and tobacco were the commonwealth’s major export crops. The growth in Kentucky’s grain industry and increasing access to river ports has led to a large portion of those grains entering the export market. Today, the largest agricultural export originating from Kentucky is soybeans, followed by tobacco and corn.

Kentucky’s equine industry traditionally has led the export market demand for breeding stock, but some of Kentucky’s Angus and Holstein cattle producers are finding a niche in the international market for selling breeding stock.

Kentucky also has several agribusinesses, such as Hallway Feeds in Lexington, that have worked to build international markets for their products.

“I would say 15 percent of our total tonnage is shipped overseas, with Canada and Japan being our largest markets,” said Lee Hall, vice president of Hallway Feeds. “We are also shipping into a number of European countries, the Middle East, Asia and the Caribbean, so there are probably 15 to 18 countries we are shipping into out of Lexington on a regular basis.”

Currently export numbers are based on the selling of agriculture commodities and some agricultural related products such as ethanol and distiller-dried grains, but excludes some other agriculture-related industries/products such as forestry and bourbon.

While Kentucky’s agricultural exports are expected to continue to grow, the growth would be significantly more if forestry and value-added products like bourbon were included in the agricultural export numbers.

Diversification adding value to ag

“I think the only thing that hasn’t changed in farming since I began farming over 40 years ago is the tobacco knives I use for cutting tobacco,” laughed Rod Kuegel, a farmer in Daviess County. “Agriculture is changing constantly. Look at the technology we use today and the markets we are able to access. I think it is important for agriculture to change. It is even more important for all those in agriculture to take an active role in the community to make sure agriculture remains a priority for Kentucky.”

Jeff Pendleton, left, general manager, and Lee Hall, vice president of Hallway Feeds in Lexington, believe export opportunities will continue for their growing specialty equine feed operation.
Jeff Pendleton, left, general manager, and Lee Hall, vice president of Hallway Feeds in Lexington, believe export opportunities will continue for their growing specialty equine feed operation.

Kuegel is one of the many farmers in Kentucky who is actively involved at the local, regional, state and federal level, making sure agribusiness remains a priority issue beyond the farm gate.

The involvement and dedication of farmers led to the Tobacco Master Settlement that continues to bring millions into Kentucky’s agriculture economy, and the investment of settlement funds into new agriculture enterprises. These investments in Kentucky’s agriculture community have been the economic incentive that has driven diversification efforts that have helped the agriculture industry thrive even with the loss of the golden crop, which sustained generations of small farmers.

Kevin Trunnell, another Daviess County farmer, has diversified away from tobacco by developing a farm market and agritourism operation. He believes that his role in agriculture these days is not only producing the products on the farm, but being the face and voice of the farmer to the consumer.

“Not only are we offering fresh local produce to the consumers in our community at our market, but we also bring them out to the farm to see agriculture in action,” said Trunnell. “It is that connection to the farm, the agriculture education they receive that we hope helps them to see the important role agriculture plays in the local community and local economy.”

Lewis Shuckman, foreground, and his daughter Lauren package a variety of Shuckman’s dips by hand. The Shuckman family has developed a nationally known product in their small value-added agriculture processing facility in downtown Louisville.
Lewis Shuckman, foreground, and his daughter Lauren package a variety of Shuckman’s dips by hand. The Shuckman family has developed a nationally known product in their small value-added agriculture processing facility in downtown Louisville.

Tim Woods, an agriculture economist at the University of Kentucky, is seeing firsthand how this connection between the consumer and their food is driving local food systems.

“We have had more than 400 individuals go through our MarketReady training to help producers evaluate the risk of entering retail and value-added markets,” said Woods. “We are also working with farmers daily at the Food Systems Innovation Center in the development and testing of their value-added products.”

Woods believes the local food movement will continue to grow as consumers become more focused on the quality of food and the environmental impact of how their food is grown.

“I like the term ‘beyond the farm gate,’ that would describe much of what we do daily in our operation,” laughed Trunnell. “It hasn’t been easy to grow our operation with the challenges in the economy and the changes in the agriculture, but farmers are resilient. Consumers are starting to see value in local agriculture and for me that is where I see growth, even if it is beyond the farm gate.”

Kara Keeton is a correspondent  for The Lane Report. She can be  reached at [email protected]

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