Remarks of Tom R. Tunnell

 

 

 

Thank you. I am pleased to be a part of today's panel to discuss the changes in agriculture and agribusiness industries and whether public policies should facilitate or impede the structural changes that are occurring.

My comments will be confined to an area of which I have the most knowledge - the state of Kansas. During my twenty years as the chief staff officer of the Kansas Grain and Feed Association, I have witnessed tremendous change in our state's grain storage and handling industry. Probably the single biggest cause for change happened one month after I came to KGFA in September 1980, with President Jimmy Carter's signing of the Staggers Rail Deregulation Act in October of that year.

Let's look at the impact on Kansas railroads brought about by that historic act.

Here is the railroad picture in the state in 1980. At that time there were seven Class 1's operating in Kansas. In 1998 there were three. There have been 2059 miles of trackage dismantled in the state since 1980.

Today's situation looks much different with only three remaining Class 1's along with a number of shortline railroads operating in the state.

The result of all these changes? Today only elevators capable of loading unit trains of 100 hopper cars are viable shippers of grain by rail. Twenty years ago there were over 800 elevators that shipped by rail, today there are less than 100.

In 1995, for the first time since records have been kept, more grain was shipped by truck in the state than by rail.

Two other important contributing factors causing change in our industry, in my view, has been the influence from farm coop lenders on coop mergers and the consolidation of the number of farmers causing farm units to increase in terms of the number of acres farmed per farmer.

Let me quickly review some numbers, which I believe are salient to this discussion. When one compares the number of Kansas grain-handling entities today in the year 2000 compared to just 10 years ago in 1990, I believe you will see what I mean. The number of companies, both privately and independently owned, has dropped in our state over the past decade from 462 to 303. However, you will note the number of actual elevator locations, serving Kansas farmers, only dropped from 101,3 to 887 over the same period.

You will also notice the drop in the number of farm coops has been also reduced from 198 in 1990 to just 116 today.

The reduction in farm coops was started in the late 1980's when the Farm Credit System became aware that the small one county farm coop was ill prepared to deal with the demands of high production agriculture. As a result, it took on a campaign of encouraging consolidation and merger of these coops - a campaign still going on today - which has reduced the number of Kansas coops almost 50% over ten years. To the Farm Credits Systems credit, the farm coop of today is larger and more efficient and is better able to deal with the demands of 21st century agriculture.

It is obvious our state's grain storage and handling industry has downsized but mostly in the area of ownership - fewer business entities but virtually the same number of elevators.

Farm size - when one compares the farm size in 1990 to today's farm you will see only a 37 acre increase in the average farm. However, remember this number is the average size, taking into consideration all of Kansas --from eastern Kansas where a typical farm may be 240 acres of dryland soybeans and corn to western Kansas where a typical farm is measured by the number of quarter section circle irrigation pivots. In any case farms are larger today than at any previous time in history. Producers who farm thousands of acres demand many things in terms of products and services from its agribusiness supplier and grain elevator. Mostly, they want quick handling at the elevator, large truck scales, and faster elevator legs. They also want to buy volume priced crop inputs and receive timely and accurate crop application services.

To compete and meet the needs of large producers requires a huge investment in facilities and equipment on the part of the Kansas agribusinesses. Also, it is paramount to have highly trained agronomists, and other trained personnel to keep up on the latest crop production technology particularly in the area of Global Positioning field mapping and input application. Additionally, environmental concern over the past decade has dictated the construction of fertilizer and pesticide bulk containment and handling facilities costing hundreds of thousands of dollars.

Now my thoughts on whether public policies should facilitate or impede structural changes in agriculture. I believe public policy should not impede further consolidation of our industry, at least not at this point. Even with the Cargill/Continental Grain merger, Kansas still has adequate competition in all areas of the state. As l said earlier there are 303 different business entities in our state vying for the opportunity to buy the farmers grain. It seems every day I hear of an announcement of a new strategic alliance being formed to offer the Kansas farmer a more competitive market for his grain. Examples are the joint ownership of a unit train loader in Colby, Kansas between Cargill and four local coops and a new train loader being built in south central Kansas by a company jointly owned by The Scoular Grain Company and a local coop. I believe any stifling of this type of business activity by government would be counterproductive.

We need to appreciate the fact that bigger in most cases is better. Larger operations can better avail themselves to more competitive freight rates from railroads, comply with the ever increasing avalanche of government regulations and be prepared to handle the coming e-Commerce wave of marketing farm products.

U.S. agriculture must compete in a world market. The only way to do this is to be more efficient than our competitors.

Some government oversight of mergers and buyouts may be all right, but it should not interfere with an orderly evolution of agribusiness towards a more efficient industry. Thank you.

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