Animal Production Concentration: Implications for Farmers, Communities and Regions Lessons from Iowa. Dave Swenson Department of Economics

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1 Animal Production Concentration: Implications for Farmers, Communities and Regions Lessons from Iowa Dave Swenson Department of Economics

2 Scope Discussion of animal production concentration Nationally Iowa, other notable examples Why? Ag production economic factors Is it good, bad, or simply inevitable? Lessons from Iowa Patterns of rural change Profiling Sioux County Iowa, the king of value added ag activity Questions and discussion

3 Production Geography: Cattle and Calves

4 Production Geography: Milk Cows

5 Production Geography: Hogs

6 Production Geography: All Poultry

7 Production Geography: Broilers

8 Consolidation of Production Example: Hogs

9 U.S. and Iowa Hog Concentrations US Hogs with > 1,000 in Inventory in 2012 IA Hogs with > 1,000 in Inventory in % 96% 61% 16% Percent of Farms Percent of Inventory Percent of Farms Percent of Inventory

10 U.S. and Wisconsin Milk Cow Concentrations U.S. Milk Cows > 500 in Inventory in 2012 Wisconsin Milk Cows > 500 in Inventory in % 32% 5% 3% Percent of Farms Percent of Inventory Percent of Farms Percent of Inventory

11 U.S. and Iowa Layer Concentrations U.S. Layer >100,000 in Inventory in 2012 IA Layer >100,000 in Inventory in % 76.8% 0.2% 1.0% Percent of Farms (N=387) Percent of Inventory Percent of Farms (N=40) Percent of Inventory

12 Two Dimensions of State Level Production Concentration IA's Layer Shares of US >100,000 Inventory IA's Hog Shares of US >1,000 Inventory 36.7% 31.2% 18.8% 10.3% Farms Inventory Farms Inventory

13 U.S. Production Fractions by Farm Type, 2017

14 Key Factors in Modern Agriculture Production Specialization: Broad-based reduction in production diversity across many commodity categories across the U.S. Economies of scale: In all, larger operations are able to capture production efficiencies links strongly to comparative advantages (regional, historical) More concentrated markets: as with production diversity changes, so too have key market locations become more localized. Production contracting and market contracting Production the contractor owns the animal (or commodity), and the producer is paid a fee for services rendered Marketing the producer owns the animal (or commodity), and a preexisting contact sets price, quantity, quality, and delivery schedules Integration Total control in much of poultry, medium control in hog production is the dairy industry in transition?

15 Concomitantly Market Concentration in Animal Processing Continues

16 Is Bigger Better in Terms of Increased Concentration and Integration? Pro 1. Scale economies are generally more efficient 2. For farmers: market access, lowers price risks, and yields steady income 3. For buyers (firms): don t assume production risks and locks in supply 4. In food production: - Contracts have increased and stabilized supply - Increases technology adoption that further advantage scale economies - More control over quality and uniformity - More responsive to changes in consumer preferences Con 1. For farmers: drives less efficient farmers out of that commodity production or out of business 2. Decreases production diversity, which carries its own risks (PED, avian flu, drought, tariffs) 3. May find that emerging market opportunities have unattainable supply, uniformity, timing requirements 4. Complaints that farmers incur most of the risks, yet are price takers and at the mercy of large buyers 5. Over a period of time, changes the nature and texture of farm to nonfarm relationships

17 Some Demographics There is an intersection between forms of agricultural production change in Iowa and population change Rural Iowa has 42 ethanol plants, countless and growing confined animal operations, the most wind energy production in the Midwest, widely distributed ag value-added manufacturing, and their fraction of national income derived from agriculture has been increasing. We lead the nation in corn and soybean production, hogs, layers, eggs, ethanol production, and pork processing. Iowa is more intensively farmed than any other state. Yet

18 Metropolitan and Micropolitan Areas

19 Components of Population Change It is a simple identity: Population change = Natural change + Migration Where: Natural change = Births Deaths Migration = net domestic & int l flows

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24 Componenets of Iowa Non-core Population Change, 2010 to 2017 BIRTHS 61,195 DEATHS (61,834) NET INTERNATIONAL MIGRATION 3,185 NET DOMESTIC MIGRATON (24,886)

25 Population Change, Young Adults, by Level of Urbanization, 2010 to % 5.5% 6.4% 3.1% 3.1% 2.6% 0.5% -1.2% -2.4% -2.3% -2.9% -3.9% STATE OF IOWA METRO MICRO NONCORE Total Ages 35-44

26 Population Change, Children 0-19, by Level of Urbanization, 2010 to % 5.9% 3.1% 2.8% -1.2% -1.0% -2.9% -3.1% STATE OF IOWA METRO MICRO NONCORE Total 0-19

27 Population Change for All Minorities, Young Adults, by Level of Urbanization, 2010 to % 37.5% 33.1% 33.3% 31.4% 31.8% 30.0% 30.5% 27.6% 28.4% 30.4% 22.9% STATE OF IOWA METRO MICRO NONCORE Total Ages Ages 35-44

28 Total and Nonhispanic White Alone Population Change in Iowa, 2000 to % 7.5% 8.5% -0.5% -2.6% -6.8% -9.7% -11.4% State Metropolitan Micropolitan Non-core Total Population Nonhispanic, White Alone

