The Trump Administration should be commended for initiating “The Proposed 2017 Reorganization of the Department of Agriculture to establish an Under Secretary for Trade and Foreign Agricultural Affairs.” From 1990 to the present, emerging global economies have added nearly 2 billion people into the middle-class. Secretary Perdue’s initiative depicts a prescient understanding of the global changes which require an adjustment of policies.
But if taxpayers are going to get the most “bang for their bucks,” why not add value – in the form of processing and manufacturing - to U.S. farm products before they head overseas? Doing so would require that Secretary Perdue give an equal high priority role to someone who oversees programs that provide value-added marketing opportunities throughout rural America – an Undersecretary for Rural Development (RD).
Currently, USDA’s proposal would eliminate the undersecretary for Rural Development to a collection of agencies within the mission area. I do not believe this structure will be able to adequately relate to or address the opportunities to increase economic opportunity while improving the quality of life in Rural America. I say this from a perspective of experience.
The global agriculture and food economy has changed significantly since the fall of the Iron Curtain and the signing of the Uruguay Round GATT agreement, both occurring nearly 25 years ago. Agriculture and food trade today is driven by access to value-added high quality protein and produce products. This shift occurred because of the emergence of exponential growth in the developing world, particularly that of Asia’s, middle-class economy. If U.S. agriculture is to thrive, it will depend on these value-added food demands….NOT brandless low-margin commodities.
A strong USDA Rural Development, which is already in place, will be key to enabling the success of the proposed reorganization. Rural Development’s unique strength has been its ability knock down program and policy silos while collaborating and coordinating with local rural businesses and leaders on successful and innovative economic projects. Its success in fostering the build-out of multiple rural based renewable energy projects, and developing and enhancing rural infrastructure, such as broadband, has been proven repeatedly and consistently.
USDA Rural Development was officially created in the late 1990’s as a result of a Clinton Administration reorganization effort. It brought three previous stand-alone agencies, the Farmers Home Administration Housing programs, Rural Business Cooperative Service, and the Rural Utilities Service together under the umbrella of USDA Rural Development. This effort was designed to realign the services and programming efforts of USDA into a more functional and useful structure.
The Rural Development I joined in 2001 consisted of 7250 budgeted Full Time Equivalents (FTE’s), nearly 800 field offices. It was providing rural America $14 billion in annual programming expenditures across the country. The annual budget authority required to deliver the Rural Development programs was approximately $2 billion.
Rural Utilities and the Rural Development Single Family direct loan portfolios were highly rated. The balance of the programming was provided by the Business and Industry (BI) Agency through direct grants for various rural community projects and direct loans provided to rural citizens. These programs assisted rural communities in building or acquiring health and safety equipment and infrastructure. They also provided seed capital to foster entrepreneurial and developmental business activities in rural communities with inadequate risk capital resources.
There was little strategic vision about the mission of the agency and virtually no recognizable brand. USDA-Rural Development attracted limited policy and rural support. Loan losses in various programs were unacceptable.
In 2001, the Bush Administration appointed a strong cadre of Rural Development state directors. The Administration was supportive of Secretary Veneman’s commitment to foster a new vision and brand for USDA Rural Development. These efforts involved the entirety of the Washington based organization, the state directors, and their teams. By late 2003, the Washington DC staff, the state directors, and a committed national rural development team began to effect a transformation which impacted all of rural America.
A USDA-RD strategic vision and brand, in conjunction with the implementation of measurable goals, were in place by 2005. There was much less dependence on government direct loans. The BI portfolio losses decreased to acceptable levels. By the end of the Bush Administration:
- Nearly 45 percent of the RD offices had been closed.
- Eighteen percent of the FTE’s had been removed from RD and OMB’s budget, not through RIF’s, but through attrition.
- There was a significant shift in effective programming and program delivery without an increase in federal funding.
The majority of the increase in programming was a result of the implementation of loan guarantees involving commitments from rural business owners and entrepreneurs. Programming budget essentially stayed flat at approximately $2 billion. Yet, annual rural programming commitments had increased from $14 billion to over $20 billion. From FY2002 to FY 2009 the total loan portfolio had grown from less than $50 billion to more than $120 billion. It is my understanding this trend continued through the Obama Administration. At the end of the Obama Administration RD had a loan portfolio of $216 billion. All of these gains were facilitated by strong ground level teams based in each state.
