| Speeches by ODA Director Katy Coba |
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| NW Agriculture Global Market |
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November 4, 2003 - Portland Business Alliance
I want to thank the Portland Business Alliance for holding this forum. The title or topic is very appropriate. The acceleration of change being experienced throughout the global economy has never been faster in the history of the world. Change is everywhere. It is forcing refocus and modifications in how we do things. We have to look at things differently.
A couple days ago one of my assistant director’s (Lisa Hanson) was observing a plethora of ladybugs inside her home. In a somewhat puzzled and frustrated self-wondering, she said aloud: “Where are these bugs coming from?” Her three-year-old daughter looked at her with that “don’t you know, mommy?” look, and pointedly stated: “They come from their mommies, of course.”
From their moms and dads, to be sure; but this plain-view perspective of a three-year-old daughter clearly shows that looking at a situation from a different angle can change one’s perspective of the issue.
In a market economy things always change, sometimes faster, sometimes slower, but always change. Product mix, improvement in process, competition, supply-demand balance, and response to consumer demands – these are the fundamentals of a market.
Before I move into some specific areas of change and industry response, let me share some key statistics with you to put Oregon agricultural and food products trade into perspective:
- By volume, agriculture and food products are Oregon’s largest export; 60% of the Port of Portland’s total tonnage of exports is agriculture.
- By value ($1.4 - $2 billion/year), ag and food product exports rank 2nd only behind electronics/high tech and account for nearly 20% of exports from Oregon.
- Each $1 billion in agricultural exports generates 15,200 jobs. Oregon’s agricultural exports support between 21,280 and 30,400 Oregon jobs. For each additional $1 million in agricultural exports generated, approximately 15 jobs are added.
- 80% of Oregon’s ag production leaves the state.
- 40% of Oregon’s ag production leaves the country, with Japan being the single most important destination (nearly 50% of the value). In fact, in some years, the Japanese consume more Oregon products than are consumed in Oregon!
Are exports important to Oregon agriculture? Without doubt.
Yet there is something big happening in world trade that is affecting nearly every business everywhere, including agricultural businesses here in Oregon. What are the major trends affecting agriculture? And how is the industry adapting?
- In the past 5 years, consolidation in the wholesale and retail food trade has exploded.
- More than 700 consolidations and mergers per year among food companies have occurred with little attention from the general population.
- In the 100 largest U.S. cities, 4 grocery firms (Wal-Mart, Kroeger/Fred Meyer, Safeway and Albertson’s) now control 72% of retail food sales.
- Further, 1/3 of U.S. supermarket chains are now foreign owned, predominantly by European companies.
Trends suggest six or fewer global food retailers will evolve over the next few years. Most of them will likely be European-based transnational firms. Wal-Mart, who triggered much of the consolidation in the European retail sector, will likely be the only major United Statesbased global retail firm.
- Fewer outlets and larger, multinational companies dominating the food sector mean they are requiring larger suppliers at lower cost.
- Farms are forced to expand to supply these entities. The number of Oregon farms with over $1 million of machinery and equipment grew 106% between 1992-1997, from 71 operations to 146. While this is a small portion of Oregon’s 40,000 farms, to be sure, it represents the trend toward bigger (and Marty can tell you about that as one of the largest in Oregon) – for those who want to compete at the top-end volume level – or toward smaller operations for those who don’t. And we have a lot of medium and small-scale operations in Oregon.
- In fact, direct farm sales, another recent trend and indicator of how small-scale agriculture is adapting, have grown dramatically.
- Oregon ranks tenth in the U.S. for direct sales to consumers, restaurants, or other markets.
- Oregon boasts 67 farmers markets that served an average 90,000 consumers per week throughout the season, with estimated sales of $15 million - $20 million.
- Nearly 100 farm roadside stands operate around the state selling directly to consumers.
- Five Oregon counties, including Clackamas, Multnomah and Washington, are ranked in the top 100 counties nationally for farm direct sales. With the consolidation in the wholesale and retail food sectors, producers are finding fewer outlets and more of them are marketing directly to consumers. This direct link between growers and buyers helps bridge that sometimes-cavernous urban-rural divide.
- A global economy, with international trade agreements and multinational food giants that source product from all over the world means that our agricultural and food processing sectors face competitive labor costs from China, Mexico, Chile, and other nations where rates are a fraction of the U.S. Oregon’s agricultural compensation is among the highest in the U.S., averaging between $8-9 per hour, with total on-farm payroll at $750 million – the single highest expense for Oregon producers. The food processing sector adds another $780 million in payroll, and another $1.3 billion is added through jobs in storage, transportation and shipping, input suppliers, marketing, and related agri-businesses. Fully 150,000 jobs in Oregon are associated with the agri-business sector, representing 8% of Oregon’s total labor force.