29 Minority Population Percentages 2016 Minority Population Minority Population Minority Population Buena Vista 40.5% Washington 9.1% Carroll 5.1% Crawford 34.0% Clinton 8.9% Fremont 5.1% Marshall 29.8% Page 8.9% Guthrie 4.9% Woodbury 26.7% Poweshiek 8.6% Sac 4.9% Muscatine 23.0% Winnebago 8.6% Bremer 4.9% Polk 22.4% Plymouth 8.4% Winneshiek 4.9% Louisa 21.6% Hardin 8.0% Madison 4.8% Johnson 21.4% Floyd 7.9% Appanoose 4.8% Jefferson 20.1% O'Brien 7.5% Iowa 4.8% Scott 19.9% Pocahontas 7.2% Jackson 4.7% Tama 19.1% Decatur 7.1% Cedar 4.6% Black Hawk 18.4% Palo Alto 6.9% Cass 4.5% Wapello 17.4% Mahaska 6.8% Lyon 4.3% Clarke 17.2% Hancock 6.8% Ida 4.2% Story 16.5% Humboldt 6.8% Ringgold 4.2% Franklin 15.1% Montgomery 6.6% Dickinson 4.1% Wright 14.5% Clay 6.5% Chickasaw 4.1% Dallas 14.5% Cherokee 6.5% Wayne 3.9% State of Iowa 14.3% Jasper 6.4% Clayton 3.9% Linn 13.9% Fayette 6.2% Buchanan 3.9% Sioux 13.3% Jones 6.1% Adair 3.8% Webster 12.8% Union 5.9% Harrison 3.8% Emmet 12.7% Mills 5.8% Butler 3.7% Des Moines 12.6% Worth 5.8% Howard 3.7% Pottawattamie 12.3% Boone 5.8% Lucas 3.6% Henry 11.7% Warren 5.8% Van Buren 3.6% Hamilton 11.3% Monroe 5.7% Benton 3.6% Osceola 10.9% Shelby 5.7% Keokuk 3.6% Taylor 10.0% Greene 5.6% Delaware 3.5% Allamakee 9.6% Calhoun 5.4% Adams 3.4% Cerro Gordo 9.5% Marion 5.4% Audubon 3.3% Lee 9.3% Kossuth 5.4% Mitchell 3.3% Dubuque 9.3% Monona 5.2% Davis 3.1% Grundy 3.0%

30 Iowa Population Change Index

31 Iowa Employment Change Index

32 Sioux County Iowa

33 12.0% Sioux County Shares of State Agricultural Totals 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Farm Proprietors All Farm Labor Crop Receipts Animal Receipts Total Farm Earnings

34 Sioux County Shares of State Totals, 2012 Ag Census 15.0% 12.1% 11.9% 10.1% 5.8% 3.6% 1.8% Farms Hired Labor Hogs All Cattle and Calves Milk Cows Layers Of Large Layer Farms with >100k Inventory

35 Indicators of Change, Growth 2010 to 2017 Iowa Sioux County, IA Population 3% 3% Wage and Salary Employment 6% 6% Nonfarm Proprietorships 8% 22% Transfer Payments Per Capita 13% 17% Earnings Per Capita 21% 43% Average Wage & Salary 21% 30% Average Nonfarm Income Per Proprietor 13% 42% Per Capita Income 23% 41% NH White Alone Population Change -0.2% 3.4% Minority Population Change 30.3% 28.3%

36 Percentage Minority Growth, 2000 to 2017

37 When we Plot Total Population Change against Minority Population Change, We Get

38 Population Changes, Total and Nonhispanic White Alone, 2010 to 2017: All Iowa Non-core Counties and Non-Core Top 5 in Animal Product Sales -0.3% -2.7% -2.9% -5.1% Top 5 Total Population Nonhispanic White Alone All Non-core

39 Two Different Versions of Regional Production Changes Driven by New Local Processing Prestage Eagle Grove, Iowa Prestage, a well-distributed regional hog producer is going into the processing business Will, however, depend widely on independent producers in the area in this case the hogs were there already As there is adequate supply regionally, investment risks are nominal Some movement of the industry closer to the plant Localized labor consequences, but the region had already been absorbing more farm or processing labor over the past two decades Costco Fremont, Nebraska Costco, a retailer/wholesaler, wants a farm-to-table production-to-processing integration to supply its very popular rotisserie chickens Want whole chickens Want to have more control over both supply and costs 100 to 125 local farmers, who have no or limited experience with poultry production, will be offered 15 year contracts Farmers taking all of the production risk Costco taking all of the processing risk Multiple labor consequences on farm, in town, and in the region

40 Takeaways Consolidation and production concentrations are continuous factors. Their magnitudes are not, however, inevitable. Wide variance in scale and scope across the states. All rural areas are adjusting to changes that both displace some residents and create new demands for labor Communities have to adjust, and that adjustment is a function of regional production history In Iowa, the healthiest rural economies have animal production or animal processing at scale, increases in minority residents, and had time to adjust to the changes that occurred

41 More The nature of commercial interactions in rural areas has changed markedly over the past 30 years. Wide ranges of businesses have become less viable in smaller communities medium-sized trade centers have absorbed much of regional trade Relationship between farmers and their host communities have also changed fewer input purchases locally, fewer mutual dependencies Residents have more diffused focuses less town & country and more regional in orientation

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