INDUSTRY OUTLOOK




Agribusiness Stabilizes the Regional Economy

The first time Ingram’s Magazine orchestrated an Agribusiness Industry Outlook was in September 2001, immediately following the devastation of September 11. What impressed those of us who witnessed it was the steady resolve of the participants. More quickly than any other industry we cover, agribusiness had shaken off the terrorist threat and was ready to roll.

In 2013, the sector plows on, all but indifferent to the political tremors that keep other industries on edge. SFP, which sponsored and hosted the 2013 Agribusiness assembly on Nov. 8 at its offices in Leawood, is a case in point. The company, which started its life 15 years ago as Specialty Fertilizer Products, has grown steadily by bringing revolutionary fertilizer-efficiency technology from the lab to the field.

Chairing this important meeting was SFP founder and CEO Larry Sanders. In attendance were representatives from a dozen industry subsets. They all had stories to tell, and every one of them was optimistic.

GMOs

As an opening question, participants were asked to assess the near future and identify the most pressing threat or the most potent opportunity.

For many participants, like Brad Foerster, division president of US Foods, the challenge at hand is the growing interest in and demand for food sources that have not been genetically modified. Resistance to genetically modified organisms (GMO) “won’t have much effect on Third World demand,” said Foerster. “It will be in the more educated side of the demand curve.” Europe, he observed, was taking the lead in resisting genetically modified products.

“I’d have to echo that,” said Ron Seeber, vice-president of government affairs for the Kansas Grain & Feed Association. As he noted, the Kansas City area is ground zero in the agribusiness industry, but the GMO threat, especially in regard to labeling, may hinder our ability to actually feed the world.

Prema Arasu, the CEO of the Kansas State University–Olathe campus, acknowledged that GMO awareness was particularly high in Europe and that consumers there were “pushing back without information.” Arasu believes that education is essential in an increasingly global economy.

“The education you speak of is so critical,” affirmed Michael Turley, CEO of Osborn Barr. “We do not have the language established where we can connect ag to society.”

“I think a lot of European resistance to GMOs is because the European ag community sees us as an overwhelming threat to their lifestyle,” said Bill Watson, who heads up UMB’s Agribusiness Division. “It’s a darn good hook to hang their hat on to keep us out of their markets.”

“GMOs are proven not to be bad,” said David Lueck, who farms in Lafayette County. “There are a lot of fruits and vegetables that were genetically modified a hundred years ago.” And GMOs, he said, have increased his production quite a bit.

“We’ve been selecting for crops and animals for eons,” said Arasu, confirming Lueck’s point, “and for some reason, genetic manipulation has become a bad word. Even with vaccines, it is more that anti-technology is going global.”

Turley questioned the “idealism” that some restaurant chains and food distributors are marketing. By idealism, he was referring to expectations on how safe, organic or natural food products can be. “I don’t have a problem with those categories,” said Turley. “I have a problem when they throw the rest of us under the bus as a marketing advantage.”

Watson believes that despite resistance, the use of genetics in the animal world is going to continue. “Actual production, yields and efficiency of yields with better genetics are going to drive an awful lot of decisions,” said Watson.

Feeding the World

“I think our biggest challenge is just simply to feed the world,” said Tom Tunnell, president and CEO of Kansas Agribusiness Retailers Association, “whether it’s non-GMO or GMO, it’s got to be food, and if we don’t focus on producing food, we’re going to be in serious trouble.”

“We just need to be able to produce more with less,” said Ron Seeber. “We have a lot of mouths to feed and it’s important that technology keeps on progressing so we can get more production out of our acreage.”

Larry Sanders cited estimates that there may be 2 billion more people on the planet by mid-century. He wondered what strategies were likely to be employed to keep a total of 9 billion people fed.

For Tunnell, the challenge is to use technology in such a way that we produce more food while being better stewards of the land. “We really have a tough row to hoe,” added Tunnell, “against environ-mentalists and government.”

Monica Massey, senior vice-president of corporate affairs for Dairy Farmers of America, sees great potential in the growing wealth worldwide. It may not be to the point where people are buying Mercedes, said Massey, but more and more they can afford foods that are safe and protein-rich. “That’s a real opportunity for us,” she added.

Matt Teagarden, director of industry relations for Kansas Livestock Association, agreed with Massey. “As the world population grows,” he said, “they desire more protein. I think that fits for our members.” These new consumers are also more likely to eat parts of cattle for which there is little demand in the American market.

“Not everybody is consuming steaks and hamburgers around the world,” said Teagarden. “So we see that as a growing opportunity to maximize that value of each animal we produce, and the world market is key to that.”

“There are billions over there who are eating animal protein once or twice a week whose parents may have eaten it once or twice a year,” confirmed Bill Watson. As Watson observed, all that animal protein was raised on grain. “I see that growth as almost an insurance policy to the grain growers in our country,” he said.

