Kansas City's Niche in Agricultural Economic Development
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MIDCONTINENT PERSPECTIVES Midwest Research Institute Kansas City, Missouri April 13, 1983 C.L. William Haw President and Chief Executive Officer, National Farms, Inc. Kansas City, Missouri Kansas City’s Niche In Agricultural Economic Development My subject is going to be a little different from that of my usual presentations in that although I am going to talk about farm economics I am going to tie my remarks to some specific thoughts about this beautiful and livable city, its history in agribusiness, some misconceptions about our present role in agribusiness, and what I perceive to be Kansas City’s most significant opportunity for agribusiness-related economic development. I want to make it clear from the first that although I am a director of the Chamber of Commerce and the Board of Trade, these will be my own thoughts. You will not find me to be a cheerleader for all aspects of where we are, but I hope you will find some optimism – maybe even excitement – for our opportunities to capitalize on the strengths that we have in Kansas City. Before we can do that, though, we have to understand what those strengths are and what they are not. I am going to try to break my remarks down into the following areas. First, I will give a brief description of our company, National Farms, partly to give you a perspective of my perspective and partly because I love to talk about it and you are my captive audience for a little while! Second, I want to draw a distinction between agriculture, which is our business, and agribusiness, which is the business of Kansas City. I think there are some definite misconceptions in that area, and hopefully we can clear them up. Third, I want to trace Kansas City’s historical roots in agribusiness and illustrate how the times and trends have taken us from where we were to where we are now and how we got here. Fourth, and perhaps most important, I will outline the strengths we have to build on and some specific ways in which we might capitalize on those strengths in Kansas City. Our company is primarily a large farming, livestock feeding, and feed ingredient manufacturing company. We were for many years publicly held and were listed on the American Exchange. We are now privately held by the Bass family in Fort Worth, and we headquarter in the Kansas City Board of Trade building. Our principal business originally was the manufacture of dehydrated alfalfa pellets for the feed industry, an energy-intensive, pollution-intensive, and labor-intensive business. These have been three of the Four Horsemen of the business Apocalypse over the last ten years, and as times have changed we have systematically sold 40 of the 41 manufacturing plants that we had in that area and are now a very small producer of that product. At the same time, we market material for other producers of dehydrated alfalfa and market more than we ever have before. But our © MRI, 2000 C.L. William Haw, April 13, 1983 Page 1 © MRI, 2000 C.L. William Haw, April 13, 1983 Page 2 principal business, as we have gotten out of the one business, has been to get more heavily involved in production-level agriculture. We have expanded our ownership of farmland and livestock. We are not farm managers, and we are not farm consultants. We farm the land that we own with people who are our employees and with equipment that we own. We farm 10,000 acres of bottomland in southern Arkansas which is planted in wheat and rice. We have 1,100 steers grazing PIK wheat at that location. We have 14,000 acres in eastern Texas, with 8,000 acres planted to wheat and the balance supporting a 1,000-head cow herd. There are also 1,100 steers grazing on PIK wheat at that location. We have 16,000 acres of center pivot land, mostly in wheat and corn, in the panhandle of Texas, the heart of the Ogallala, which all of you read about from time to time. On that farm we have a 10,000-head cattle feedlot and graze another 10,000 head on wheat pasture and corn stalks. We have sold 12,000 acres in Kansas of center pivot irrigated land that we farmed for years primarily because the water problems are most severe in the western Kansas portion of the Ogallala formation. We have a 15,000-head custom cattle feedlot west of Hutchinson, Kansas, our only “customer” business, and it has been a very good business for us. Until a year and a half ago we owned 22,000 acres in northern Nebraska, all in Ogallala, planted to corn under center pivot. We sold it to Prudential. This first really big sale of good farmland we have ever made reflects quite a change in our company strategy and reflects some doubt about continuing increases in land value. We do lease it back, however, and operate it. We have a 75,000-head annual capacity confinement facility for hogs, which we are expanding this summer to 225,000 head, and hope to be one of the largest producers of confinement hogs in the world. So essentially we are great big farmers and raisers of livestock. To give you a little perspective, if all our farms were in one place starting here and stretching a mile this way and a mile that way, they would extend somewhere beyond St. Joseph in one block. We have perhaps $75 million present market value in assets involved in farming, but we employ only nine people in Kansas City, rent a small amount of office space, and have some banking relationships. An interesting thing is that although we headquarter in Kansas City for this quite large operation, we represent very little economic benefit to Kansas City. Which brings me to my next topic, the difference between agriculture, our business, and agribusiness, the traditional business of Kansas City. It is a common misconception that agriculture plays a direct role in the economy of Kansas City. That is not really very true. Kansas City is not a farm town and has very little business actively generated from farm activity in terms of money spent in town or farm profits flowing into town. Farming is a highly fragmented, decentralized business, with ownership widely dispersed in the countryside; and the benefits or losses of ownership pretty much remain in the countryside. Although we read a lot about the corporate farm taking over farming and about the centralization of ownership of farming, the fact is that less than one percent of all farmland in the United States is owned by non-family corporations. Ninety-nine percent of it is still owned and operated by farming families. The reason that the percentage of corporate ownership is not increasing is that historically there has never been any money to be made in the farming business other than the steady appreciation in the value of the land. Anybody who tells you any different is either a lot smarter than I am or kidding you. Let me interject a little joke here before I go on with my sad tale about how unprofitable farming is. It is about the farmer whose wife was about to give birth to a child. The farmer says © MRI, 2000 C.L. William Haw, April 13, 1983 Page 3 to the obstetrician, “I don’t know what you can do to help me, but there are three things I want more than anything else from this child. I want it to be a boy, I want him to have red hair, and I want him to be a farmer.” So in the normal course of events the obstetrician helps deliver the child and comes back into the waiting room, where he says to the farmer, “Well, I really did it all for you. You got all three wishes.” The farmer says, “I understand how you could tell it was a boy, and I understand how you could tell he had red hair, but how do you know he’s a farmer?” The doctor replies, “He must be. He’s been crying since the minute he hit the table.” I will try to convince you that the economic lament of the farmer is real in most cases. Let me say it again. Historically, there has never been any money made in the farming business. The only good part of it has been the steady appreciation in the value of the land. The farmer has lived poor and died rich. In fact, in 1980, 65 percent of all farm income in the United States came from non-farm sources, that is, jobs in town and government transfer payments, which is the largest part of it. In 1982 and 1983, government payments to farmers will have exceeded the total net income of farmers by a wide margin. Now what does that mean? It means simply that farming is a losing business, a business being subsidized and kept going by transfer payments from the government of the United States. So maybe it is not such a bad deal that there is a distinction between agriculture and agribusiness. Historically, being in the middle of the world’s biggest pea patch is not the same thing as being in the middle of the world’s oil patch, first because the ownership tends to be widely scattered outside the cities, and second because large profits really are not generated to be reinvested in the community even if the ownership were in the community.