Faced with foreign competition and lower costs, both on-farm and off-farm agricultural businesses are being forced to examine productivity, mechanization, crop mix and how these products are produced and processed.
- Another remarkable trend in our country -- more U.S. households now have pets than children. More households own horses now than in 1900. Ours is a culture of friendships with fuzzy things. Agriculture is the basic source of products for much of the pet-food industry, and this presents great opportunities for those who can latch onto it.
- Our demographics are changing. Thirty (30) of the U.S.’s 100 largest cities now have a “minority” as the “majority” population. Increasing numbers of ethnic groups are seeking foods that fit their culture and tastes. This is another opportunity for agriculture and food processing for those with their finger in the wind. Oregon has a number of food businesses developing products for these markets.
- Internet grocery shopping almost doubled from 2000 to 2002, with about 10% of consumers doing some amount of buying online. Oregon growers rank near the top in the nation for usage of computers in their business, some of it related to on-line direct to consumer retailing. Another niche for some of our producers and processors.
- One of the largest growth businesses of the 21st century in the U.S. will be the health & nutrition industry, fueled by 76 million baby boomers in search of maintaining their health and appearance. Health and nutraceutical products are predicted to grow to $500 billion in the next decade -- tremendous opportunities for new products and increasing demand if agriculture can structure itself to share in the growth.
- Quality assurance and traceability for food safety and production practices is a growing demand by food product buyers and consumers worldwide. Oregon (and ODA), in responding to such customer demands, are recognized leaders in the US in creating voluntary certification programs that match growers and processors efforts to these changing market demands.
- Another trend worth noting -- in the next 20 years 75% of farmland in Oregon will change hands. Tax laws, development pressures, and the general economic climate will influence how many young farmers enter agriculture in Oregon and the characteristics of farms, i.e., family owned, corporations, or consolidation and fewer farms all together. Presently more than 96% of Oregon farms are family owned and operated, either as sole proprietors (85%), family partnerships (7%) or family corporations (6%). The structure of farms affects our communities, rural businesses, and the landscapes that Oregonians value so much.
Another development that is important to mention is the interest in sustainable production and the tie agriculture has with renewable energy opportunities.
While still relatively new in its application in Oregon, renewable energy derived from agricultural sources is as old as agriculture itself. Water wheels and windmills, just two examples, have been around for centuries.
But new technologies are enabling more producers to utilize farm-based inputs to lower purchased energy costs and to generate power for sale to others – renewable, clean, and sustainable power.
- Oregon’s infrastructure of irrigation canals and piped water systems presents many opportunities for small-scale, micro-hydro energy generation that can assist in the offsetting pumping costs and water conservation.
- Oregon wheat growers are examining the feasibility of an oil-seed crushing facility that would transform mustard seed, canola or other oil-seed crops that are used in rotation with wheat, into the base oil for bio-diesel and other bio-based products.
- Dairies are evaluating the potential for anaerobic digestion of manure that can reduce odors, manage manure nutrients, cut land application costs, create value-added compost products, and generate electricity.
- Many landowners participate in lease agreements for siting of wind towers, and some producers are making efforts to form their own companies to actually own the towers and sell the electricity.
These are all ways that Oregon producers are beginning to evaluate additional uses of their land and structural assets for potential cost savings, increased revenue flows, and generation of energy in a clean, sustainable way for Oregon’s citizens and businesses. You will likely see more of these technologies even in urban areas.
Does all this really matter? Is production agriculture and related businesses really relevant in Oregon ’s economy? Well, it’s really all about agriculture!
I’ll tell you why:
- Agriculture is Oregon’s number two industry, accounting for more than 150,000 jobs in Oregon (8% of total jobs, 1 in 12) that are related to production, input industries, processing, transportation, storage, and marketing. As previously noted, the overall industry payroll tops $2.8 billion.
- The agriculture industry contributes nearly 9% of gross state product when all of these related segments are counted. Agriculture is more than production – but production is the central component that keeps the machine going.
- Agriculture and related industries are everywhere in Oregon.. Five of the top six ag producing counties are located in the Willamette Valley and are within an hour´s drive of Oregon´s two largest cities, Portland and Eugene .
- Nursery production, centered in the Metro area, has more than tripled in the past decade while it has led as the top agricultural commodity by value over that period. This is a “cluster” industry that employs over 10,000 workers directly and thousands more in shipping, supplies, equipment, and other economic aspects.