“Feeding 2 billion people,” said Mike Shirley, regional account manager for SFP and chairman of the board of the Kansas Agribusiness Retailers Association, “that’s exactly what we do.”

The challenge, Shirley noted, is that only 2 percent of the U.S. is involved directly in production agriculture. “So we’ve really got to tell our story and relay what we’re trying to do to produce those safe and abundant food sources,” said Shirley. The mission of SFP, like other entities in the industry, is to increase yield at less cost and with less environmental impact than in the past.

Bob Petersen, president and CEO of the American Royal, stressed the role of the land-grant university in feeding the world. “I know how tight state budgets are in this era,” said Petersen, “but let’s not lose sight of what got us here and the importance of some of those very basic institutions.” Teagarden agreed that “the knowledge base” we have here because of our land-grant universities is a key to opportunity.

Prema Arasu believes that what we can export from here in addition to actual food product is systems. “Education is a big deal,” she said.

Speaking of basics, Cary Christensen, who manages Bayer’s food, animal and equine operations in the U.S., spoke to the nation’s greatest physical asset. “The arable land mass the U.S. has between the Mississippi and Missouri river is unmatched globally,” said Christensen. Given that resource and the amount of technology that’s applied to animal production, he is confident that American agriculture has a “fantastic future.”

“It’s kind of ironic in a country struggling with its manufacturing,” said Michael Turley, “ag is thriving because of the foundation we’ve got with our producers, our growers and agribusiness.”

Angela Kreps, president and CEO of Kansas Bioscience Organization, sees a multi-state regional alliance as a useful way to advance food production. “If we are talking about passing a farm bill and looking at labeling legislation,” said Kreps, “if we work together we can probably get farther faster at addressing some of these concerns and a maximizing some of these opportunities.”

Global Demand, Regional Economy

Larry Sanders reviewed the growth opportunities in his own business—especially given that key fertilizers worldwide are operating at no more than 25 percent efficiency—and wondered how demand for agriculture products would affect the regional economy.

SFP’s Mike Shirley noted that demand has been excellent for some time. “There’s nothing better for a regional economy than farmers having a lot of money in their pocket,” said Shirley. Their prosperity, in turn, has a positive effect on manufacturing, on retail, on banking, even on education.

“This region is poised to take maybe the greatest advantage of the increased demand for food of anywhere in the world,” said Matt Teagarden. Kansas, he noted, produces 25 percent of the feed cattle in the country. So with that demand growth, Kansas is positioned to take a tremendous advantage of that.

Bill Watson noted that demand drives investment in technology. “If you know the demand is going to be there and you’re positive the price is going to be more stable than it has in the past, you’re going to be more likely to invest in your products.”

Monica Massey spoke directly to the impact of agriculture on the area in observing that Dairy Farmers of America was Kansas City’s largest private company, a $13 billion organization. “Because of our global footprint,” said Massey, “it would make more sense if we were in Chicago, but we chose this area, because of its infrastructure and its location in the middle of the country.” Just as important, said Massey, Kansas City has “an ag mindset.”

“We have a more sophisticated understanding of ag than really anyplace else in the country,” affirmed Angela Kreps, “and collectively there’s a great deal of support for innovation in agriculture via technology.”

One reason that the region has been prospering, according to Michael Turley, is how well the industry subsets cooperate in this part of the world. Said Turley, whose firm is based in St. Louis, “I’ve always been amazed at how you all work together.” He cited the development of the animal-health corridor as testament to the same.

David Lueck, who watches developments from the perspective of his own farm, is encouraged that increased demand has allowed more “high-quality, educated youth” to return to the farm. “That’s where the technology comes in,” said Lueck. “They’ve learned how all this works, know it can work.”

Some of the young people now attracted to the agricultural sector did not grow up on farms. “They go to college for business and they learn that feeding the world provides some real opportunities here,” said Massey. “That’s been interesting, and it’s relatively new for us.”

Energy Production

The agricultural world has decidedly mixed feelings about federal government involvement in energy production. What is good for corn producers may not be good for those who buy that corn, and some regulations seem to be good for no one but the regulators.

“I would venture to say that ethanol and biofuels have had a more profound change on the rural economy than anything I’ve seen in the last 20 years,” said Bob Petersen. “It’s just rearranged the economics.”

Cary Christensen cited the case of a large poultry broker that caught the rough side of that change and went broke during the period of transition.

The Kansas Livestock Association has tried to be balanced in its approach to biofuels, said Matt Teagarden, given that some of its members are involved in ethanol production. “I think it’s an example of the risk we run in ag when we rely on the federal government in creating a market for us.”

Tom Tunnell believes that the ethanol business has been beneficial for rural Kansas, as these plants typically produce between 40 million and 100 million gallons per year, and they employ approximately 35 people per plant. “Put that employer in Phillipsburg, Kansas,” said Tunnell, “and that’s kind of a big deal.”

