What's for Dinner? Imports.

January 31, 2005, Janet Adamy for the Wall Street Journal via CropChoice.com: American agriculture is suddenly going through a lot of changes.

After decades as the world's biggest farm exporter, the U.S. farm sector is facing new challenges. Overseas farming giants are emerging to eat into America's business of supplying the world with crops such as wheat and soybeans.

See the complete Trend report at http://online.wsj.com/page/0,,2_1129,00.html

And at home, American consumers are demanding that farmers change the way they grow and sell their produce and livestock. Consumers want pesticide-free produce, giving rise to new ways of cultivating and processing food. They also are seeking new eating experiences. Their appetite for Chilean sea bass, vanilla-flavored lattes made with Italian syrups, and grapes in winter is erasing the U.S. farm sector's unique ability to generate a trade surplus.

U.S. farmers are seeking new streams of income from their land, such as developing wind power, and, most important, many are learning how to be marketers for the first time.

Here are some major trends down on the farm.

1. The Shifting Global Balance

Thanks to cheap land and labor, Russia, Brazil, Argentina, China and other countries are emerging as powerful agricultural producers. The burgeoning titans are building new roads and bridges that benefit their farming infrastructure, and overseas farmers now have access to U.S. equipment and sophisticated biotechnology that deters weeds and bugs.

Russia, for instance, used to depend heavily on the U.S. for wheat, but is becoming a rival wheat exporter. It's expected to ship almost 6% of the world's total wheat exports this year, according to the U.S. Department of Agriculture.

The USDA predicts that there will be no trade surplus in agriculture by the end of 2005. Just four years ago, the U.S. farm sector was generating an annual surplus of $13.7 billion.

But U.S. farmers are working to stay competitive. "What we're seeing among our best producers is embracing technology to reduce their costs of production to become more efficient," says Keith Collins, chief economist at the USDA. U.S. farmers continue to have an edge in things like irrigation and risk-management tools such as futures contracts and federally subsidized crop insurance.

2. Tasty Imports

U.S. consumers have increased their appetite for foreign food, and retailers are capitalizing on the trend. Imported food was once hard to find, but now retail chains like Cost Plus Inc. of Oakland, Calif., are popping up in suburban strip malls, selling treats like Swedish gingersnaps and Australian wine. The rise of new farm powers also is shifting the balance.

Trade pacts, including the North American Free Trade Agreement, make it easier for the U.S. to bring in food from other countries. Meantime, European countries have blocked U.S. exports of some genetically modified foods, and several other countries banned U.S. beef after the first U.S. case of bovine spongiform encephalopathy, or mad-cow disease, was discovered in December 2003.

Other countries also can produce raw ingredients at a lower cost, prompting food companies to go overseas for supplies.

3. A Modified Success

After sweeping across the American Farm Belt, genetically modified crops are making inroads overseas -- despite resistance in some nations where critics contend they could pose unknown risks to the food supply. Modified crops can tolerate weed-killing chemicals and resist damaging pests, saving farmers money in labor and lost crops.

Eighteen countries now grow biotech crops, with Argentina, China, Canada and Brazil leading biotech growth outside the U.S. An additional 45 are researching and developing their use, according to a study by C. Ford Runge, director of the University of Minnesota's Center for International Food and Agricultural Policy.

Monsanto Co., of St. Louis, is pushing into India with biotech corn and cotton, and into Brazil with biotech corn, cotton and soybeans.

And, while Europe imposed a de facto moratorium on the production and import of gene-spliced foods, it's starting to ease some restrictions.

4. Organic Growth

As demand for organic food grows, so does the number of organic farmers. Sales of organic food are growing about 18% a year, with meat and fish experiencing the fastest growth, according to figures from the Organic Trade Association. The amount of U.S. certified organic cropland for corn, soybeans, and other major crops doubled from 1997 to 2001, according to the USDA.

Instead of just growing organic strawberries and apples, farmers are expanding into agricultural staples like organic corn, wheat and soybeans as food marketers offer more organic products.

For farmers, the lure of going organic is a chemical-free work environment and higher organic-crop prices. Organic produce sells at about a 30% premium to traditional produce. However, much of that premium gets eaten up by the higher cost of growing chemical-free crops. Converting pesticide-tainted land into organic soil can cost as much as $10,000 per acre.

Although the number of organic farmers continues to climb, there are signs the growth may be leveling off. The number of organic farms rose by about 12% each year from 2000 to 2003 in California, the state with the most organic farmers. But last year, it grew only 6% to 7%, for a total of about 3,000 organic farms in the Golden State.

5. Longer Life

Commodity processors are increasingly using sophisticated equipment to improve the shelf life and taste of foods.