- Oregon agriculture is very diverse. We are blessed with many micro-climates and geographic regions that enable production of over 200 specialty commodities.
- This diversity contributes to the economic vitality of the industry and the breath-taking landscapes that result from hard work and proper management of resources.
- Despite the overall downturn in the economy in the past 3 years, the value of agricultural output has remained stable. Net farm income did suffer and growers have faced lower prices and higher costs, but 2002 showed an 8% increase in net income and 2003 looks to be an even better year.
- So, while ag is cyclical and producers and processors are struggling, they are still able to contribute significantly to the economy and continue to show their resilience and productivity (more output with fewer inputs).
I might interject that the U.S. is supposed to be the driver of the information economy with most of the growth coming in white-collar jobs. In the past year alone, more than 400,000 white-collar jobs have moved offshore, including jobs in telemarketing, airline reservations, printing and graphic design, account and bookkeeping, tax preparation, drafting, medical technology, computer programming and many light manufacturing jobs as well.
This is a critical point because land -- as the critical infrastructure anchor for agriculture – isn’t easily transferable. The base is anchored here. It isn’t a factory that can move jobs or production overseas at any moment, rendering large investments (public and private) in buildings and equipment idle or obsolete.
- Agricultural land is a stable resource that gives the industry an advantage in economic development because it isn’t going to be quickly converted to another use or have its associated “productive assets” shipped somewhere else.
- Agricultural land is a sustainable and renewable resource. Oregon producers are employing some of the most progressive and advanced practices in the world to ensure their lands function as working, producing, economically viable and environmentally sustainable operations.
Because Oregon’s land use laws help stabilize agricultural lands for agricultural use -- and because Oregon’s producers and the extended food processing industry are recognized as leaders in the area of sustainability and high quality products -- this creates the infrastructure for economic development in expanding existing food processing and attracting new processors to the state, as well as developing renewable energy and other businesses related to our natural resource base.
ODA is cooperating with OECDD and other local economic development organizations to increase the number of agricultural entrepreneurs who make good use of the agricultural bounty we have in this state. The variety of high quality products we can grow lends itself to value-added, sustainable, specialty product production and innovation. Others recognize this fact as well. So-
- I joined Governor Kulongoski recently in signing a letter of recruitment to California food processors and other businesses.
- We are trying to expand on our existing food product base to create more jobs and associated economic activity, support existing and new agricultural businesses, add value to products, and assist in the market development of the specialty commodities and niche products we produce.
- Out of more than 200 letters sent, 18 companies have responded -- 12 of these were companies that ODA sought to recruit as progressive food processing entities.
Without doubt, there are many reasons agriculture and food companies will want to expand, locate, or do business in this state.
Oregon has distinct advantages:
- Diversity of crops, climates, and production regions.
- Reputation of quality products.
- Recognized efforts in sustainable resource production.
- Aggressive marketing programs with partnerships between grower organizations, dealers/processors, ODA, and other state and federal organizations (WUSADA).
- Food Innovation Center & Export certification programs/labs.
- Quality research and extension facilities and capabilities .
- Major west-coast port facilities.
- Land base, water, and infrastructure that, while subject to increasing competitive demands, represent significant opportunities for renewable energy and agricultural production capacity.
- Oregon’s land use system and “right to farm” laws help minimize conflicts with non-farm residents and maintain our investment in a viable agricultural infrastructure.
Agricultural land cannot be viewed as an idle resource waiting for conversion to a “bricks and mortar factory” or homes. These lands and associated infrastructure are an integral and stable economic platform statewide – urban and rural.
- These lands already generate thousands of jobs and on-going investment throughout the state.
- These lands are not static in how they are managed. Farmers adapt to changing market structures, grow different commodities when possible (witness the expanding wine industry), adopt new technologies and best management practices that provide conservation, environmental and economic benefits, and beautify the Oregon landscape for all of us.
- The vistas we have in Oregon, the beauty that is Oregon, owes in no small measure to the agricultural community that protects the land and feeds our people.
- Agricultural lands present the resources for renewable energy that can make Oregon as a whole more sustainable.
I’ll conclude by referring back to the ladybug episode and the observation of the three-year old daughter of my assistant director. Change is happening, but how we view or perceive that change and decide to respond – whether as an opportunity or as a threat – can shape our industry, and indeed, our state’s economic well-being.
My hope is that all of Oregon’s citizen can fully recognizes the value, importance, and stability that agriculture adds to this region and the state as a whole, because, after all --
It’s about agriculture!
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