Reformers urge focus on rural development

 

By Chris Green and Sarah Kessinger

Harris News Service

 

TOPEKA – Supporters frequently argue that farm bill payments play a crucial role in keeping rural America from simply drying up and blowing away.

            Yet when Jon Bailey looks at the emerging version of the 2007 farm bill now before Congress, he sees an imbalance that actually perpetuates rural population outflows.

            The director of research and analysis at the Center for Rural Affairs in Lyons, Neb., Bailey joins those who want to see some federal farm payments – those for the wealthiest landowners – instead devoted to rejuvenating rural communities.

“The biggest effect right now with the farm bill is that there is essentially no money for rural development, especially compared to the commodity payments,” Bailey said.

Advocates, including agribusiness lobbying groups, argue that the existence of commodity payments for crops such as corn and wheat have stemmed population outflows by slowing farm consolidation and pumping crucial dollars into Main Street businesses.

            Yet across Kansas and other rural, Midwest states an agrarian way of life is steadily vanishing anyway.

More than three-quarters of Kansas counties, predominantly rural, suffer from long-term declines in population, at the same time that more than $9 billion in crop subsidies have poured into Kansas over the last decade.

            Bailey and other reform advocates argue that an overemphasis on crop subsidies at the expense of rural development aid is speeding up this phenomenon.

            “There isn’t the public investment in these communities and the job creation, business creation and the infrastructure they would need to retain and attract people into the community,” Bailey said of rural towns.

 

No obligation

 

            Although farm subsidies make up just $42 billion of the $286 billion farm bill moving through Congress, they dwarf the amount of money allotted specifically for rural development.

            Bailey said that the House’s version of the bill, passed in July, includes $456 million for rural development. But only $30 million, aimed at a program to promote value-added crop products, must actually be spent.

The remaining spending is budgeted by law but must still go through the process of being appropriated by Congress.

            A report released by the center in July showed the phenomenon occurring in Kansas, too. In the Sunflower State, the top 20 farm payment recipients received $25.1 million while the 20 most stagnant or declining counties received only $5.5 million in rural development funds.

Such differences matter, Bailey says, because the massive scale of farm payments further perpetuates an ever-increasing growth in the size of farms.

            “The money is so skewed between the two that the ultimate effect is that you end up with an enormous amount of money subsidizing large farms and very little going to investment into rural communities,” Bailey said. “You end up with farms getting larger and larger.”

            Subsidies, he said, allow the largest farms to bid up the price of land, hike rents and expand their operations. The subsidies also encourage farms to grow because farmers can obtain additional payments by further increasing their acreage, he said.

            When the size of farms grows larger, there are fewer farms for individuals to work on, leaving fewer opportunities in farming, he said. As a result, there are fewer business opportunities directly linked to farming operations.

            “People who don’t have the resources then are sort of left out of the equation,” Bailey said.

            He also said there’s evidence that as farms get larger, they take their business to larger, regional hubs instead of locally owned shops.

            Unlike some farm bill critics, Bailey doesn’t suggest ending crop subsidies. Instead, the center would like to see strict limits on them and an end to loopholes that allow for the largest payments.

            That would free up money to encourage small business entrepreneurship in rural communities and promote value-added agriculture products, which could help bring more and younger people in to help rejuvenate rural communities.

 

‘Driving engine’

 

One such alternative approach to rural development is the center’s Rural Enterprise Assistance Program, which has helped 7,500 businesses in rural Nebraska since 1990. Reynolds said he believes it’s the nation’s largest program devoted exclusively to rural businesses.

The nonprofit organization provides small businesses with loans of up to $35,000 to help with startup costs or expand existing operations and can help package several loans together to finance larger projects.

            Since 1990, the program has made 537 loans totaling $3.7 million and leveraged $8.3 million in additional funds. However Reynolds said the effort’s primary task is providing educational opportunities and technical assistance to develop rural businesses.

Most of the program’s funding comes from micro-loan aid available through the U.S. Small Business Administration and the state of Nebraska. It receives no money under the farm bill and only a fraction of its funding comes through the USDA.

Kansas has its own micro-loans programs – the South Central Kansas Economic Development District has loaned out $5 million to 14 counties since 1993 – but none dedicated exclusively to rural areas.

Reynolds said it’s important for small communities to have entrepreneurs willing to take risks. Areas that don’t have a strong small business climate struggle even more to pull in larger employers, he said.

            “In a lot of these communities, businesses with five or fewer employees are the driving engine of that area,” Reynolds said.

The effort has produced dozens of success stories touted on the REAP program’s Web site.

When Becky Wyatt wanted to start a business in Sidney, a town of 6,372 in the southwest Nebraska Panhandle, she had no idea how to do it.

The woman who owned the health products store she worked for was retiring and closing her shop. The town’s residents faced the prospect of traveling 65 to 100 miles into neighboring states to buy vitamins, organic food and other specialty health and beauty products.