Chiquita Brands International Inc., of Cincinnati, last fall invested $3.5 million in a company that makes packaging designed to keep bananas fresher. Landec Corp., based in Menlo Park, Calif., has developed a membrane that regulates the flow of gases through the packaging. When shipped and stored in the packaging, the shelf life of a banana about doubles, making its quality more consistent.

6. The Safety Challenge

The industrialization and globalization of farming is making food safety more challenging. Food travels farther, spends more time in transit and is touched by more hands, increasing the opportunity for problems as well as the potential scope of any outbreak.

With the U.S. getting more food from overseas, detecting an outbreak and finding its source becomes more complicated and costly. The USDA estimates that five common food-borne illnesses cost the economy $6.9 billion annually in medical expenses, lost productivity and deaths.

Food-safety advocates also worry that new farming practices are having unintended consequences. Livestock are increasingly raised in confinement, a technique that allows producers to control their environment and diet in order to speed growth. But raising a large number of animals this way can make it easier for diseases to spread. Many producers resort to antibiotics so often that medical experts are growing concerned. The problem is that the practice can increase the opportunity for bacteria to develop resistance to antibiotics used in human medicine.

New technology is helping processors screen for bacteria. Minneapolis commodity-processing giant Cargill Inc. is installing a system of blue lights in its meat plants that can detect traces of chlorophyll on beef carcasses -- a sign that stray animal guts may have spread E. coli onto the beef. Previously, this job was largely handled by inspectors relying on keen eyes to spot problems with the meat.

7. Keepings Tabs on Trees

In a key food-safety advancement, the government and technology companies are laying the groundwork for a nationwide livestock-tracking system that would help prevent the spread of diseased meat.

By tracking animals from birth to the supermarket, regulators would be better able to find those that are potentially exposed to diseases and keep them out of the food supply.

The USDA has said it will put $51.8 million toward an identification system. Many technology companies are vying to supply the gear, and some farmers are already adapting it. Digital Angel Corp., of South St. Paul, Minn., makes a livestock ear tag that contains a data-rich microchip. The company sold more than one million units last year, five times as many as in 2003.

Some farmers fear such a system would bring to their doorstep liability for a food-safety problem. Cattlemen "tend to be very independent, and they are always concerned about Big Brother inserting itself into their business," says Kevin McGrath, president and chief executive of Digital Angel.

8. The Answer in the Wind

Seeking new streams of revenue, farmers are leasing land to energy companies that erect towering turbines with wind-spun blades to produce energy.

Such projects are a small but important source of income for farmers, particularly in poor rural counties. One turbine can generate as much as $5,000 in lease payments a year, according to a report by the U.S. Government Accountability Office.

The Department of Energy is aiming to make wind power the source of 5% of the nation's electricity by 2020, up from less than 1% in 2004. The department estimates the shift will provide $1.2 billion in new income for farmers and rural landowners and create 80,000 new jobs.

One challenge will be to match wind supply with demand. States that are best suited to produce wind power, including North Dakota and South Dakota, have seen little investment because they lack big cities to use the power and the transmission capacity to deliver it to small, remote towns, according to the GAO. State tax incentives have speeded projects in California, Texas and Minnesota, and federal funding that stretches through 2007 likely will spur more investment.

9. Aging Farmers

Young people continue to eschew farming, changing the demographics of the typical American farm household. The average age of principal farmers has risen steadily since 1978; in 2002 it was 55, up five years from 1978.

Experts say that thin profits in most years and steep upfront costs are keeping many young people from starting their own farms or even taking over the family farm. A poll conducted by Iowa State University last March found that 57% of Iowa farmers would not encourage young people to become farmers.

The state is working to change that. An Iowa State University program pairs aspiring farmers with ones who want to retire yet don't have heirs to take over their farms. Prospective farmers work as apprentices and get advice on securing loans to help them buy land. Since 1992, the program has matched about 90 farmers.

10. Fewer Farms

The continuing decline in the number of U.S. farms is reshaping the Farm Belt. The number of American farms peaked in 1935 at 6.8 million. As of 2003, there were 2.1 million farms nationwide, largely because of widespread farm consolidation. Improvements in farming equipment have reduced the amount of labor needed on farms and made it easier for farmers to handle large plots of land.

The declining farm numbers have been chipping away at the population of rural areas. That has broad implications for small-town America. Once-thriving downtowns are struggling in part because they have fewer farmers to patronize their stores.

The trend also is reshaping the political landscape for the agricultural industry. While the Farm Belt still has substantial clout in Washington, state farm legislation is increasingly being drafted by people who lack ties to agriculture, says Paul Lasley, chairman of the sociology department at Iowa State University.

Ms. Adamy is a staff reporter in The Wall Street Journal's Chicago bureau.


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