David Lueck was insistent on one thing. “We need a farm bill to keep everything going.” Said Lueck, “It’s not that we’re looking for handouts, but we just need to keep everything on a level playing field.” For Lueck, “level” means a consistent and predictable renewable fuel standard (RFS). “If we start reducing the usage [of biofuels], there will be over-production,” said Lueck, whose own operations generate grain for ethanol production.

Speaking from a banking perspective, Bill Watson agreed with Lueck: “If Congress messes with the RFS too much,” he observed, it could impact future investment in any other idea that comes along. People will be reluctant to pour capital into an industry that may be more of a political whim than thought initially.”

“There’s this really delicate balance between innovation and finding a way to fund biofuel so it can become sustainable,” confirmed Angela Kreps. “In ag biotech, that is even more of a challenge, because all of the pressure is on the production side.”

NBAF

NBAF is shorthand for The National Bio and Agro-Defense Facility, which will be operated under the authority of the Department of Homeland Security in Manhattan, Kan. The facility is scheduled to employ 300 to 350 people, but the project has been held up by funding issues.

Bill Watson attributes the delay to acrimony in Washington and budgetary pressure, “I can tell you when NBAF will be fully funded,” said Watson ironically, “about two weeks after we have some sort of catastrophic event.” Watson was referring to either some issue with the food supply or with a transfer from animal to humans of a serious disease.

Matt Teagarden noted that there was money in the appropriations package, but Congress was not moving forward with new appropriation bills.

When NBAF is fully funded, Angela Kreps believes, having this kind of research expertise locally will add to a growing knowledge-based economy in the region. “In my opinion,” said Kreps, “this is something the federal government should be investing in. This is a place it touches human health at the very basic level.”

Although Kreps pointed to an “enormous amount of community support” for the project, Teagarden acknowledged that had a number of cattle producers who expressed concern about safety issues.

Aging Producers

Larry Sanders raised the question as to whether there is a problem with an aging agriculture work force and a lack of generational turnover. Today, the average age of an American farmer is about 57.

As Teagarden noted, the estate tax has led to the unnecessary break-up of family farms. “We have to make sure that death isn’t a taxable event,” said Teagarden.

Bill Watson believes estate tax reform will help solve the problem, but to enter this profession without a family connection is “virtually impossible.” Said Watson, “We need to build financial pathways. The initial investment, even in a small operation, is excessive, and it’s going to get worse.”

“The young people can’t get into agriculture,” confirmed David Lueck. “They can’t afford it. The dollars aren’t there.” On the positive side, he is seeing a pattern where-by young would-be farmers are teaming up with mentors who may not be family members. “But you can’t just graduate from college and decide you’re going into farming,” said Lueck. “It doesn’t work.”

Monica Massey sees the value of having organizations like her own Dairy Farmers of America take the lead in enabling smooth transitions. “As a coop, we have to find ways to be innovative,” said Massey, “and on the farm, we have to be innovative about how we bring in the next generation, and how we have a retirement plan for farmers that are retiring.”

One additional step, said Kreps, is to help farmers access salient technologies like broadband. She believes that there should be some “predisposed advantage” for innovation that takes place in designated rural areas.

Fertilizer

One threat facing the agriculture industry is the federal government’s threat to cut fertilizer use by 50 percent. This is in response to the development of what is known as a hypoxia zone, a dead zone at a river’s mouth, most notably the one in the northern Gulf at the mouth of the Mississippi. Larry Sanders asked what kind of effect such legislation might have.

“I think anything that affects the amount of fertilizer in use has a broad effect on all food production,” said Mike Shirley. He worries that if regulation increases, especially without industry input in the creation of that regulation, the effect could be highly problematic.

Tom Tunnell argued that one potential answer is more filter strips along farm boundaries so water doesn’t get into the tributaries that ultimately empty into the Gulf.

Bill Watson believes that industry should take the lead in solving this problem. “If there is anything I know,” said Watson. “If the government does it, we won’t like how they do it.” Added Watson, “We need to say, yeah, there’s a problem. Yeah, we’re part of it, and we need to say we’re part of the solution, and say it loud.”

Among Bayer’s customers are some of the world’s largest manure producers. “We’ve done a good job with controlling and storing manure,” said Cary Christensen, “but we’ve not made a lot of progress in responsibly using it when applied to land.”

Mike Shirley noted that SFP had introduced a new product designed to prevent nitrogen from leaching and reduce phosphorus lock-up. “New technologies can help,” said Shirley in reference to the hypoxia problem in the Gulf.

Larry Sanders sees nothing but opportunities. As a CEO, he said, “That’s my job.” A major challenge for everyone in agribusiness is education—showing farmers how their products work, making sure they have representatives out there to visit the farmers, making sure they know how to use their product. Said Sanders: “That’s the challenge for our product and for our industry.”