            Wyatt said she turned to REAP for a loan and technical aid to start up her own store in Sidney. Since opening in March 2006, business at Becky’s Health Hut has been strong, she said.

            A single woman in her 50s, she gives credit to REAP in helping her, especially since it’s tough for entrepreneurs like her to borrow money. A local bank denied her application for one business loan but she was able to have her father co-sign a loan, in addition to help from the REAP program.

            “They are there every step of the way,” Wyatt said.

            Still, Jerry Terwilliger, REAP business specialist in the western Nebraska’s panhandle region, said it takes a lot more than one organization or program to spur a turnaround, he said.

A small town must also develop an economic development structure and housing to attract people back to their communities.

 

Foundations for building

 

            Some federal money reaches communities for rural development. Yet it pales in comparison to farm aid for crops.

            Chuck Banks, Kansas director of the USDA’s Rural Development office, said federal loans and grants have increased to their highest level in decades – some $1 billion over the past five years.

            “I think there’s a recognition among communities that it’s necessary,” Banks said of the need to improve decaying or nonexistent infrastructure.

            To attract new families and business to a town, the rural health care, affordable housing, telecommunications, water systems have to be there, Banks said.

            “You’ve got to have that foundation to build upon.”

            With new opportunities in energy production such as wind farms and bio-fuel plants, rural areas are looking for ways to draw them.

            Federal officials also have tried to blend farm and rural development through another program that has grown in popularity – value-added producer grants. They help farmers who want to offer products developed from their crops, such as ethanol and milling flour.

Banks said it’s proven a way to help farmers capture more income and perhaps keep their operations afloat, which in turn helps communities.

First District Congressman Jerry Moran, a Hays Republican, said enhancing rural development and creating rural jobs are important, especially considering that a second income is often vital for families to continue operating farms.

It’s unclear, though, whether Congress will target more aid to rural development before signing off on this year’s farm bill.

 

Status quo costs       

 

Placing stricter caps on farm payments would be politically difficult, Moran said. Growers of predominantly southern crops, such as rice or cotton, tend to favor higher subsidies to help cover their higher production costs.

            Plus, reducing the amount of federal aid for commodities doesn’t necessarily mean that money will end up going to rural development instead, Moran said.

            “In broad terms, it’s possible,” he said. “In real terms, it’s difficult to make certain that’s what would happen.”

Yet without a reduction in payments to the largest farms, rural communities will continue to decline, said Cornelia Butler Flora, Iowa State University professor of agriculture and sociology. 

“Generally, what we have found are correlations that show the greater the amount of farm payments, the greater the out-migration,” Flora said. “The greater the payments, the greater the crop monoculture, and less diverse the local economy.”

Support for subsidy caps appears to be growing among some rural business leaders.

Creighton University economist Ernie Goss’ regularly surveys community bankers in several Midwestern states. He has found most of them support a $250,000 cap on farm payments.

            “Only 16 percent disagree,” he said of his study done earlier this year. “In this part of the country, a lot of bankers thought that should have been in (the House bill). It wasn’t.”

            As in most of Kansas’ 105 counties, most of Nebraska’s 99 counties have lost population as farm sizes have doubled in acreage over the past 50 years.

            “Without a cap, you’ll have larger and larger farms, fewer and fewer farms,” Goss said. “You’ll have out-migration, lower population and, likewise, that hurts businesses that sell to the family farm, grocery stores that sell to the family farm.”

In terms of economic development, Goss said, “as these bankers see it, anything that undermines family farms, undermines the community, undermines population growth.”

 

Sustainable future?

 

            Lowering payment limits could prove a more sustainable policy over the long term, Flora said, particularly if the aid went to benefit both the farmer and the community.

Such assistance could come in the form of payments for clean water, soil, bio-diversity and clean places for recreation.

            “That seems a more logical thing for the public to pay for,” she said, because such aid doesn’t alter farm markets and won’t interfere with international trade.

            Goss, the economist, said that recreation would be one of the areas that rural communities can tap to revive their economies.

            “There will be communities who will thrive, especially those closest to ethanol plants and those that have amenities, such as mountains, streams, lakes – recreational opportunities,” he said. “Those that won’t make it will be the remote ones without ethanol plants, without an interstate nearby.”

            Without policy changes, though, federal aid may not be available to support for new and diverse ventures.

Bailey acknowledges that the fight to create more balance between farm subsidies and rural development faces an uphill battle. One of the problems, he said, is that there is little consensus among reformers on what programs best enhance rural development.

That’s in stark contrast to the agribusiness lobby, which is organized, strong and centered around the simple goal of getting the most money possible in payments, Bailey said.

“There’s just not a real organized constituency for rural development,” Bailey said. “There isn’t really one organization or one constituency that brings all of those things together politically. When it comes time to divide up the money, everybody is kind of out there asking for their own small slice of pie.”