I don’t know the present quality of the loan portfolio. However, in 2006 USDA-RD’s Strategic Economic Benefits Assessment (SEBAS) began validating these rural development programs. It was clear then that they were succeeding in stimulating rural economic growth and opportunity.
When the original Agricultural Adjustment Act of 1935 was passed ERS data indicate there was a farm population of 31 million out of a U.S. population of 125 million. The 2012 Ag Census data now indicates there are about 3.25 million farmers out of a rural population of 60 million. Given what we know about the challenging economic issues in rural America, these numbers obviously suggest that maintaining a strong well managed USDA Rural Development Agency is a sound use of public dollars.
The further justification for retaining a strong and well managed Rural Development Agency ties directly to Secretary Perdue’s stated purpose of reorganization. Its principal focus is to “address trade barriers..”, “actively open new markets (emphasis added)”, and “enhance the Department’s ability to quickly respond to sanitary and phytosanitary (SPS) and other nontariff trade barriers…”. To do so, USDA will create the position of an Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs.
It appears these initiatives are designed to continue focusing on the exports of commodity agriculture products. Therein lies the context of my concern. In 2011 the US Grains Council, of which I was serving as the CEO & President, and the U.S. Foreign Agricultural Mission based in Tokyo, Japan collaborated on a study entitled FOOD 2040. The focus of FOOD 2040 was to better understand ….
“the driving forces reshaping food and agriculture in East Asia, FOOD 20140 recognizes potential problems but seeks to discover how ingenuity, technology, and resilience could create positive outcomes for the region, its inhabitants, and the organizations that operate there. At its heart,this report is an optimistic, forward-looking exploration of future opportunities for the agriculture and food sectors in East Asia through 2040.”
The FOOD 2040 study was released in April 2011 in Tokyo to a large audience of Japanese government, academic, and food industry leaders. The thesis of FOOD 2040 was further confirmed by the Japanese Ministry of Agriculture, Forestry and Fisheries (MAFF) release in March of 2015 of a report produced by a Japanese group called the “Joint Working Group on the Global Food Value Chain Strategy”. The Joint Working Group’s stated purpose was “for the purpose of discussing a strategy to establish food value chains” through a Public-Private Partnership. (They defined a food value chain as “a whole series of activities that create, maintain, and add products value, ranging from agricultural production, manufacturing, processing, distribution to consumption.”). This study confirmed the findings of FOOD 2040.
Upon reviewing both studies it is possible to understand why the demand for food, especially value-added food products will increase from an annual global expenditure, exclusive of Japan, of $3.6 trillion USD to $7.2 trillion USD by 2020. Both studies make it quite clear that these new food demands will not rely on the global shipment of traditional agricultural commodities. The new food products will be more value-added requiring entirely new production, processing, distribution, and food safety standards and technologies.
If rural America is to participate in this new global market, it must capture these value-added opportunities locally. The potential is to create significant and sustainable new business development and job opportunities. These opportunities will not be dependent upon the weather in the traditional sense of commodity crop or livestock agriculture. They will require the development of new infrastructures, new systems of trust, and new risk-management strategies. All, if thoughtfully developed, will provide substantial economic growth for the rural and resource rich areas of the United States that helped elect President Donald Trump.
Accordingly, two things become clear. Historical and traditional commodity policies anchored in the permanent legislation of 1949 will not enable rural America to successfully engage in these opportunities. These new market demands will require a substantial commitment to fostering and sustaining Rural Development policies designed to enable the birth, maturation, and fruition of new value-added ag and food opportunities.
In conclusion, a USDA reorganization effort focused on exploiting global food and agriculture market opportunities is a wise and necessary move. However, if it is to succeed, USDA must recognize that global changes in food demand will need to be refocused on value-added high quality protein and produce products, not the traditional commodity products of which we are accustomed to shipping overseas. To participate in these exciting new markets will clearly require committed USDA teams focused on “Trade and Foreign Agriculture (possibly Food) Affairs”, AND Rural Development.
About the author: Thomas C. Dorr is a former Undersecretary for Rural Development 2002-2003 & 2005-2008 at USDA, former CEO of the U.S. Grains Council and an Iowa farmer.